US Air Force eyes big satellite contract this fall

WASHINGTON, Sept 16 (Reuters) - The U.S. Air Force still plans to award Boeing Co (BA.N) or Lockheed Martin Corp (LMT.N) a contract worth billions of dollars this fall to build a group of advanced military communications satellites, the general in charge of Air Force Space Command said on Tuesday.

Gen. Robert Kehler told reporters that the future of the Transformational Satellite program for which both companies are bidding was entwined with that of another program, the Advanced Extremely High Frequency satellite program, run by Lockheed.

The Air Force told Congress earlier this month that the AEHF program had exceeded congressional caps on cost growth, which could lead to cancellation of the program unless it is certified as essential for national security reasons.

The cost of the AEHF program was now projected to be $9.2 billion, including $2 billion for a fourth satellite added to the Pentagon's budget by Congress, accounting for about 80 percent of the overall cost increase.

TSAT is intended to follow AEHF and shares some of the same protected communications job. Congress added the fourth satellite -- which requires a costly restart of Lockheed's production line -- due to concerns about a gap in providing satellite communications capability to troops if there was a delay in the TSAT program.

"We think that it is prudent for us to take a look at all of these factors together," Kehler told reporters at the annual Air Force Association meeting.

Pentagon and Air Force officials are now reexamining both programs in an expedited process and hope to have reached some conclusion about how to proceed by October, according to one defense official briefed on the process.

Lockheed spokesman Steve Tatum said his company expected a TSAT contract award to be announced in mid-December.

Kehler said there had been considerable work and investment in reducing the technical risk associated with the TSAT program. The question was whether there would still be unacceptable risk in terms of a gap between the last of the three AEHF satellites already under contract and the first TSAT, which is not to due launch until 2018.

Part of the problem was that it was difficult to assess the risk of a potential gap until the satellites had been launched, and the first AEHF satellite was not due for launch until sometime within the next year, Kehler said.

But he said the Air Force had also learned that sometimes its satellites lasted longer than expected.

Kehler said his main objective was to meet the needs of U.S. troops, and demand for services aided by satellites -- the collection of images or relaying of communications among others -- was growing steadily. (Editing by Gary Hill)