WASHINGTON -- Barely a month after Defense Secretary Dick Cheney stunned the defense industry by canceling the troubled A-12 stealth attack plane, the Navy asked the builders to return $1.35 billion in excess payments that Pentagon auditors said shouldn't have been made.
When the companies balked and asked for a delay, both the Navy and Defense Department immediately acquiesced, saying the companies would not have to pay back a cent for almost two years, if not longer.
All of this occurred on Feb. 5, according to documents obtained by The Sun.
For several weeks, congressional and federal investigators have been delving into this little-publicized financial deal, which some believe was carefully orchestrated to soften the blow to the two firms responsible for the largest weapons program ever terminated by the Pentagon. Some investigators suspect that there was little, if any, analysis of company finances before the deal was closed.
Two congressional committees plan to hold public hearings on the agreement this week, and the General Accounting Office is expected to weigh in soon with a report and legal opinion.
The U.S. attorney in St. Louis already has a criminal probe under way into the excess payments that the Navy made to the companies -- McDonnell Douglas Corp. and General Dynamics Corp. -- for uncompleted work on the project.
Inquiries by the Defense Criminal Investigative Service and the Naval Investigative Service are also in progress, and the Securities and Exchange Commission has been reviewing the firms' accounting procedures and reported financial losses, Pentagon documents show.
"Taxpayers have been an unwilling lender," complained Representative John Conyers Jr., D-Mich., chairman of the House Committee on Government Operations. "We are talking about $1.35 billion in taxpayers' money that was given to McDonnell Douglas and General Dynamics for a plane that was never built."
Mr. Conyers, whose panel wants to quiz Navy and corporate financial officers at a hearing on Thursday, described the payments as the biggest direct corporate "bailout" in U.S. history. Compared to the controversial $1.5 billion federal loan guarantee obtained by the Chrysler Corp. in 1980, the aircraft manufacturers already have received "real, green money" without congressional approval, he said.
Representative Andy Ireland, R-Fla., one of the House Armed Services Committee's most vocal critics of Pentagon mismanagement, said considerable investigative work still needs to be done to discover "the full story of the A-12 debacle."
"That story must come out if we are to learn from these mistakes," he said.
His request to the Pentagon inspector general's office in June for a review of irregularities in the A-12 program helped set off a chain of events that included the firing and transfer of two admirals, the reprimand of the program manager and resignation of the Pentagon's procurement czar in December and Mr. Cheney's decision on Jan. 7 to cancel the $57 billion project.
Mr. Cheney accused McDonnell Douglas and General Dynamics of defaulting on a $4.8 billion full-scale development contract by failing to "design, develop, fabricate, assemble and test the A-12 aircraft within the contract schedule." Both St. Louis-based firms have denied being in default and have challenged the cancellation in court.
The A-12 Avenger, a radar-eluding replacement for the Navy's main carrier-based attack jet, the 30-year-old A-6 Intruder, was at least 18 months behind schedule and more than $2.7 billion over cost, defense officials said. Under the contract, awarded by the Navy in 1988, the firms were obligated to deliver eight planes for flight testing, beginning in June 1990.
As of January, not a single plane had been assembled.
Mr. Cheney reviewed the A-12 program last spring and trimmed the Navy's original order from 858 planes to 620. Although he told Congress last April that procurement costs would be pared from $74.3 billion to $57 billion, Mr. Cheney was embarrassed to learn weeks later that he had been misled about the aircraft's cost, schedule and technical problems.
By the end of the year, the price tag for each plane had ballooned to over $100 million, with total procurement costs approaching $92.7 billion, the Pentagon and GAO said.
Had he kept the project alive -- which the firms and the rest of the defense industry had expected -- aircraft development alone would have cost taxpayers as much as $17 billion, or more than three times the original price of the contract, a Pentagon cost analysis shows.
But Mr. Cheney declared a "termination by default," making the contractors liable for all the expenses for which the government received no goods or services. Pentagon auditors found last fall that the Navy had overpaid the firms for work performed during the course of the contract and urged officials to recover the money with accrued interest.