Navy sees $555 million to cancel president's copter

By Andrea Shalal-Esa

WASHINGTON (Reuters) - The U.S. Navy expects about $555 million in cancellation costs for Lockheed Martin Corp's VH-71 presidential helicopter and $4.4 billion in spending to extend the life of the fleet of VH-3 and VH-60 helicopters, according to a document obtained by Reuters.

The Navy estimates were cited in a House Armed Services Committee memo prepared for a Tuesday hearing held by the seapower and expeditionary forces subcommittee. A copy of the memo was obtained by Reuters.

Defense Secretary Robert Gates in April announced he would terminate the VH-71 helicopter being developed by Lockheed and its partner AgustaWestland, a unit of Italy's Finmeccanica SpA, after the program threatened to double in cost to over $13 billion.

The Pentagon's new chief weapons buyer, Ashton Carter, issued an official memo on Friday cancelling the program, and told the Navy to submit options by June 15 for replacing the current fleet.

The new Navy estimate that it will cost over $4 billion to extend the life of existing presidential helicopters could spark some concerns in Congress. Lockheed and its partner had offered to build 14 more of the new helicopters for roughly the $6.8 billion price tag of the initial program.

That proposal was endorsed by a bipartisan group of House lawmakers, but Gates rejected the idea.

The House committee's memo said the Navy had concluded that it would have cost $9.4 billion to buy 18 more aircraft, and that the Increment I helicopter would not have met all the Navy and White House requirements.

Nor would that plan have allowed for additional equipment to be put on the helicopter in the future, the document said.

Negotiations have not yet begun on a termination fee for Lockheed and its partners. However, some industry analysts said they expected the Lockheed team to seek much more than the $555 million projected in the Navy memo, possibly near $1 billion.

Lockheed on Tuesday said it laid off 130 workers at its Owego, New York, facility, citing the termination of the VH-71 program, cancellation of an Air Force helicopter competition, and delays in planned work for the U.S. Postal Service.

"We must take this difficult step now to maintain our business competitiveness. A further reduction will likely be necessary in the near future," said Lockheed spokesman Troy Scully.

Lockheed said it was awaiting word on termination fee negotiations as well as the Navy's plans for the four test helicopters and five production ones already delivered. The Navy is reviewing options for the nine aircraft, including selling them, letting Lockheed buy them back, or using them for other Pentagon needs.

(Reporting by Andrea Shalal-Esa; Editing by Gary Hill)