Reagan's Death Star Destroyed ... Again

Farewell, Star Wars. We hardly knew ye.

Ever since the Reagan era, America has dreamed of building a real-life "Star Wars" system. Not X-Wings and Death Stars, necessarily (although a Fool could hope), but at least a missile defense system of our very own, bearing the endearing pet name "Star Wars." But this week, the Obama administration killed that dream.

On Wednesday, the Pentagon officially signed the death certificate on the program that Defense Secretary Gates had marked for termination in April: The Kinetic Energy Interceptor (KEI), at one time a $6.3 billion system for ICBM missile defense spearheaded by aerospace titan Northrop Grumman (NYSE: NOC  ) .

In related news, Lockheed Martin (NYSE: LMT  ) is losing its Multiple Kill Vehicle project, another missile defense system, this one aimed at defeating MIRVs, or missiles equipped with multiple independent warheads and/or decoys. And rounding out the bad news, Boeing's (NYSE: BA  ) flying laser project, on which several other contractors assisted, has also been grounded. Robert Gates has recommended the cancellation of a planned second Airborne Laser system.

But getting back to Northrop, just months from starting a key round of testing, Northrop received notice from the Pentagon that the program has been terminated "for convenience" -- meaning that despite numerous successful tests to-date, the U.S. just "isn't that into" missile defense anymore.

The good news to this bad news is that Northrop and its team of subcontractors -- Alliant TechSystems (NYSE: ATK  ) , Raytheon (NYSE: RTN  ) , and Orbital Systems (NYSE: ORB  ) have already booked some $1.2 billion in revenue off of this project. Plus, a "for convenience" termination should allow the contractors to recoup any yet-uncompensated costs they have incurred in building the system.

The bad news, though, outweighs the good: $5.1 billion in expected future revenues also just got blasted to smithereens.

Hope springs eternal
Even as the Pentagon pulled the rug out, though, swooning Northrop bulls were tossed one last straw to grasp for balance. In announcing KEI's termination, the Pentagon ordered Northrop to present it with a report on "systems engineering, fire control and communications architecture and algorithm development by the end of this month." The aim being to review the data generated from KEI to-date with a view to perhaps using it to develop a new missile defense system at some time in the future.

Faint hope, true. But for now, it's all we've got.