WASHINGTON (Reuters) - The U.S. Navy’s plan to cancel an order for 29 MH-60 Sikorsky helicopters under a current five-year agreement would trigger termination fees of at least $250 million and raise the cost of Army helicopters covered by the same contract, a top U.S. senator said Thursday.
Senate Armed Services Committee Chairman Carl Levin, a Michigan Democrat, criticized the Navy’s plan to “break” the multi-year purchase agreement during a hearing on the Navy and Marine Corps budget requests.
“This action would result in the government having to pay termination charges of at least $250 million but get nothing in return,” he said.
The cut in MH-60 helicopters is one of a number of controversial proposals sent by the Navy and other U.S. military services to U.S. lawmakers, who have the ultimate control over the Pentagon budget. Navy officials said deep budget cuts agreed by Congress had forced them to make difficult choices across various portfolios in shaping the fiscal 2015 budget.
Levin dismissed the Navy’s claim that scrapping the fiscal 2016 order of helicopters was related to the planned retirement of the USS George Washington aircraft carrier, noting that each carrier had only five MH-60 helicopters on board.
The Navy had no immediate comment on the amount of the projected termination fee. Such fees are generally negotiated between the government and industry.
One Navy official said the fiscal 2015 budget included the advanced procurement funding needed to maintain the multi-year contract for now. The reductions planned in fiscal 2016 were linked to the potential cut of an aircraft carrier and coastal combat ships, said the official.
Sikorsky, a unit of United Technologies Corp, signed an $8.5 billion contract with the Army and Navy in July 2012 to buy 653 Black Hawk and Seahawk helicopters through December 2017, a deal that generated significant discounts given the larger order quantities.
By reneging on the agreement, the Navy was jeopardizing those savings, Levin said.
One industry source familiar with the issue said it was rare for the military to break a multi-year contract because they resulted in savings of 10 percent or more, and violating such agreements generated costly termination fees.
One congressional aide, who was not authorized to speak publicly, said lawmakers were considering measures to prevent the Navy from cutting the funding in its fiscal 2016 budget.
Jim McAleese, a Virginia-based defense consultant, said the Navy had cut funding for the MH-60 and other aircraft programs to preserve money for higher priority shipbuilding programs.
Reporting by Andrea Shalal; Editing by Kenneth Maxwell