The U.S. Army said Thursday it is canceling Lockheed Martin Corp.’s $879 million contract to build a new spy plane after the company hit problems with costs and aircraft size.
The Army, however, said it was not terminating the spy- plane program, called Aerial Common Sensor.
Lockheed’s surveillance and reconnaissance systems division in Jefferson County had been leading the work on the contract, which could have led to billions more in additional work.
Army officials will go “back to the drawing board to make sure we all have a firm understanding of what the requirements are and the various challenges we need to overcome to make this program succeed,” said Claude Bolton, assistant secretary of the Army for acquisition logistics and technology.
About 250 Lockheed employees in Jefferson County had been working on the spy plane, and hundreds more jobs could have been added over the course of the project.
The cancellation will likely lead to layoffs, but a company spokeswoman has said the majority of those employees will transfer to other projects.
“We’re deeply disappointed,” said Preston Gibson, president of the Jefferson Economic Council. “This is a bump in the road for Lockheed Martin and a bump in the road for our economy.”
Bethesda, Md.-based Lockheed is Jefferson County’s largest private employer.
The Army awarded Lockheed the initial contract in August 2004 to develop and build five spy planes by 2010. The Army had planned to order up to 33 additional planes, and the Navy was to purchase up to 19 planes. In total, the contract had a potential value of $6 billion to $8 billion over 20 years.
But in September, the Army ordered the company to stop working on the project after it determined that the aircraft Lockheed planned to use was too small to carry the required equipment.
Lockheed said Thursday it discovered the problem early in development and in November presented the Army with four options, which included using a different aircraft.
The Army decided it had to cancel the contract because the aircraft was an integral part of the overall program and a key factor in awarding the initial contract to Lockheed.
Northrop Grumman, Lockheed’s primary competitor on the initial contract, had threatened to protest had the Army allowed Lockheed to continue with the contract while using a different craft.
“Despite this disappointing outcome, Lockheed Martin maintains a strong partnership and a track record of success with the Army,” said Judy Gan, a Lockheed spokeswoman.
Staff writer Andy Vuong can be reached at 303-820-1209 or avuong@denverpost.com.
