(Adds comment from Northrop CEO)
By Andrea Shalal
WASHINGTON, April 17 An unmanned U.S. Navy
helicopter built by Northrop Grumman Corp and a
precision ship-landing system built by Raytheon Co face
mandatory reviews that could lead to their cancellation after
quantity reductions drove unit costs sharply higher in 2013, the
Pentagon announced on Thursday.
Senior defense officials said the cost increases were
largely due to cuts in the numbers of items to be purchased, but
federal law required a careful look at program performance and
The Nunn-McCurdy law requires a mandatory, 60-day
live-or-die review if weapons systems see an increase of more
than 25 percent in their unit costs. In order for programs to
survive, top defense officials must certify that the program is
needed for national security and meets other conditions.
In this case, senior defense officials suggested that both
programs would likely survive since the cost spikes were due to
reduced orders, but they said final decisions would not be made
until the reviews were completed on June 17.
The Defense Department's annual "selected acquisition
report" on the cost of major weapons showed a slight 0.3
percent, or $4.4 billion, drop in the combined cost of 77
programs for a total cost of $1.62 trillion.
The reduction was largely due to reduced quantities, changes
in inflation rates, and reduced needs for support equipment,
although they were partially offset by schedule delays and cost
increases in other programs, including Lockheed Martin Corp's
F-35 fighter jet, the report showed.
Senior defense officials said budget-driven reductions in
arms programs had less effect on the program costs in 2013 than
expected, although unit costs were likely to edge higher in
coming years as mandatory spending reductions took effect.
"I just don't think we're out of the woods yet," said one
official who was not authorized to speak publicly. "There will
be effects on programs as budgets hold or come down further."
The Navy is buying 49 fewer Northrop Fire Scout helicopters
after switching to a larger aircraft built by Bell Helicopter, a
unit of Textron Inc, that can carry more than twice the
fuel or cargo and can stay in the air for 12 hours. That
compares to nearly five hours for the previous aircraft, which
is no longer being produced.
Northrop Chief Executive Wes Bush said the program was going
very well and the unit cost increase was due to the reduction in
quantity. He said the Navy remained committed to the program and
he expected it to survive the review now under way.
The cut in quantities of Raytheon's Joint Precision Approach
and Landing System (JPALS) came after the Army and Air Force
decided to pull out of the joint program, which resulted in the
need for 10 fewer shore-based training systems, the report said.
The cost increase in the JPALS program also was partly due
to an extension in the development program aimed at increasing
the capability of the system, and higher material costs.
Two other programs showed cost increases of more than 15
percent, requiring notification to Congress, but not triggering
the more arduous cancellation reviews, the report showed.
Boeing Co's upgrade of the U.S. E-3 Airborne Warning
and Control System (AWACS) saw a 19 percent jump in average unit
procurement costs, mainly due to a reduction of seven airplanes,
but also due to schedule changes, the report said.
The cost of General Dynamics Corp's Joint Tactical
Radio System (JTRS) to build handheld and other smaller radios,
rose 19 percent due to a revised acquisition strategy, it said.
Lockheed's F-35 fighter jet saw a $7.4 billion increase in
acquisition costs to $398.6 billion, largely due to postponed
orders from the U.S. military and international partners. The
report showed a decrease of nearly 9 percent, or $97 billion, in
the estimated cost of operating the F-35 aircraft through 2065.
The Pentagon report estimated the total "lifecycle" cost of
the U.S. F-35 fleet at $1.02 trillion, down from $1.11 trillion
a year earlier, but the F-35 program office said improving
reliability and other adjustments meant the number would be
closer to $917 billion.
Other changes included a $2.2 billion, or 4.2 percent, drop
in the cost of Boeing's KC-46A refueling plane, and a 9.5
percent rise in Boeing's program to remanufacture AH-64 Apache
helicopters, due to higher labor and material costs.
The projected cost of the Navy's Littoral Combat Ship
program dropped over 33 percent, or $11.3 billion, due to the
Pentagon's decision to halt orders after 32 ships instead of
buying all 52 that had been planned.
(Reporting by Andrea Shalal; Editing by Eric Beech and Bill