WASHINGTON (Reuters) – The Defense Department is scrapping the multibillion-dollar RAH-66 Comanche helicopter program being developed by Boeing Co. (BA.N: Quote, Profile, Research) and United Technologies Corp. (UTX.N: Quote, Profile, Research) , government sources said on Monday.
Pentagon officials plan to announce the decision at a news conference at 4:30 p.m. EST, the sources said.
The project cancellation is part of the Pentagon’s drive to transform the U.S. military into a force better able to face modern threats, they said. The Comanche program was under intense scrutiny because of its hefty price tag.
The U.S. Army launched the Comanche armed scout helicopter project in 1983; low-rate initial production of the craft was slated to begin in 2006.
The current estimated cost of the program was $38 billion, according to John Pike, director at GlobalSecurity.org, a defense policy research group.
U.S. lawmakers are expected to oppose ending the program. President Bush’s fiscal 2005 budget included $1.2 billion for the Comanche.
Scrapping the program could result in termination fees of $2 billion to $4 billion being paid to Boeing and Sikorsky Aircraft, the United Technologies unit working on the Comanche, the sources said.
Matt Broder, a spokesman for Sikorsky, asked to comment, said, “Our company’s policy is not to respond to rumors. As far as we are concerned, the program is fully funded and on schedule.”
Boeing officials said the Chicago-based company had not been informed of any program cancellation. “The Comanche program is on track and schedule. We have not been notified about any change in the program status,” said Boeing spokesman John Morrocco.
Shares of both companies were sharply lower at midday.
PROGRAM HAS BEEN CONTROVERSIAL
Eric Miller at Project for Government Oversight, a government watchdog group, said ending the program was a good idea.
“It’s just been such a disaster, the whole program,” he said. It has been restructured at least five times since its inception, he said.
“The technology was so advanced that (Boeing and Sikorsky) couldn’t meet the requirements,” he said.
Richard Aboulafia, an aerospace analyst at the Virginia-based Teal Group, said cancellation of the program would be bad news for Connecticut-based Sikorsky.
“For Sikorsky, it’s a big blow,” he said. “It could hurt their anticipated future revenue stream and puts them in a weakened negotiating position if there’s ever any kind of industry restructuring.”
He said Boeing, on the other hand, could benefit because the company builds the Army’s Apache helicopter.
“Boeing has a great fall-back position because if the Army doesn’t get Comanches, they’ll fully fund Apaches,” he said.
Boeing had a 100 percent stake in Apache, compared to just 50 percent of the Comanche program.
Boeing shares were down $1.14 at $43.2O in midday trade on the New York Stock Exchange, while United Technologies shares were off $3.67 at $92.95.