Business Notes Defense

One of the biggest gambles in the history of the defense business came to an inglorious end last week. Los Angeles-based Northrop said it would halt development of the F-20 fighter jet after spending $1.2 billion on the still experimental plane, known as the Tigershark, over the past eight years. The decision came two weeks after the Air Force rejected a proposed contract to buy 270 F-20s for $3.5 billion. The Pentagon decided instead to upgrade an equally large fleet of General Dynamics F-16s at a cost of $2.3 million each -- only one-fifth the F-20's $12.8 million price tag.

Defense companies generally wait until they have landed military contracts and started receiving Pentagon dollars before launching major developments. Northrop, in contrast, risked its own money on the F-20 in hopes that it could sell the plane to foreign governments. But other countries, it turned out, were not interested in buying the plane until it was deemed good enough for the U.S. Air Force.

Industry experts predict that Northrop's earnings could dip by 50% this quarter as the company absorbs the costs of closing down the F-20 project. Disappointed but undaunted, Northrop officials maintained that the F-20 experience would help the firm win a contract to build a more advanced jet fighter, for which the Air Force has made a preliminary $691 million commitment.