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Boeing, General Dynamics Settle Decades-Old A-12 Dispute

Boeing Co. (BA) and General Dynamics Corp. (GD) agreed to provide $400 million in goods and services to the U.S. to settle a 23-year-old dispute over a canceled multibillion-dollar contract for the A-12 stealth aircraft.

The U.S. won’t pay any money in connection with the companies’ claims against the government, according to a U.S. Justice Department statement today. The proposed settlement will strengthen “the Navy’s capabilities and capacities,” Ray Mabus, secretary of the Navy, said in the statement.

The A-12, designed to penetrate heavily defended locations, never made it into production despite years of development, and the project gave rise to one of the largest defense procurement fiascoes in U.S. history.

The dispute encompassed five trials and three appeals, including one that reached the U.S. Supreme Court, which in 2011 set aside a ruling that put the government on track to collect $3 billion from the companies.

In 1988, General Dynamics and McDonnell Douglas signed a contract to build eight of the planes for the Navy at a total target price of $4.4 billion. Three years later, the Navy and then-Defense Secretary Dick Cheney declared the companies in default and canceled the contract, setting off litigation that encompasses 1,501 entries in the Court of Claims docket.

The most recent entry is a request by the companies and the government to dismiss the case.

Missile Destroyer

General Dynamics, based in Falls Church, Virginia, will provide a $200 million credit in a contract to build the DDG-1002 guided missile destroyer.

For its $200 million, Chicago-based Boeing will give the Navy three EA-18G aircraft and a contract credit, according to the Justice Department. Boeing inherited litigation over the plane when it acquired McDonnell Douglas in 1997.

The settlement was authorized as part of the defense appropriations bill President Barack Obama signed into law on Dec. 26.

When the case reached the Supreme Court, the justices unanimously said the government forfeited at least one aspect of its claim against the contractors by invoking a state secrets privilege to avoid disclosing sensitive information in the litigation.

The high court also rejected a bid by General Dynamics to reinstate a $1.2 billion award the companies won at an earlier stage in the litigation.

“Neither side will be entirely happy with the resolution we reach today,” Justice Antonin Scalia wrote for the court.

The case is Boeing v. U.S., 91-1204C, U.S. Court of Federal Claims (Washington).

To contact the reporter on this story: Andrew Zajac in Washington at azajac@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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