WASHINGTON, May 20 (Reuters) – Northrop Grumman Corp said o n Sunday it had signed a $1.7 billion contract with NATO for a new surveillance and intelligence system that will include five high-altitude unmanned Global Hawk planes and transportable ground stations.

Northrop Chairman and Chief Executive Wes Bush signed the contract in Chicago on Sunday during a NATO summit, joined by officials from European companies participating in the deal and 28 ministers of defense from NATO countries.

The contract launches NATO’s Alliance Ground Surveillance (AGS) system, which is expected to support a broad range of missions, including protecting ground forces, border and maritime security, counterterrorism, peacekeeping, humanitarian assistance and natural disaster relief.

The NATO deal comes as Northrop is fighting to reverse plans by the U.S. Air Force to cancel a different version of the Global Hawk plane, the Block 30, and put 18 planes already purchased in storage. The U.S. Navy is sticking to its plans to buy a maritime version of the plane.

Bush told Reuters the NATO order was an “important step” for Northrop’s efforts to market the unmanned planes to foreign governments, and demonstrated the power of pooling resources as defense budgets become more constrained.

“This is a great example of how we are able to do things together that we might not be able to afford otherwise,” Bush said in a telephone interview.

Otfried Wohlleben, program manager of the NATO Alliance Ground Surveillance Management Agency (NAGSMA), said the agreement was a major acquisition priority for the alliance, and the contract would bring lead-edge capabilities to all NATO member nations.

WASHINGTON (Reuters) – Boeing Co’s program to develop a new refueling tanker is proceeding well, but an aggressive test schedule and Boeing’s plan to close the Wichita, Kansas, plant still pose some risks, said the Air Force general in charge of the program.

Major General Christopher Bogdan, who runs the $51.7 billion program for the Air Force, said on Thursday he was cautiously optimistic after the program passed a first critical milestone earlier this month, but that there is more hard work ahead.

“The program is on a good path, but we still have lots of work to do and there are still risks in the program that we have to work to mitigate,” Bogdan told Reuters in a telephone interview. “The onus is truly on Boeing to continue to perform as well as they have so far.”

U.S. defense officials and lawmakers are watching developments on the tanker program carefully after two earlier bungled attempts over the last decade to start replacing the Air Force’s aging fleet of tankers, which refuel fighter jets and other warplanes in mid-flight.

Boeing beat out Europe’s EADS to win the contract in February 2011, capping a decade of failed Air Force attempts to start replacing its aging fleet of KC-135 refueling planes, which are now 49 years old, on average.

Bogdan said the program got passing grades on all 89 entrance criteria to get to the preliminary design review, 17 mini-reviews conducted as part of the broader review; and a larger integrated review of the overall airplane program.

He said Boeing had done “an excellent job” with designing and building the new 767-based airplane’s core capabilities, including the refueling boom and re-designed fuel-carrying wing pods, which was not unexpected given the fact that the plane is based on a commercial product.

WASHINGTON, May 16 (Reuters) – The top U.S. Air Force and Navy officers mapped out plans on Wednesday to better integrate and coordinate their responses to cyber attacks, natural disasters and other threats, arguing that tighter budgets made such efforts more necessary than ever.

They said the Pentagon’s new “Air-Sea Battle” concept will help end years of parochial acquisition efforts in which each service jockeyed to design, build and buy its own unique weapons, rather than collaborating on joint projects.

“We intend to lead our forces to an unprecedented level of joint integration,” Air Force Chief of Staff General Norton Schwartz told industry and military officials at a conference hosted by the Brookings Institution.

“We’re not thinking about things in the ‘airman’ and ‘sailor’ stovepipes anymore,” he said.

Defense Secretary Leon Panetta signed the new concept in the late summer of 2011, but industry officials have struggled since then to understand what the new approach will mean for billions of dollars of new and existing weapon programs.

The Pentagon in November set up a new Air-Sea Battle office that is staffed by about a dozen officials who are on loan from the Air Force, Navy, Army and Marine Corps.

The staff has already identified about 200 initiatives that would allow military commanders to conduct more integrated operations, Chief of Naval Operations Admiral Jonathan Greenert told the conference, although he acknowledged some work ahead in getting full buy-in from the services.

By Andrea Shalal-Esa

(Reuters) Boeing Co (BA.N: Quote, Profile, Research, Stock Buzz) is paring its workforce, consolidating facilities and cutting overhead to prepare for the “distinct possibility” that U.S. defense spending will be cut by a total of $1 trillion over the next decade, the head of the company’s defense business said on Tuesday.

The defense division has already shed about 8,000 of 60,000 jobs over the past 18 months, but most of those people had shifted to positions in the commercial sector, where revenues are still rising, Dennis Muilenburg, president and chief executive officer of Boeing Defense, Space and Security, said on a webcast of the company’s annual investor conference.

He said Boeing’s defense business has already cut the number of executives by 15 percent and lowered overhead costs by 20 percent as part of a drive to improve productivity.

That should allow Boeing’s defense business to maintain profit margins in the high single-digit range, he said, even if $500 billion in further budget cuts are piled on top of $487 billion in cuts that are already set to take effect in fiscal 2013 and the following nine years.

Muilenburg said the Obama administration’s fiscal year 2013 budget plan cut Pentagon programs by 13 percent, but Boeing programs were cut by only about 4 percent. If $500 billion in additional spending cuts took effect in January as planned, Boeing expected to see about double that impact, he said.

“A $1 trillion defense-budget reduction in the U.S. over the next 10 years is a distinct possibility, and we are sizing our cost structure actively to prepare ourselves for such a scenario,” he said, adding that it was more important than ever for the company to deliver weapons programs on time and on cost.

WASHINGTON (Reuters) – The U.S. Air Force said on Friday it is still in talks with Boeing Co about revamping a multibillion-dollar program for next-generation satellite communications terminals, but has now formally invited other companies to submit alternate bids.

The move is part of a drive by Air Force officials to crack down on cost increases that have plagued satellite programs for over a decade. It puts additional pressure on Boeing to finish development of the program or risk losing it to another bidder.

The Pentagon’s acting chief weapons buyer, Frank Kendall, last month signed a memorandum that authorized the Air Force to convert its current contract with Boeing for the Family of Advanced Beyond-line-of-sight Terminal (FAB-T) program to fixed-price terms, and invite bids from other companies.

“It is the Air Force’s intent to find the best possible cost solution in the FAB-T program, either through a new contract or by converting the current FAB-T contract from a cost-plus to a fixed price structure,” said Air Force spokeswoman Major Tracy Bunko. “Negotiations with Boeing on the current contract are ongoing while we continue to look at other provider options.”

The Air Force on April 25 released a final request for proposals seeking an alternate source for development of the satellite terminals, which are needed to handle the most important and sensitive communications, including those transmitted by the new Advanced Extremely High Frequency satellites built by Lockheed Martin Corp.

Bids are due by June 8, with the Air Force expected to award a contract in September.

Boeing said it was working with the Air Force to transition the FAB-T contract to a firm, fixed-price structure.

WASHINGTON, May 11 (Reuters) – The U.S. Army says a decision by Saudi Arabia to have Abrams tanks assembled at a Lima, Ohio plant run by General Dynamics Corp will help maintain a low level of production at the plant despite a planned three-year halt in U.S. orders.

General Dynamics is expected to receive $755 million in orders this year to convert old M1A1 tanks owned by Saudi Arabia to a “like new” M1A2S configuration at the Lima plant, instead of shipping kits for assembly in Saudi Arabia, as originally planned, Army officials said.

The company will also receive about $650 million for continued work on 125 kits to modernize M1A1 tanks for Egypt, according to Army officials.

Army Lieutenant Colonel Torry Brennan, product manager for the Abrams tank system, said the Army had carefully analyzed the situation and believed the foreign military sales, and a separate vehicle order from Israel, would provide enough direct labor hours to keep the Lima facility open.

News of Saudi Arabia’s decision to have the tanks rebuilt in Ohio comes against the backdrop of intense efforts by General Dynamics, lawmakers, local politicians, unions, and business leaders to reverse the Army’s plans to temporarily halt U.S. tank production for the first time since World War Two.

General Dynamics says halting U.S. tank production could endanger over 920 jobs at the Lima facility and thousands more at suppliers around the country. A total of 14,000 direct and indirect jobs are linked to 70-ton tanks, the company says.

Army and Pentagon officials say they need to cut Abrams funding to help achieve $487 billion in required defense spending reductions over the next decade.

WASHINGTON, May 10 (Reuters) – Defense Secretary Leon Panetta warned on Thursday that gridlock in Congress over the Pentagon budget could prevent action to avert another looming cut in spending next year, an outcome top military officials said would be devastating to the services.

Further budget reductions due to take effect in January would cut the U.S. Army by another 100,000 troops, slash the equivalent of the Navy’s entire shipbuilding budget, and leave the U.S. Marines without adequate resources to respond to even a single crisis, top military officials told a Senate panel.

Lawmakers in the House of Representatives passed a Republican measure on Thursday to halt the automatic cuts - known as sequestration – by cutting social safety net programs instead.

No Democrats supported the measure, which would be unlikely to pass the Democratic-controlled Senate and is facing a veto threat from President Barack Obama. Panetta warned at a news conference that Congress was headed toward a stalemate on the issue that could result in a failure to stop the looming cuts.

“By taking these funds from the poor, middle-class Americans, homeowners and other vulnerable parts of our American constituencies, the guaranteed results will be confrontation, gridlock and a greater likelihood of sequester,” he said.

Officials from the Army, Navy, Marines Corps and Air Force urged Congress to act soon to avert the $500 billion in additional defense cuts mandated after Congress last year failed to find $1.2 trillion in other savings.

They said the cuts – on top of $487 billion in reductions already planned over the next decade – would have a devastating effect on troop levels and industry, which must make critical investment and staffing decisions soon.

WASHINGTON (Reuters) – Further budget cuts due to take effect in January would cut the U.S. Army by another 100,000 troops, slash the equivalent of the Navy’s entire shipbuilding budget, and leave the U.S. Marines without adequate resources to respond to even a single crisis, top military officials told lawmakers on Thursday.

Officials from the Army, Navy, Marines Corps and Air Force urged Congress to act soon to avert $500 billion in additional defense cuts mandated under “sequestration” – or automatic spending cuts – after Congress last year failed to find $1.2 trillion in other savings.

They said the cuts – on top of $487 billion in reductions already planned over the next decade – would have a devastating effect on troop levels and industry, which must make critical investment and staffing decisions soon.

Waiting until December, after the 2012 presidential election, to address the threat of further budget cuts would give Pentagon planners insufficient time to adjust their budgets and make critical strategic decisions, they said.

“If we didn’t have that sword of Damocles hanging over our head, we would be in much better shape,” Army Vice Chief of Staff General Lloyd Austin told the Senate Armed Services readiness subcommittee.

The $487 billion in defense cuts is already triggering layoffs and plant closures around the country as Lockheed Martin Corp, Boeing Co and other weapons makers consolidate facilities, sell business units and cut overhead costs after more than a decade of unbridled growth.

Industry executives warned the situation will get far worse, if Congress fails to avert the additional cuts that are due to kick in at the beginning of 2014.

WASHINGTON, May 8 (Reuters) – High-speed maneuvers at high altitudes may be the reason some pilots are experiencing oxygen deprivation while flying the F-22, a U.S. Air Force general said on Tuesday, although she insisted 17 new safety measures had made the jets safe to fly.

Lieutenant General Janet Wolfenbarger told a Senate Armed Services subcommittee that recent data was helping the Air Force narrow down its hunt for the root cause of the issue, which prompted a grounding of the F-22, built by Lockheed Martin Corp, for over five months last year.

Wolfenbarger’s comments raised questions about whether the new F-35 fighter jets being developed by Lockheed could face similar issues.

The F-22 issue flared this week after CBS’s “60 Minutes” program aired a report in which two pilots said they had stopped flying the fighter due to safety concerns.

Air Force Secretary Michael Donley and Chief of Staff General Norton Schwartz had issued a directive to ensure there was no retaliation against the two “whistleblowers”, Wolfenbarger told the subcommittee hearing.

“We are starting to believe that we are coming to closure on that root cause,” she said. “We’re realizing that we operate this aircraft differently than we operate any of our other fighter aircraft. We fly at a higher altitude … we execute maneuvers that are high-G at that high altitude. And we’re on that oxygen system at those high altitudes for periods of time.”

She said the Air Force had implemented over a dozen new procedures to ensure pilot safety. She said 11 incidents of oxygen-deprivation had been reported since F-22 flights resumed, but that was only 0.1 percent of all flights.

WASHINGTON/SAO PAULO, May 8 (Reuters) – Aircraft maker Embraer said on Tuesday it is pressing ahead with a new bid for a U.S. Air Force contract to supply 20 light air support planes to Afghanistan, despite concerns that the results of a prior competition would not be consider.

Rival Hawker Beechcraft said it was too soon to make substantive comments on final rules for the new bidding process, but the privately held manufacturer criticized the decision to stick with “antiquated” ejection seat requirements.

The Air Force is redoing the competition after a lawsuit filed by Hawker, which lost an initial contract award valued at $355 million to privately held Sierra Nevada and Brazilian partner Embraer. The Air Force issued an amended request for proposals on Friday that appeared little changed from a draft that had drawn criticism from Sierra Nevada.

Embraer’s defense chief Luiz Carlos Aguiar said on Tuesday the planemaker was pressing ahead with a second bid after the original contract was scrapped due to a bureaucratic mistake.

“We’re going to compete. We are already working on the bid,” Aguiar said in a telephone interview. “If the process is conducted fairly and transparently with the same requirements … we should win as we did in the first round.”

Aguiar said he was disappointed that the restarted competition would not include head-to-head test flights or consider the results of the previous so-called “fly-off”.

But he said the process would now include other ways to consider the combat experience of Embraer’s turboprop Super Tucano, which has been ordered by nine air forces in Latin America, Africa and Southeast Asia.