Lockheed, Northrop Face Probe Over Coast Guard Program Cost Overruns

More bad news for Lockheed Martin: a week after it had its contract to build a prototype for the Navy canceled, it was revealed the company was being probed by the Justice Department, along with partner Northrop Gruman, over design flaws in 123 foot cutters (pictured) that are central to the Coast Guard's $24 billion Deepwater modernization project. The news was broken by James Oberstar, a Minnesota Democrat and Chairman of the House of Representatives Transportation Committee, who revealed only that the investigation concerns the program's constant cost overruns and delays. Oberstar did not elaborate further. The news comes on top of Tuesday's announcement by Coast Guard Commandant Adm. Thad Allen that his agency would take the role of "lead system integrator" on the project, replacing Lockheed and Northrop at the project's helm. The Justice Department told Lockheed and Northrop back in December when the investigation began not to destroy any documents related to the project.

Sources: AP, Reuters
Commentary: Navy Cancels Lockheed Ship Contract After Failure To Agree On Costs • DoD's FY-08 Budget: The Largest in US History • Cramer's Take on LMT • Cramer's Take on NOC
Stocks/ETFs to watch: Lockheed Martin Corporation (LMT), Northrop Grumman Corporation (NOC). Competitors: The Boeing Company (BA), Raytheon Company (RTN). ETFs: PowerShares Aerospace & Defense (PPA), iShares Dow Jones US Aerospace & Defense (ITA)

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