Lockheed Wins Fighter-Jet Pact : Aerospace: The Air Force rejects Northrop’s competing bid for the $72-billion program. Much of the work on the top-of-the-line F-22 will be done in Georgia.

The Air Force selected a team led by Lockheed to produce its top-of-the-line fighter jet Tuesday, rejecting Northrop’s competing proposal for the $72-billion program, potentially the most lucrative in aerospace history.

The decision is a painful blow to Northrop, which will have to lay off hundreds of workers in Los Angeles and cancel plans to hire thousands of others. Lockheed Corp. will do most of its work in Georgia.

The Air Force is counting on Lockheed’s F-22 to replace its existing “air superiority” fighter, the F-15 Eagle, which will be 25 years old by the time the Lockheed aircraft enters service. Development and production will extend over more than two decades.

The F-22 would meet future foes with a potent combination of stealth, high speed and agility. Faced with sharp cutbacks in the size of its forces in future years, the Pentagon has argued that the new fighter is “vital” to maintain its superiority over foreign aircraft that have gained steadily in performance.

Air Force Secretary Donald B. Rice said Tuesday that the technological superiority of U.S. aircraft was critical in the Persian Gulf War and that future threats will require even more advanced capabilities.

The Lockheed team won the competition, among the most hotly contested in history, because it was better able to “execute” the overall program, Rice said.

Rice declined to rate the Lockheed aircraft as the superior performer in flight tests last year but he did say that Lockheed’s costs were lower. In addition, he said the two firms’ past performance was an ingredient in the decision, which may have significantly hurt Northrop’s position.

Pratt & Whitney was selected to build the F-22’s jet engines, beating General Electric Co. The new technology jet engines will enable the F-22 to cruise at supersonic speeds--the first time a fighter jet has had such a capability.

Northrop Corp., which intended to develop and produce the aircraft in Southern California, will lay off between 200 and 400 employees, company Chairman Kent Kresa said. Similarly, GE said that it would have to lay off workers at its plant in Evendale, Ohio.

Kresa also said that Northrop would have to reduce its facilities as a result of the program loss but he declined to identify possible candidates. The Los Angeles-based firm operates major aircraft plants in El Segundo, Hawthorne, Pico Rivera and Palmdale.

If Congress resolves a dispute over funding for the program, Lockheed could begin as early as July 1 to conduct engineering development at its facilities in Marietta, Ga. The firm will split the work with General Dynamics Corp. in Ft. Worth and Boeing Co. in Seattle.

Rice said that the service would spend $14 billion for engineering and manufacturing development over the next eight years, during which time Lockheed would produce 11 aircraft to prove its design and two nonflying aircraft for testing. Lockheed and its team members have already invested $1.1 billion of their own funds and more than $800 million of Air Force funds into the early phase of the program.

Lockheed plans to assign a peak of 2,500 workers to the program during its engineering phase and at least 3,000 workers during production. Boeing and General Dynamics also would add several thousand additional workers each.

“We worked extremely hard on this program,” an elated Al Pruden, F-22 program manager at Lockheed, said. “We have a team of people who put their blood and sweat into this program for 54 months. We are just elated.”

The loss to Northrop will affect the entire Southern California aerospace industry. Northrop had planned to assign 6,000 workers to the program throughout its life. Its partner, McDonnell Douglas Corp., would have had a similar work force in St. Louis.

Nonetheless, Lockheed plans to have as many as 500 jobs on the F-22 at its Skunk Works operation in Palmdale during the engineering phase, and may decide to locate some production at the facility, Pruden said.

In addition, the Lockheed F-22 will generate 5,000 jobs for subcontractors in Southern California, a Lockheed spokesman said. The subcontractors are led by Hughes Aircraft Co.’s Radar Systems Group in El Segundo, which will build the very high speed computers used by the F-22--computers that are said to operate faster than a Cray supercomputer. The firm will have 1,300 jobs on the program.

In addition, 1,500 workers at Parker-Hannifin Corp. in Irvine will build hydraulic equipment for the plane. And Lear Astronics Corp. in Santa Monica will have 950 employes, Lockheed officials said.

The F-22 decision comes as the Air Force plans a major contraction. Over the next five years, the Air Force is expected to trim its force of tactical jets from 36 fighter wings to 26 and its personnel rolls by 19%.

On Monday, the Air Force acknowledged that it may have to whittle the originally proposed purchase of 750 planes for $72 billion down to about 648 for $60 billion. That would give the Air Force 5 1/2 fighter wings--the basic unit in which such tactical aircraft are organized.

Rice said that most of the funds for the plane have been budgeted in Defense Secretary Dick Cheney’s five-year defense plan, which calls for the Pentagon budget to drop by 3% annually for the next five years.

But Rice acknowledged that the Air Force--which is developing some of the U.S. arsenal’s most costly programs, including the $64.5-billion B-2 Stealth bomber--may have to scramble to find funds for the F-22 after 1995.

“We think we’re in very good shape through ‘92, ‘93, ‘94, perhaps ‘95,” Rice told reporters. “The last couple of years or so of the program may require some additional funding beyond what we have in there. We think those amounts are within the capability of the Air Force to work within our overall budget allocation.”

Despite the superior performance of U.S. aircraft in the victory against Iraq, Rice warned that “several other aircraft, including some we faced in Operation Desert Storm, are aerodynamically competitive today with the F-15 and other leading U.S. fighters.”

Rice cited the Soviet MIG-29 Fulcrum and the Su-27 Flanker aircraft as well as the French-made Mirage F-1 as matches for the F-15, in spite of the fact that the allies shot down several MIG-29s and F-1’s in air-to-air battles over the Persian Gulf.

“The advanced tactical fighter is a generation ahead,” said Ben Lambeth, an expert on such aircraft at RAND Corp. in Santa Monica. “It will keep the United States at the leading edge.”

But Lambeth added that the general tendency for cost growth could pose an affordability question.

“It’s a fair question as to whether any country can afford a fighter that comes close to costing $100 million apiece, regardless of how good it is or how objectively needed that modernization is.”

“Of course, there’s concern” that funding for the ATF program could be squeezed by contracting budgets and other current programs, a senior defense official said.

But he noted that the start of production--and with it, major expenditures--is expected to come after declines in the Air Force’s spending for other major programs, notably the B-2 and the C-17 transport aircraft.

Over the next five years, Congress will be asked to approve close to $10 billion for the ATF program. As the Air Force has spent $3.8 billion to develop the ATF, some lawmakers have been skeptical of the need for a new fighter and directed the Pentagon to investigate alternatives, including the modification of existing aircraft, such as the F-15.

But if the plane’s outlook in Congress looked guarded before Tuesday, the selection of the Lockheed team has likely improved its political stock.

Lockheed plans to headquarter its work in Georgia, the home state of Democratic Sen. Sam Nunn, the influential chairman of the Senate Armed Services Committee. Nunn said Tuesday that assembly of the aircraft, also to be performed in Georgia, “will increase substantially” the number of jobs there.

Nunn on Tuesday issued a statement congratulating the winning team of contractors and lauded the Air Force for conducting “a model acquisition program.” He added that the Air Force decision “is very good news for Georgia.”

Rice adamantly denied that political factors entered into the Defense Department’s decision to award the prize to the Lockheed team, even though many experts inside the Pentagon and many aerospace analysts on Wall Street had said before the announcement that it would play a key role.

He also said Tuesday that the Pentagon no longer will use fixed price contracts, which shift the financial risk to the contractor. The Air Force selected the designs offered by Northrop and Lockheed in 1986 and awarded $691 million contracts to each team, an amount far less than the anticipated costs of the so-called demonstration/validation phase of the program.

The Lockheed team and subcontractors spent $1.1 billion in the design phase, while the Northrop team spent $750 million.

“This was not a good deal for the contractors,” said Jack Modzelewski, a PaineWebber securities analyst. “The program was awarded under onerous terms.”

But the next phase of the program promises to be much different. Modzelewski said that the full-scale development will be conducted under a cost-plus contract. The contract will provide a guaranteed profit margin of 4% and an award fee of 9%, meaning that if the Lockheed program costs $10 billion, it would generate profits of $1.3 billion over the next seven years.

Staff writers James Peltz in the San Fernando Valley and Dean Takahashi in Orange County contributed to this story.