BALTIMORE – The Army is expected to cancel a Lockheed Martin Corp. (LMT) contract to build a new spy plane, according to industry and Pentagon officials, despite efforts by the defense contractor to solve problems that include lightening the plane's weight.
The Army was scheduled to announce Thursday afternoon its decision to end funding for the Aerial Common Sensor, according to an industry insider with knowledge of the contract and a senior Pentagon official, both of whom asked not to be identified by name because the formal announcement had not been made.
Lockheed has an $879 million contract to develop the plane, but the program could have eventually been worth $8 billion if it reached full-rate production.
The possibility that the program would be cancelled was reported in Thursday's editions of The Wall Street Journal.
Loren Thompson, a defense analyst with the Lexington Institute, said the Pentagon's 2007 fiscal year budget request was changed to delete $1.9 billion from the spy plane program, a sign it was in trouble.
"Most people see that as a pretty powerful tipoff for what will happen with ACS," he said.
The contract, awarded to Lockheed in August 2004 over a bid from Northrop Grumman Corp., was meant to create a plane for the Army and Navy. But Thompson said both branches had different wishes for its capabilities, making it hard to keep the program in line with its original intent.
Lockheed struggled to keep the plane's weight down while trying to meet the requirements of both branches. The company originally proposed using a plane built by the Brazilian company Empresa Brasileira de Aeronautica SA, but later proposed switching to a larger Empresa jet or one made by Canadian company Bombardier Inc.
However, the Army issued a 90-day stop work order in September while it reviewed the program. That order was later extended another 30 days.
Thompson said the different missions envisioned by the Army and Navy were partly to blame for the plane's troubles. The Navy, for example, wanted to use it to intercept Chinese communications while flying off that country's coast. The Army sought a plane that could perform specific missions such as locating a radio transmission on a battlefield.
"The government should never have tried to develop one system to meet the very different needs of the Army and Navy," he said. "It would have produced a flying albatross."
The Pentagon official said the Army will continue to use other unmanned aircraft and radar planes to conduct surveillance. However, the decision does not preclude the Army from developing future high tech spy planes, the official said.
Lockheed shares rose 12 cents to $66.38 in afternoon trading on the New York Stock Exchange. It has traded in range of $54.24 to $66.35 over the past 52 weeks.