Pentagon threatens to stop payment in A-12 row

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ALEXANDER CAMPBELL / LONDON

Department of Defense presses on with recovery action as manufacturers appeal

The US Department of Defense is threatening to cut off payments to Boeing and General Dynamics after they refused last week to repay $2.3 billion owed from the cancelled A-12 Avenger programme.

The government gave the two contractors until 30 September to repay $1.15 billion each, but both refused. The Pentagon says that, while "the optimal way is for them to pay us in cash...if the companies do not pay, we can arrange a set-off deal against existing contracts". This would see payments to the two companies for current programmes being suspended.

Negotiations on the method of payment continue, with the Pentagon understood to have rejected an offer of payment in kind, in free engineering improvements and extra aircraft on existing contracts.

The US Court of Federal Claims ruled last year that the US Navy, which originally ordered the aircraft as a replacement for its Grumman A-6 Intruder bombers, was right to cancel the programme and could proceed to recover its money - $1.3 billion spent by the navy, plus $1 billion in interest accumulated since the cancellation in 1991 (Flight International, 18-24 September, 2001). Both contractors have appealed, but the Pentagon is confident its recovery action is legal: "It has been cleared by the Department of the Navy, the Department of Justice and the Pentagon's own legal staff."

Boeing says the Pentagon has no grounds for its claim, as the original contractor was McDonnell Douglas, which merged with Boeing in 1997 - although the Pentagon believes the parties involved "are the appropriate ones". General Dynamics' military aircraft division was acquired by Lockheed Martin in 1992, but liability for the A-12 stayed with the parent company.