Lockheed contract shrinks after end of Cold War: ATF no longer big money-maker company hoped.

Three years ago two of Los Angeles County's biggest companies -- Lockheed Corp. and Northrop Corp. -- were locked in a head-to-head battle to win what was supposed to be one of the biggest military contracts ever.

For the winner, some industry experts predicted a 50 percent increase in earnings in three to five years. For the loser, income would only creep up a paltry 10 percent over the same amount of time.

In April 1991, Lockheed won the competition to build what was called the Advanced Tactical Fighter. But since then much has changed.

The biggest change, of course, has been the disappearance of the Soviet Union, which essentially was the reason to build the tactical fighter aircraft in the first place.

As a result, the original order for the ATF, now known as the F-22, has been cut by a third from 700 to about 440. And there is a very real possibility that by the time Congress gets around to actually funding orders for the aircraft in three years, the number of jet fighters could be reduced even further.

For instance, a U.S. General Accounting Office report last summer said the

project could be delayed several years without seriously affecting the country's security. Another government report, according to a defense industry analyst, suggested between 100 and 150 F-22s.

Whatever number is finally settled on, it will certainly be far less than what was anticipated when the two companies were competing for the contract.

While the debate continues in Congress over how many planes will actually be built for the U.S. Air Force, there has been a two-year delay on the start of actual aircraft construction. The first F-22 was supposed to have been delivered next year but now that has been pushed back to 1997. Major components of the aircraft will be made in Seattle and Fort Worth, Texas, with final assembly at Lockheed's Marietta, Ga., facility.

According to defense industry analysts, the plane has also undergone some modifications. Two years ago a prototype of the F-22 crashed on landing. The pilot was not seriously hurt but the plane was destroyed.

In addition, problems with prototypes of the aircraft have been detected, particularly in its radar-evading capabilities.

Currently, the F-22 is in what is called the development phase, which is expected to last for another 11 months. In the development phase, prototypes are tested and modified until a final version of the aircraft is completed. The aircraft then goes into production.

"What's happened is that in some cases we have had to make adjustments because of the cuts in funding. We have had to make do with available funding," said Jeff Rhodes, a spokesman at Lockheed's aeronautical systems division in Marietta.

Spokesmen for Lockheed said last week that figures on expected revenue to the company from the smaller project were unavailable. Rhodes said that no matter how many F-22s are actually ordered, the company will make money because the program is under what is called a cost plus award contract. That agreement means that the government will pay the contractor the cost of the aircraft plus 4 percent. Another 9 percent will be awarded if Lockheed meets certain deadlines or incentive clauses like cost-reduction programs.

Analysts said the expected big decline in actual orders for the aircraft will have a significant impact on Lockheed, its secondary partner, Boeing Co., and hundreds of subcontractors around the country.

"It's obvious that when you reduce a project by that much, it's going to affect the company," said Richard Bitzinger, an industry analyst with the Defense Budget Project, a Washington, D.C.-based think tank. "The most significant impact will be on the number of jobs that will be produced and how long they will last. But the F-22 is still a significant project and Lockheed still stands to make a profit on the program."

According to the industry analysts, the aircraft has fairly solid support in Congress and in the Clinton administration. Since Lockheed won the contract, yearly development money for the design phase has been allocated without too much of a fight. For fiscal 1995 which starts on Oct. 1, the Department of Defense has requested $2.5 billion for development costs.

The primary question is how many aircraft will be built. But with each reduction in expected orders, production costs go up for each airplane. For instance, the per-plane cost of the F-22 was less than $100 million for 648 aircraft three years ago. With inflation, the per-plane cost has now risen to $150 million.

An analyst who thinks the final order may well be under 440 is Kathryn Schultz, a researcher for the Center for Defense Information, a Washington, D.C.-based think tank.

"The main selling points for the aircraft were to compete against a new generation of plane by the Soviet Union, to replace the F-15 and to have a large stealth fleet. The Soviet Union is gone, the GAO says the F-15 is good for another 15 years and there has been problems with the radar," she said.

"I suspect that in the end we could see far fewer aircraft than are now planned," she said.