Textron had expected to keep Army program

Textron company officials had expected to retain the troubled multi-billion contract for the Army’s Armed Reconnaissance Helicopter (ARH) despite delays and high costs in the program, according to quarterly earning statements reviewed by The Hill.

The Pentagon and the Army announced late Thursday that it will terminate the contract with Bell Helicopter, a unit of Textron, for the ARH. Bell had been struggling to contain skyrocketing costs for the chopper as well as growing delays.

{mosads}Earlier the same day, Textron held its third quarterly earnings conference call, but company officials did not indicate any expectation that the $9 billion contract could get cancelled.

The Pentagon chief weapons buyer, John Young, decided to cancel the program after the escalating costs triggered a congressionally mandated review. That review can lead to a program’s termination unless the Pentagon certifies that it is of utmost national security importance and that cost estimates for pursuing the program are reasonable.

When Textron announced its second quarter earnings earlier this year, Lewis Campbell, Textron<>’s highest executive, was optimistic about the review.

Campbell acknowledged during that call that the program could be canceled but dismissed the possibility because the Army had re-confirmed its choice of the Bell helicopter after examining alternatives last year. That review followed earlier troubles with the Bell-produced ARH. He had expected the final, congressionally-mandated review to lead to the same result.

"We believe we have the best solution from a cost, performance and schedule point of view," Campbell said.

After the Pentagon announced it would scrap the contract, the company said it was <>"extremely disappointed<">" and insisted that its helicopter was still the best option for the Army.

Disclosure records show that Textron has lobbied Congress heavily on its defense programs, including the ARH. Textron spent more than $3.3 million this year on lobbying by its in-house lobby shop and by several high-level lobbying firms in Washington, such as the PMA Group, Robinson International and the Podesta Group.

Textron has a plethora of defense programs, but the ARH has received the most congressional scrutiny, criticism and budget cuts in the last couple of years.

It will take the Army at least a year to re-open the industry competition for the program, and it could take another year to select a new contractor, according to Army sources. That means the winner would only be able to start work on the contract in 2010 at the earliest.

Army officials have not indicated how long it will take until the new helicopters are ready to replace the battle-tested and worn-out OH-58 D Kiowa Warriors.

The Army is planning to spend at least $800 million to make the decades-old Kiowa Warrior fleet safer and more reliable so it can operate until 2020. The Kiowas are the most used helicopters in Iraq and Afghanistan. Bell also builds the Kiowa.

In a filing with the Securities and Exchange Commission, Textron estimated on Thursday that it had incurred nearly $100 million in inventory and vendor obligations for ARH. Textron said its reserves for ARH cover only half that amount.

Several other companies that were working under contract with Bell will be affected by the cancellation of the contract for 512 helicopters. They include: Lockheed Martin, Honeywell, Rockwell Collins, FLIR Systems, L-3 Communications, FlightSafety International and CSC.