Cutting Air Force transport could cost Pentagon $500M

As the Pentagon strikes an ax through several defense programs, Air Force officials are making it clear to Congress that killing the C-130J Hercules program would cost more than initially expected. The service’s top brass have said during recent congressional hearings that fees and other associated costs for canceling the Lockheed Martin airlifter could top $500 million — a hefty price to pay in an increasingly strained budget environment.

As the Pentagon strikes an ax through several defense programs, Air Force officials are making it clear to Congress that killing the C-130J Hercules program would cost more than initially expected.

The service’s top brass have said during recent congressional hearings that fees and other associated costs for canceling the Lockheed Martin airlifter could top $500 million — a hefty price to pay in an increasingly strained budget environment.

A termination liability clause built into the Air Force’s contract with Lockheed limits the fees of canceling the program to $440 million, said company spokesman Tom Jurkowsky. That includes the cost of closing down the production line, paying severance to employees and any related overhead.

The $440 million does not, however, include increases to purchase costs for the remaining KC-130Js that the Pentagon still plans to buy for the Marine Corps, said a senior Air Force official. And defense sources said that killing the C-130J could have a ripple effect on other programs, particularly Lockheed Martin’s F/A-22 fighter jet, which is built out of the same Marietta, Ga., plant.

“In purely economic terms, if the C-130J went away from that particular plant, [there would be] a resulting rise in basic infrastructure and costs,” said Bill Bodie, a former Air Force official and the vice president for defense programs at DFI International, a Washington consulting firm. “Utilizing the facility to 100 percent efficiency for several programs at once … makes it cheaper than if you have one program in the same facility but still have to keep the whole thing open.”

Initially, the Air Force planned to buy 168 C-130J planes to replace decades-old airframes the service currently flies.

Those plans were scrapped in December when Pentagon officials decided to cut the buy to 53 aircraft as part of a larger plan to slash $30 billion from the defense budget over the next five years. Other targets include cuts to the F/A-22 and shipbuilding programs.

Canceling the C-130J program would save $5 billion through 2011 but leaves the Air Force with a fleet of midsize cargo planes that date back more than 40 years. The C-130 can lift roughly 20 tons, or the weight of the Army’s eight-wheeled Stryker vehicle.

“I’m not sure at the time that we did these calculations, at the end of December, that we were fully informed about the costs of canceling this program,” Gen. John Jumper, Air Force chief of staff, told the Senate Armed Services Committee earlier this month. “But of course, in the cancellation cost, that’s what you pay to terminate the contract, to pay out the contract, and in return you don’t get anything.”

The cost of cancellation — and the need for new airlifters — could be enough for Pentagon leaders to decide to purchase the aircraft. After being pressed on the issue during a House Armed Services Committee hearing Feb. 16, Defense Secretary Donald Rumsfeld said the decision to terminate the C-130J is under review.

While Jumper said he has an “abiding interest” in the C-130J program, he stopped short of publicly advocating to save the program. That tactic ended the Army civilian career for Secretary Thomas White in 2002, after he went toe to toe with Rumsfeld over the cancellation of the Crusader self-propelled howitzer program. White later was forced to resign, and the Pentagon went forward with cutting Crusader, deemed a Cold War relic.

But termination fees always draw congressional attention to program cancellation. For instance, several members were concerned last year that the cost of canceling the RAH-66 Comanche helicopter program would hit several billion dollars.

The Army still is settling termination costs with Boeing and Sikorsky, the two prime contractors, and several hundred subcontractors. They have until next month to resolve the exact termination fees, but the service estimates they will pay the contractors around $1 billion, or approximately the 2005 budget originally planned for Comanche, said Bob Hunt, a spokesman for the Army’s Aviation and Missile Command.

Similarly, the Air Force and Lockheed Martin would have a year to negotiate exact termination costs, the Air Force official said. The program involves 750 companies and 25,000 jobs.

In the meantime, the Pentagon is in the middle of a mobility capability study due out in March that will determine how much — and what type — of intratheater lift the military needs for the future.