In a surprise, Defense Secretary Robert Gates recently called for terminating Lockheed Martin‘s [LMT] VH-71 presidential helicopter, including the first batch of aircraft that some believed would have been spared.

Additionally, Gates recommended the Navy build three DDG-1000s at General Dynamics‘ [GD] Bath Iron Works, ensuring a smooth transition to restarting the DDG-51 line.

Gates also recommended the Navy buy an additional 31 of Boeing‘s [BA] F/A-18E/F Super Hornets in FY ’10, a move many observers predicted.

Some had expected to see Gates call for a dip in the Navy’s aircraft carrier fleet to as few as nine ships. While the fleet won’t drop that low, Gates did call for adjusting the procurement rate to make it more affordable.

“We will shift the Navy Aircraft Carrier program to a five-year build cycle placing it on a more fiscally sustainable path. This will result in 10 carriers after 2040,” he said at yesterday’s press conference..

Gates also called for the delay in CG(X), the Navy’s next generation cruiser. The service has been unable to wrap up the analysis of alternatives and officials pushed the procurement date several times to the right.

“We will delay the Navy CG(X) next generation cruiser program to revisit both the requirements and acquisition strategy,” Gates said.

Among the issues surrounding CG(X) has been the decision by lawmakers for the Navy to make CG(X) a nuclear powered surface ship.

The most stunning decision, though, might be the recommendation to terminate the presidential helicopter program.

“This program was originally designed to provide 23 helicopters to support the president at a cost of $6.5 billion. Today, the program is estimated to cost over $13 billion, has fallen six years behind schedule, and runs the risk of not delivering the requested capability,” Gates said.

Lockheed Martin and partners AgustaWestland and Bell Helicopter Textron [TXT] beat our rival Sikorsky [UTX] for the contract to build the next Marine One helicopter.

Adding to the cost, schedule and technical issues that challenged the effort, in January, the Navy submitted paperwork notifying Congress that the VH-71 presidential helicopter has a Nunn-McCurdy breach (Defense Daily, Jan. 30).

Since December 2007, System Development and Demonstration (SDD) work on Increment II has been under a Navy issued a stop work order. There was expectation the order would be lifted as of last October. The order, however, was extended to Sept. 30, 2009.

Even with Increment II’s troubles, Lockheed Martin noted it was nearing completion of the first nine helicopters (Increment I), five of which would be eventually delivered to the White House (Defense Daily, Feb. 27).

There had been some discussion of holding off on Increment II and building more of the Increment I aircraft. That was a move Gates decided against.

“Some have suggested that we should adjust the program by buying only the lower capability ‘increment one’ option. I believe this is neither advisable nor affordable,” he said. “Increment One helicopters do not meet requirements and are estimated to have only a five-to-10-year useful life. This compares to the current VH-3 presidential helicopters that are 30 to 40 years old.”

The VH-3 is built by Sikorsky.

Just want this means for Lockheed Martin won’t be determined until Congress gets its chance to review and amend the president’s defense budget.

The company said it is assessing the situation.

“Today, Secretary Gates announced the Department of Defense’s priorities for the future. Several Lockheed Martin programs, including F-22, F-35, VH-71, LCS, and TSAT were discussed. We’re assessing the impact of [Secretary Gates’] decisions on all affected programs. As we move forward with the budget process, Lockheed Martin will continue to support our customers and work to deliver affordable solutions that meet their strategic and operational needs,” Troy Scully, a Lockheed Martin spokesman, said.