posted 02-24-2004 10:19 AM            

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U.S. Army to End Boeing-United Technologies' Comanche (Update1)

Feb. 23 (Bloomberg) -- The U.S. Army plans to cancel the Boeing Co.-United Technologies Corp. Comanche helicopter program, according to people familiar with the plan.

The program has been overhauled six times in its 18-year history as the cost per helicopter grew. The U.S. Army was ordered in 2002 to reduce the number of Comanche helicopters it planned to buy to 650 from 1,207. Initially, it planned to buy 2,000.

United Technologies' Sikorsky Aircraft unit and Boeing split revenue for the development of the Comanche under a cost- reimbursement contract awarded by the Army in 2000. Cancellation is likely to help sales of Boeing's Apache helicopters, which cost about $25 million each and were used successfully in Afghanistan and Iraq, said Richard Aboulafia, vice president of Teal Group, an aerospace consultancy based in Fairfax, Virginia.

``The most directly competing programs in the Army are Apache and Comanche,'' Aboulafia said. ``Which would you rather have - 100 percent of a proven machine with good profit, or 50 percent of a risky venture?''

Shares of Hartford, Connecticut-based United Technologies fell $3.72 or 3.9 percent in New York Stock Exchange composite trading at 12:20 p.m. Shares of Chicago-based Boeing fell $1.11 or 2.5 percent.

Sikorsky spokesman Matt Broder said the company hasn't heard from the Army and still considers the program intact until the company is notified. A Boeing spokesman also declined to comment.

Soviet Threat

The Comanche is designed to receive and process intelligence from drones and surveillance aircraft and pass it to ground units. The Army was directed in 2002 to focus its research on producing a reconnaissance helicopter rather than one that can attack as well as scout. The helicopter was intended to counter Soviet weapons.

``The Comanche program was overtaken by new threats and new technologies,'' said Loren Thompson, a defense analyst for the Washington-based Lexington Institute. ``After 20 years of development, it had yet to produce an operational helicopter.''

The value of the contract was raised to $6.6 billion from $3.2 billion under a revised development contract awarded in November 2002. That contract calls for the venture to deliver nine Comanche helicopters in 2005 and 2006 for test and evaluation improvements through 2011, according to United Technologies' annual filing with the U.S. Securities and Exchange Commission.

Delayed Procurement

While the research contract increased in value, the Army delayed procurement by several years to pay for it.

The program's total budget for the Comanche is $38.3 billion. The Army has spent $6.8 billion through Sept. 30. The fiscal 2005 budget asks $1.2 billion for research and development and just $12 million for procurement. The procurement request is $2 billion in 2009.

The Comanche is the third major weapons program to be canceled by the Bush administration. A Raytheon sea-based missile defense system was killed in December 2001 and the Crusader self-propelled artillery system in May 2002.

President George W. Bush has said he will reduce the U.S. budget deficit by half -- to $237 billion by 2009 from the record $521 billion estimated for this year by the White House. Defense spending accounts for almost 20 percent of Bush's proposed budget for fiscal 2005.

The White House on Feb. 10 ordered a review of the Comanche and the $71 billion Lockheed Martin Corp. F/A-22 fighter.

The procurement budget for the U.S. military is slated to increase to $114 billion by 2009 from $75 billion in fiscal 2005.