U.S. kills Northrop Grumman missile-defense program

WASHINGTON The Pentagon's Missile Defense Agency has formally ended Northrop Grumman Corp's (NOC.N) Kinetic Energy Interceptor program, once valued at $6.3 billion, despite the company's push to carry out what would have been a key test in September of the missile-defense technology.

Northrop was notified on Wednesday of the termination, which was "for the convenience of the government," not because of any company performance shortfall, according to a copy of the notice obtained by Reuters.

Northrop had carried out about $1.2 billion of work under its contract for the kinetic energy interceptor, or KEI, which was designed to shoot down missiles soon after their launch.

There is an established process for the resolution of termination costs when the government cancels a contract for its convenience.

"This process is currently under way," said Chris Taylor, a Missile Defense Agency spokesman.

The termination was part of a strategy to "refocus the Ballistic Missile Defense System on a course of overall mission readiness," the agency said in a statement.

Northrop Grumman had no immediate comment.

Defense Secretary Robert Gates had announced plans to cancel the KEI as part of a restructuring of U.S. missile-defense efforts under the proposed fiscal 2010 budget.

Gates and the Missile Defense Agency said the system had limited capability, would have been difficult to fire from ships because of its large size, cost too much and would have to have been launched from close to the target.

After a stop work order was issued last month, Northrop had called on the Pentagon to go ahead with a "booster flight test" to help it reap knowledge that could be put to use on other systems.

Northrop argued it had completed 90 percent of everything needed to do the test when the Pentagon stopped work on May 11.

In its June 10 notification, the government directed Northrop, in an exception to the termination, to present an overview of its progress on the program to Army Lt. Gen. Patrick O'Reilly, who heads the Missile Defense Agency.

Specifically, Northrop was told to report by June 30 on systems engineering, fire control and communications architecture and algorithm development.

"The purpose of this presentation is to support an MDA assessment and determination of how MDA can maximize leveraging of the work conducted to date in these areas for application to future (ballistic missile defense system) work," it said.

The Pentagon also has announced plans to kill Lockheed Martin Corp's (LMT.N) Multiple Kill Vehicle, or MKV, which was intended to destroy not only an enemy warhead but any decoys or other countermeasures deployed to spoof U.S. defenses.

"It was designed to deal with a more complex threat that would have come potentially from either China or Russia," Gates told the House of Representatives Armed Services Committee on May 13.

U.S. missile defenses, as developed to date and deployed since 2004, are to protect against what the United States calls rogue states such as North Korea and Iran.

(Reporting by Jim Wolf; Editing by Phil Berlowitz)