Deadline set for Northrop to slash cost of Global Hawk. (Up Front).

With the costs of Northrop Grumman Corp.'s Global Hawk project spiraling out of control, the Air Farce is threatening to re-bid the contract or replace it with an updated version of Lockheed Martin's U-2 spy plane, which has been in use since the 1950s.

A joint committee of military and Century City-based Northrop officials has until the end of the month to come up with ways to slash the cost of the Global Hawk by 50 percent, Air Force officials said.

The increased costs for the unmanned aerial reconnaissance vehicle are pegged to the sensor systems package made by Raytheon Co.'s El Segundo-based Surveillance and Reconnaissance Systems unit. More than 400 Northrop employees are assigned to the program in Palmdale, where the Global Hawk is assembled.

The sensors provide surveillance through radar, infrared and still photography that are beamed to satellites and then down to control centers for processing.

"It's the affordability of the sensors we're looking at," said Gloria Gales, an Air Force spokeswoman. "We're trying to get the cost down by at least 50 percent. There's a lot of competition out there. If you put it out to bid, someone could come in with a lower price."

The Global Hawk, which Northrop originally pegged to cost $15 million each, soon will have an upgraded sensors package that will increase the price tag to $48.3 million, or $73.6 million including the ground station, initial spare parts, technical data, support equipment and training.

Cost increases have the Air Force so concerned it is considering placing the sensors package out to bid or scaling back its planned 51-plane order and re-starting the production line for the U-2 in Palmdale where the Lockheed plane is maintained.

Without price reductions, the sensor packages would jump to 50 percent of the Global Hawk's overall cost, up from 32 percent.

Already, the Air Force has reduced the number of Global Hawks it intends to purchase to 51, down from 60 earlier this year.

The 10-year procurement schedule currently calls for two planes to be constructed this fiscal year, three in fiscal 2003, four in each of the next three fiscal years, 10 in fiscal year 2007, and six each in following four fiscal years.

With the rising costs, however, the Air Force has only guaranteed purchases through 2003.

"The Air Force is working with us in trying to determine the best way to decrease costs," said Cynthia Curiel, communications manager for Northrop's Air Combat Systems. "Northrop is looking at a series of cost reduction initiatives ranging from 25 to 50 percent."

Citing economies-of-scale standards, however, officials involved in the deal are frustrated that they can't land a guaranteed contract for the entire 51-plane production run, which they said would enable them to lower the price per plane.

"If they were to procure in lots of 10 the cost of the (current) sensors would be under $6 million," said Pennington Way IV, a Raytheon external communications manager. "That would lower the cost of the plane by 50 percent."

But defense analysts are quick to point out that the rising costs are at least partially the fault of the Air Force's sensor upgrade requests. Original planes called for the plane to have far less surveillance capabilities than the manned U-2 spy plane.

Upgrades ordered

Air Force officials were so impressed by the performance of the Global Hawk prototypes flying over Afghanistan--despite the fact that one of the vehicles crashed--that they ordered upgrades to make the plane's capabilities similar and in some cases better than the U-2. (As early as fiscal 2006, for instance, the Global Hawk will have a radar system that's capable of tracking moving ground targets.)

"I'm not saying that Northrop is blameless, but the Air Force is certainly not blameless:' said Paul Nisbet, a partner in JSA Research Inc., Newport, R.I. defense research firm. "The Air Force keeps changing what they want in the way of capabilities."

So far, the Air Force has spent $1.5 billion on the Global Hawk program, which began in 1994, analysts said. Costs for the U-2 plane are classified, said military and industry officials.

Northrop has positioned itself as the industry leader for unmanned aerial vehicles, having built several Global Hawks that can travel 350 miles per hour at 65,000 feet high for 35 hours, carrying a 2,000-pound sensor payload. (Next year's model will be able to carry a 3,000-pound payload.)

Although analysts said the Air Force's hint of building more U-2s should be taken seriously, they doubted that the Global Hawk program would ever be scrapped altogether.

"I'd be surprised if (Northrop) loses the contract," said Philip Coyle, a senior fellow with the Center for Defense Information, a Washington think tank. "There is such a commitment to UAVs now."

Nevertheless, at the government's request, Lockheed has submitted a proposal for another U-2 procurement order, which would increase the Palmdale-based 675-person U-2 operation by an unspecified number of jobs.