— Northrop Grumman Corp. and its subcontractors on the Kinetic Energy Interceptor (KEI) stand to receive $39 million in termination fees following the U.S. Defense Department’s decision to cancel the controversial missile defense effort, according to a senior Pentagon official.

U.S. Army Lt. Gen. Patrick O’Reilly, director of the Missile Defense Agency (MDA), told lawmakers May 21 that the program was over budget and having technical difficulties. The KEI was slated for a flight test late this year, but O’Reilly said meeting that schedule was unlikely because the program plan calls for three more ground-based tests before the flight demonstration.

Testifying before the House Armed Services strategic forces subcommittee on the MDA’s budget request for 2010, O’Reilly said KEI prime contractor Northrop Grumman Aerospace Systems of Los Angeles has proposed a plan under which the program be permitted to continue through the first flight test. He said the MDA was considering the proposal, under which the company also would receive contract termination fees, but raised doubts about the likelihood that the test could take place by Sept. 31, the end of the current fiscal year, saying a December date is more realistic.

The KEI program is funded at $386 million in 2009; U.S. President Barack Obama has requested no funding for the program in 2010.

O’Reilly was responding to questioning by U.S. Rep. Doug Lamborn (R- Colo.), who challenged the wisdom of canceling a program in which taxpayers have invested more than $1 billion. The MDA chief, who under Obama is charged with taking the broader missile defense effort in a new direction, characterized the program as unaffordable.

Hatched earlier this decade by then- U.S. President George W. Bush, the KEI was intended as a high-speed, ground- launched interceptor able to knock down enemy missiles in their boost phase, or as they lift off from the ground. Northrop Grumman won the prime contract in 2003 with a team of subcontractors that included Raytheon Co., but the program had been scaled back repeatedly; the Bush administration dropped plans to deploy an operational KEI in favor of a research and development-only effort culminating in a flight test that until recently was scheduled to take place this year.

The Obama administration is requesting $9.3 billion for MDA programs next year, some $1.2 billion less than Congress appropriated for 2009. The request reflects a shift in emphasis from futuristic to deployment-ready systems as well as from strategic threats to the homeland to intermediate-range threats to allies and forces deployed overseas.

The reduced emphasis on strategic threats is manifested in the administration’s plans to deploy 30 Ground-based Midcourse Defense interceptors, which constitute the “pointy end” of the territorial shield, rather than 44 as previously planned. The interceptors are being deployed at sites in and and are intended primarily to address the threat posed by North Korean missiles. Rather than deploy the additional 14 interceptors, the MDA now plans to keep them in storage as spares or replacements for the deployed hardware.

Faced with questions from Republican lawmakers about the rationale for de-emphasizing strategic defense in light of recent events, including Iran’s recent test of a solid-fueled missile that U.S. officials believe has a range of 2,000 kilometers or more, O’Reilly said recent assessments suggest that the threat is not growing as quickly as previously thought. While acknowledging that and have been testing increasingly capable missiles, O’Reilly said the launch infrastructure in both countries is expanding at a pace that is 10 to 20 times slower than anticipated back in 2002, and that 30 Ground-based Midcourse Defense interceptors is sufficient to meet the threat.

Rep. Michael Turner of Ohio, the subcommittee’s ranking Republican, was not buying O’Reilly’s argument, pointing to the Iranian test as well as Iran’s launch of a satellite in February and North Korea’s launch – which ended in failure – of a long-range missile in April. “Given this growing threat, I am puzzled by the [Defense] Department’s decision to stop deployment of ground- based interceptors at 30 rather than 44, reduce the [Ground-based Midcourse Defense] program by 35 percent and curb its development,” he said.

O’Reilly said that while development and deployment of the territorial shield will be scaled back, plans also call for expanded testing, command and control upgrades, and improved software able to utilize data from new and better sensors. This will result in a more capable system, he said.

Turner said it appears that the MDA’s shift in missile defense priorities precedes the results of not only the Pentagon’s Quadrennial Defense Review but also of the Obama administration’s own review of missile defense efforts. O’Reilly said the MDA’s budget request was prepared in full consultation with senior decision makers in the Office of the Secretary of Defense, the Joint Chiefs of Staff, the services and the combatant commands.