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The Federal Aviation Administration on Friday ordered a broad-scale retreat from one of the most ambitious computer modernization projects undertaken by the U.S. government.

FAA Administrator David Hinson said the agency will cancel outright two components of the modernization of the nation's air-traffic-control system. He has ordered an intensive 90-day review of a third key component.Deputy Administrator Linda Daschle said the government will save "hundreds of millions of dollars" as a result of the decisions, which also will mean the loss of an undetermined number of jobs at the former IBM Federal Systems unit in Montgomery County, Md., now owned by Loral Corp.

This allows companies such as BDM International Inc., Hughes, Unisys and Raytheon to win portions of a contract still expected to run and valued in excess of $5 billion by the time it is completed after the year 2000.

The overall FAA project, called the Advanced Automation System, was supposed to provide air traffic controllers with state-of-the-art computers, systems and work-stations that would link the vast array of radars, satellites and communications facilities that help guide thousands of flights across the country. Many current computer facilities date to the 1960s.

"The fact that it is a smaller program is not discouraging to Loral. It will turn out to be a better program," said Loral Chairman and chief executive Bernard L. Schwartz.

Schwartz says Loral is assessing the number of jobs that will be affected and expects an answer within the next two weeks. "We owe it to our people and to subcontractors to come out with as quick an answer as possible," he said.

Hinson said the remaining $2 billion software program designed to give air traffic controllers sophisticated new workstations will be reviewed by an expert team from the Lincoln Laboratories and Carnegie-Mellon Institute working together with FAA and Loral experts.

Hinson said he ordered this review because he was confronted with conflicting opinions about the program's feasibility and wanted a third viewpoint. The FAA has already spent $1 billion; if the program is scrapped, that money will be lost.

An earlier study for the FAA by the Center for Naval Analysis found the software design being used by IBM (now Loral) "seriously flawed" and riddled with errors, a position Loral disputes.

Schwartz said in an interview Friday that Hinson's announcement "demonstrates the FAA's determination to proceed with this important modification program. It validates the overall conceptual approach subject to the fact that the software does what it is supposed to do."

Of the new study, Schwartz said, "If I were he, I would do the same." Some of Friday's steps could prolong the automation project since some of it is to be put out for a new "competition" among prospective contractors, often a time-consuming process.