By Andrea Shalal-Esa
WASHINGTON (Reuters) - The U.S. Air Force said it will continue looking for an alternate supplier for next-generation satellite terminals even as it weighs a last-ditch bid by Boeing Co to stave off termination of its troubled, multibillion-dollar program.
A top Air Force general on Friday said the service notified Congress and Boeing on January 4 that it would terminate the Family of Advanced Beyond-line-of-sight Terminal (FAB-T) program in the fiscal 2012 budget, but decided to hold off until it could study an urgent proposal submitted by Boeing a few days later.
Major General John Hyten, director of space programs for the Air Force's acquisition chief, said Boeing had submitted "letters of intent" to finish developing the terminals under a firm, fixed-price contract, which would shift the risk for cost overruns to Boeing. It also proposed a "not-to-exceed" ceiling for the cost of producing the terminals, he said.
Pentagon acquisition chief Frank Kendall decided it would be "bad business" not to consider Boeing's proposal fully, since the "numbers in those letters of commitment... were attractive enough," Hyten told a news conference.
Boeing won a $235 million contract to develop the new terminals, used to handle the most important and sensitive communications, in September 2002, but the program has seen continued cost growth and scheduled delays. The Air Force's latest estimate put the total cost of development -- not including production -- at $1.6 billion.
Boeing said the program's development was 90-percent complete, and it was working closely with the Air Force to ensure that its ground and airborne terminals could provide protected communications. It gave no details on its proposal.
The Air Force's fiscal 2013 budget proposal asked for $107.5 million to continue work on the FAB-T program, less than half the 2012 sum of $231.2 million, an Air Force spokeswoman said.
Regardless of what happened with Boeing, Hyten said the Air Force would continue a separate program to develop an alternate supplier for the terminals that was initiated by Congress "as a hedge against Boeing not being able to do it."
He said the Air Force planned to issue a request for proposals in the spring, and sign a contract by the end of the 2012 fiscal year, which ends September 30.
AIR FORCE WANTS FIRM PROPOSAL FROM BOEING
Boeing, he said, needed to submit "a firm proposal with real numbers so that we know exactly what it is we're buying."
Once that proposal was received, the Pentagon would decide whether to terminate FAB-T or continue the program, he added.
The Air Force is examining overhead costs at its suppliers, and revamping its acquisition plans for many of its major programs as the Pentagon begins implementing $487 billion in cuts to proposed defense spending over the next decade.
It was critical to cut costs on national security satellites and the rockets that launch them into space, given increased pressure on defense budget and the fact that space programs are pivotal to so much of the Pentagon's newly redrawn strategy and its focus on Asia, said Air Force Undersecretary Erin Conaton.
The service's new approach is based on greater use of block buys, fixed price contracts, stable research funding and should cost reviews, she said.
One key focus of tough new "should cost" reviews is the Evolved Expendable Launch Vehicle, a program run by a joint venture of Boeing and Lockheed Martin Corp that launches heavy satellites into space. The Air Force wants to see more competition and lower prices in coming years, Conaton said.
As part of the approach, the Air Force has asking the Boeing-Lockheed team to submit detailed firm, fixed-price bids to build 6 to 10 rockets in each of the next 3 to 5 years.
The Air Force is also trying to bring in new commercial companies that would launch smaller rockets initially, but could eventually compete for the heavy rocket launches now done only by the Boeing-Lockheed venture, United Launch Alliance.
Three or more companies, including Space Exploration Technologies, a startup company founded by Internet entrepreneur Elon Musk, were interested in the new opportunities, she said.
The Air Force was also continuing to look at the use of so-called hosted payloads, U.S. national security sensors launched into space on commercial satellites, Conaton said.
Total funding for non-classified military space programs would fall 22 percent to $8 billion under the Air Force's fiscal 2013 budget proposal, reflecting cancellation of Northrop Grumman Corp's Defense Weather Satellite System.
(Reporting By Andrea Shalal-Esa; Editing by Tim Dobbyn)