Alenia weighs options as U.S. scraps contract for Afghan planes

WASHINGTON Thu Jan 3, 2013 7:13pm EST

WASHINGTON Jan 3 (Reuters) - Alenia Aermacchi, a unit of Italy's Finmeccanica SpA, said it is evaluating its options after the U.S. Air Force notified it late last month that it planned to halt a contract with the company to supply 20 G222 cargo planes to Afghanistan.

The U.S. decision to halt the program, that has already cost $590 million, is the latest setback for the Pentagon's efforts to equip the Afghan military as U.S.-led forces prepare to withdraw from the country after more than a decade of war.

Alenia plans to meet with the parties to discuss the status of the program and the investment and progress made to date, a company spokesman said on Thursday, describing the twin-engine G222, an earlier model of Alenia's C-27J cargo plane, as "one of the safest, most durable cargo aircraft in history."

Alenia defended its work on the program, saying it had completed work on all 20 refurbished planes ordered by the Air Force under the contract, with 16 delivered to Afghanistan and four others waiting for transport in Italy.

Ed Gulick, a spokesman for the U.S. Air Force, said the service decided not to renew the contract when it expires in March 2013 after years of problems with Alenia's work on the contract. He said discussions were still under way about what to do with the planes that had already been delivered.

He said the program had been plagued with problems, and Alenia had struggled to maintain a sufficient number of planes that were ready for use. "The program just never got to the point where it was doing well," Gulick said.

A source familiar with the program acknowledged the program's rocky start, but said Alenia had been meeting its targets for delivering mission-ready planes for some time. The company also invested over $25 million of its own funds to keep the program on track while officials finalized a supplemental contract for spare parts last year, the source said.

An additional problem was that the hastily drawn up initial contract included too little funding for spare parts, which exacerbated maintenance problems that left the fleet grounded for several months in 2012, the source said.

The Air Force has spent $590 million on the contract already, with just $60 million more slated over the final option period, which would have run through March 2014, said the source, who was not authorized to speak publicly.

The cost of halting the program could well exceed the amount that was still to be spent over the coming year on parts and supplies, and training for pilots to fly the small cargo planes.

The Stars and Stripes newspaper quoted a spokesman for the Afghan defense ministry as saying that Washington now planned to deliver 4 C-130 Lockheed Martin transport planes to Afghanistan instead of the G222s.

Gulick could not confirm the report about the C-130s.

The Air Force's move on the G222 program, reported by the Wall Street Journal last week, follows an embarrassing setback on a separate Air Force effort to provide light support planes to Afghanistan.

The Air Force was forced to redo that competition after discovering problems with its documentation of a $355 million contract awarded in December 2011 to privately held Sierra Nevada Corp and Brazil's Embraer.

The Air Force abruptly canceled the deal in February last year and launched a fresh competition after it discovered paperwork errors while preparing for a protest filed by the losing bidder, Hawker Beechcraft. A new contract is expected this month.

The delay means that the first light support planes will not be delivered to Afghanistan before most foreign combat troops leave the country by the end of 2014.

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