Death of the A-12

By Ed Magnuson

With the U.S. poised on the brink of war, it seemed an odd moment to shake up the nation's military-industrial complex. But that did not deter Defense Secretary Dick Cheney last week from canceling the Navy's A-12 Avenger attack bomber and sending military contractors the clearest signal yet that the Reagan-era good times are over. The old buddy-buddy relationship between the Pentagon and arms makers who blithely exceed contract costs and expect taxpayers to pick up the tab has ended.

As the tough-minded Cheney shot down a program that had been expected to produce 620 of the high-tech stealth aircraft at a cost of $57 billion, he implicitly emphasized another military reality of the 1990s: the U.S. simply cannot afford many of the multibillion-dollar weapons systems that were started during Reagan's $2 trillion defense buildup and now continue to escalate in price.

The attempt by the Soviet Union to compete in this arms race contributed heavily to its economic collapse and may have hastened the end of the cold war. But if the military spending splurge is not sharply curtailed, it could endanger the U.S. economy as well. "We have an unusually large number of new programs that are hitting a decision on full-scale procurement," explains Gordon Adams, a private defense specialist. "This fiscal bow wave is hitting just as the money is running out."

Cheney's abrupt action showed too that the shriveling of the defense budget is little affected by such immediate emergencies as a potential war in the Persian Gulf. For contractors, the long- and short-term trends are contradictory. As the developers of new weapons systems face increasingly tough times, suppliers who meet the needs of Desert Shield with such items as boots, camouflage netting and gas masks are enjoying an unexpected -- but presumably brief -- bonanza.

Cheney reached his dramatic decision to scrap the A-12 after a tense six- hour debate in his Pentagon office. Navy Secretary Lawrence Garrett and his top acquisition officials tried to persuade the Defense Secretary and Joint Chiefs Chairman Colin Powell that the Avenger should be saved even though the program was running $2.7 billion over its fixed-price contract cost of $4.8 billion for development alone. It was also 18 months behind schedule.

The Navy suggested the usual fix. It would buy fewer planes than planned and stretch out the delivery dates. Cheney could ask Congress to provide $1.4 billion in extra costs; the two manufacturers, McDonnell Douglas and General Dynamics, would then be covered and content. Development of the advanced plane could proceed. That was the way contractors and their military supervisors had long done business.

But Cheney was not buying. If he did go to Congress and managed to scrape up - the $1.4 billion, he kept asking, would the contractors then develop the eight prototypes and meet all the contract terms? Or would they run over budget again? "The bottom line was that no one could tell Cheney how much money it would take to finish the development program," explained a defense official. "They couldn't say that $1.4 billion would be enough. And he wasn't going to write any blank checks."

Cheney decided he would not beg Congress for the money now, only to return later and plead for more. He ordered the Navy not to try an end run by seeking out friends on Capitol Hill to find the funds. Then he courageously killed the program. Said Cheney: "If we cannot spend the taxpayers' money wisely, we will not spend it."

The action was especially gutsy since there are no firm plans for an alternative to the Avenger. It was meant to replace the fabled but aging A-6 Intruder, first deployed in 1963, as the Navy's basic carrier-based attack bomber. The stress of jarring carrier landings for such a long time has so weakened at least one-third of the Intruders that their pilots have been ordered to restrict certain maneuvers lest the planes fall apart.

The Avenger was designed to carry a bomb load much farther than the Intruder, which can tote 10,000 lbs. over 650 miles. The new aircraft had been seen as ideal for delivering bombs deep into the Soviet Union after leaving its carrier. Its profile on radar screens was less than 20% that of the Intruder.

With the warming of U.S.-Soviet relations, Navy critics contend, the Avenger had lost the urgency of its main mission. Yet its demise was prompted mainly by a series of scandalous failures that were typical of the way the military acquires most of its big-ticket weapons systems. When the A-12 contract was let in 1988, the McDonnell Douglas-General Dynamics team bid $1 billion less than its competitor, a Grumman-Northrop consortium. Since the bid was unrealistically low, the Avenger contractors quickly ran into excessive costs and slipped behind schedule.

If that was to be expected, the subsequent behavior of McDonnell Douglas and General Dynamics, both based in St. Louis, was not. According to reports last year by the Navy and the Pentagon's inspector general, the two contractors hid these problems from the Navy officers supervising the work. The manufacturing executives falsified some of their reports, according to the Navy, because they were under intense pressure from their corporate bosses to "maximize cash flow."

The Navy failed to detect the continuing deception because of a persistent Pentagon problem with its advanced projects: so much of the work was highly classified that there were not enough competent auditors with clearance to examine the bills.

When top Navy and Pentagon officials belatedly learned of the Avenger mess, they downplayed it and ignored the implications. That led Cheney last April to assure Congress that the program was on track in both time and cost. After he learned that this was untrue, two high Navy officers were removed from supervising the contract and censured; in addition, an admiral was fired, and the Pentagon's top procurement officer resigned. The Justice Department has begun a criminal investigation of whether the contractors overcharged the Navy. And the Pentagon said it will try to recover the funds already spent in excess of the contract terms.

Spokesmen for the two contractors insisted that they had not defaulted on the contract and said they would seek payment of all their claims against the government. They attributed the problems to a recent Pentagon practice that they consider unrealistic: insisting that a fixed price be determined in advance for projects that are, as a General Dynamics spokesman said, "on the cutting edge of technology."

Both companies began carrying out previously announced contingency plans to lay off large numbers of workers. McDonnell Aircraft Co. started to hand out pink slips to some 5,000 workers, mostly in St. Louis, while General Dynamics targeted 4,000 employees for dismissal in Fort Worth and Tulsa.

But if there was gloom over the crash of the Avenger, McDonnell Douglas and General Dynamics have other military projects going to keep them in business. The two companies expect to benefit marginally by selling arms to Saudi Arabia as part of a $7.1 billion package approved by the Administration last fall in a Desert Shield trade-off. McDonnell Douglas will sell 12 Apache helicopters to the Saudis for $144 million, and General Dynamics will provide 150 M-1A2 tanks costing $480 million.

Cheney's crackdown on the A-12 was actually in line with the get-tough policy he has been pursuing for months. He had previously approved the killing of the Marine Corps's V-22 Osprey vertical-takeoff plane, the Navy's Lockheed P-7 antisubmarine patrol aircraft, the Army's FOG-M (fiber-optic guided missile) and an Air Force plan to place the MX missile on rails. Said a Pentagon official of the new procurement mood: "Programs that are bleeding cannot survive."

CHART: NOT AVAILABLE

CREDIT: TIME Chart by Joe Lertola

CAPTION: CRASH LANDING

With reporting by Staci Kramer/St. Louis and Jay Peterzell/Washington