2,000 Area Jobs at Risk in Space-Contract Battle : Defense: Lockheed asks Pentagon to oust TRW as builder of early-warning satellites.

Lockheed Corp. has asked the Pentagon to cancel a contract with TRW Inc. to build three military satellites that provide early warning of missile attacks and turn the job over to Lockheed--a proposal that jeopardizes as many as 2,000 jobs in the Los Angeles area.

Lockheed Chairman Daniel Tellep said Tuesday in a meeting with reporters that he met with Undersecretary of Defense John Deutch last week, offering to build spacecraft similar to TRW’s--known as Defense Support Program satellites--but with upgraded capability to detect short-range missiles.

The Lockheed proposal has the backing of several senior Air Force officials, who believe the option is cheaper and would provide greater performance. DSP supporters, however, say the Lockheed proposal is fraught with risk. Ultimately, the Pentagon might elect to hold a competition, allowing TRW to submit a bid.

“There is an intellectual bias toward Lockheed,” said one Air Force official who supports continuation of the DSP program. “I am amazed at the speed with which we are willing to leap onto the Lockheed proposal.”

The Lockheed proposal was made in conjunction with subcontractor Hughes Aircraft, whose chairman, C. Michael Armstrong, also accompanied Tellep to see Deutch.

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Their personal effort reflects the lean times in the military satellite industry, which for years escaped the brutal budget cutbacks affecting the rest of the defense industry but now is facing unprecedented reductions.

If successful, the Lockheed offer could blow a gaping hole in TRW’s status as one of the leading producers of military satellites--and along with it Southern California’s claim as leader of the military satellite industry. Lockheed builds its spacecraft in Sunnyvale, while TRW does its work in Redondo Beach.

“In the current economic climate, companies are in the position where they need to keep pursuing all their options until those options are totally closed off,” said John Harbison, who heads Booz Allen & Hamilton’s aerospace consulting practice. “The days of answering the phone and simply making what the customer asks for have gone by us.”

TRW and its subcontractor, Aerojet Electronic Systems in Azusa, have produced since the 1970s the Defense Support Program satellites, which monitor the globe for the launches of nuclear missiles.

TRW produces the spacecraft, accounting for 500 jobs. Aerojet makes the infrared telescope. Aerojet said Tuesday that if the DSP is canceled, it will consider shutting down the entire Azusa operation with its 1,500 workers.

“Really, the whole operation is at risk,” said Aerojet spokeswoman Edie Cartwright. “We would be loath to see anything happen to DSP.”

Lockheed’s proposal has Hughes Aircraft as a partner, apparently to build the satellite’s sensor. It is unclear where Hughes would build such a sensor, but it could partly offset the potential loss of Aerojet jobs.

TRW officials have declined to comment on the issue for several weeks. On Tuesday, a spokeswoman said the company will not respond to any inquiries regarding the possible loss of the DSP program.

The fight between Lockheed and TRW began earlier this year when Deutch elected to kill the Follow on Early Warning System, known as FEWS, for which both Lockheed and TRW were competing. The decision by Deutch to kill FEWS ended an eight-year effort by Lockheed to get into the early-warning spacecraft business, an effort in which the firm has invested $50 million.

But following that cancellation, Lockheed proposed building a clone of the DSP at a price below the $1.25-billion contract for the DSP satellites. The proposal has received strong support by Maj. Gen. Garry Schnelzer, the Air Force’s senior procurement official for spacecraft.

In unusually frank remarks from an industry official, Aerojet’s Cartwright said the Lockheed offer amounts to little more than “the son of FEWS” and that the Air Force “will not accept the death of FEWS.”

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If the TRW contract is canceled, the Air Force might recoup only $700 million of the $1.25 billion because of termination penalties and money already spent. That loss represents the biggest hurdle Lockheed must scale to unseat TRW.

The Air Force inspector general has begun an investigation into allegations that Air Force officials leaked confidential TRW technology to Lockheed in an effort to discredit TRW.

TRW executives were so irate over the matter that they personally protested to Deutch that the leak had compromised their technology.