The decision leaves the army with a gap in its aviation requirements at a time of high demand for helicopters in Iraq and Afghanistan, senior army officials acknowledged.

They said the gap would be bridged by upgrading and extending the life of its fleet of OH-58 Kiowa helicopters at a cost of about 800 million dollars.

"We will move as fast as possible to replace the OH-58 Kiowa Warrior helicopter," said Lieutenant General James Thurman, the army's operations director.

Thurman said he hoped the army will be able to present revalidated requirements for an armed reconnaissance helicopter by January for a new competition.

Officials said it would be open to European as well as US defense contractors.

The army, which notified Bell Helicopter Thursday night of the decision to terminate the contract, said cost overruns of about 40 percent over original estimates and delays in delivery schedules forced the action.

"The schedule and the cost that we expected with this helicopter did not pan out," said Lieutenant General Ross Thompson, the army's deputy procurement chief.

"Despite the fact that there is a certain amount of sunk cost in this program, it was no longer a good business deal for the army or the Defense Department," he said.

The terminated contract, which was awarded to Bell in 2005 over a bid by Boeing, called for delivery of 512 armed reconnaissance helicopters by 2021.

But the cost of the aircraft had skyrocketted from 8.5 million to 14.5 million each and delivery slipped from 2009 to 2013, officials said.

They attributed the problems to a decision by Bell to move production of the helicopter from Canada to Texas.

Under the original proposal, the aircraft was supposed to be based on a commercial Bell 407 produced in Canada, with a military mission package being installed in Fort Worth, Texas.

But the company discontinued the production line in Canada and moved the whole operation to Texas, officials said.

The program has been under a review triggered by US law called Nunn-McCurdy that calls for termination of a contract if it exceeds 25 percent of the agreed cost of the deal unless it is re-certified by the the Defense Department.

An earlier army program to build a stealthy reconnaissance helicopter called the Commanche was abandoned in 2004 to shift money to other army aviation programs.

The latest setback comes as commanders are pressing for more helicopters in Afghanistan, where currently 32 OH-58s are operating, about half the number as in Iraq.

The army says the OH-58 is being operated more intensively than any other aircraft in its fleet, which includes AH-64 Apaches, UH-60 Black Hawks and CH-47 Chinooks.

"When I commanded the 4th Infantry Division, the number one call I got every night was 'troops in contact, requesting attack aviation,' Every day," said Thurman, a former division commander in Iraq.

"And when I went to Afghanistan that's what I saw."

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