Citing technical snafus and cost overruns, the Air Force on Friday canceled its contracts with TRW Inc. and Boeing Co. to design a new early-warning system to track ballistic missiles, dealing a blow to the two companies' Southern California operations.
Not only will the two defense firms lose their initial contracts for building satellite prototypes for $830 million, but they also have at risk additional contracts to build the actual 24-satellite network that would cost billions of dollars.
The cancellations follow a long and troubled effort by the Air Force to replace its existing fleet of satellites, which have continuously monitored the globe for missile launches since the peak of the Cold War.
"Obviously we're disappointed," said Sally Koris, a spokeswoman for TRW's space and defense group in Redondo Beach.
Under the contracts, TRW and Boeing's satellite and control systems unit in Seal Beach had been designing test satellites and related equipment for a low-Earth-orbit "space-based infrared system," known as SBIRS-low. The system is meant to provide the U.S. with early warning of enemy ballistic missile launches.
TRW was working on the demonstration project with Raytheon Co., and Boeing's subcontractors included Lockheed Martin Corp. Together, the projects employed about 1,000 workers, with roughly 600 in Southern California.
Boeing also was "disappointed," said spokeswoman Kathleen Schroeder, noting that "years of effort have gone into developing the program. Until meetings next week, we don't know what the impact will be on employment."
A source close to TRW's effort said the firm and its subcontractors ran into trouble developing both software and the infrared sensors for its two satellites. Both the Boeing and TRW programs were plagued with overruns, sources said.
The two companies are still in competition for a contract to outline the full SBIRS-low satellite program, sources said.
A companion program, known as SBIRS-high because it involves using satellites in higher, geosynchronous orbit, remains in force. The first phase of that program is being led by Lockheed Martin under a $1.8-billion contract awarded in 1996.
For TRW, the loss of the SBIRS-low test project is an especially bitter pill to swallow, because TRW--the prime contractor for the nation's current fleet of missile-defense satellites under the Defense Support Program--also lost out to the Lockheed Martin group to develop the SBIRS-high program.
But Air Force officials said the cost of the two SBIRS-low contacts had risen sharply since they were awarded several years ago, and new estimates show an additional $79 million in cost overruns over the next four years.
"The Air Force took this action in order to strengthen its commitment to the program, ensure the contract effort does not diverge from the desired track and to better use the available funding," the service said in a statement.
"The decision was driven by the realization of excessive risks . . . and technical challenges experienced to date," the Air Force said.
However, the Air Force also said it wouldn't abandon the program altogether and would award contracts for further "definition" studies of such a system.
"We support" the Air Force's decision and "intend to compete aggressively to win one" of the new study contracts, said TRW's Koris.
The trade publication Defense Week reported Nov. 9 that TRW's basic $661-million contract to build two satellites had grown by about $200 million, or 30%, since it was awarded in 1995. Similarly, Boeing's basic contract to build one satellite has jumped to about $256 million from $168 million, or about 50%, the journal said.
Robert Paulson, chief executive of aerospace investment firm Aerostar Capital, said the Air Force's decision was "not surprising. [SBIRS-low] has been in trouble for several years. The tests had not been going well."
But Paulson said the program would continue.
"This program isn't going away," he said. "It's going to somebody else."
Bloomberg News was used in compiling this report.