U.S. Army sees savings on upgrades for Vietnam-era helicopter WASHINGTON (Reuters) - The U.S. Army will hold a flight demonstration on Tuesday of a newly upgraded version of the Vietnam-era OH-58 Kiowa Warrior helicopter, an Army-led initiative that officials say will save $600 million in coming years. The Army managed the project, which first began in December 2010 and was aimed at improving the capabilities of the existing helicopters by giving them a new common sensor, upgrading their cockpit displays, and cutting their weight by about 160 pounds (73 kg). By tapping its own expertise and working closely with the helicopter's original manufacturer, Bell Helicopter, a unit of Textron Inc, and Honeywell International, which makes the helicopter's avionics, Army officials said they were able to build two prototype aircraft and start flying them just two years after the program began. "We've taken the best of everything and tried to package it into an aircraft as quickly as possible and get it out there ... to the force at considerable savings to the U.S. government and the U.S. taxpayer," Army Colonel Robert Grigsby, project manager for armed scout helicopters, told reporters. As the "lead system integrator" for the initiative, the Army also retained the technical rights to the new F-model, unlike earlier programs in which the integration work was outsourced to private firms which kept those rights, Grigsby said. He said the new aircraft had its first flight last Friday, and it would make a longer ceremonial flight on Tuesday. The Army plans to retrofit a total of 368 helicopters to the new F-model configuration by 2025. The program is slated for a major review by top Pentagon officials in March 2015 before it moves into low-rate production. The changes will replace about 60 percent of the airframes of the workhorse OH-58 helicopters, but officials stressed that the upgrades would not extend their overall service life. Further measures will be needed if budget pressures prevent the Army from launching a competition for a new armed scout helicopter to replace the OH-58, forcing the existing helicopters to remain in service through the mid-2030s, officials told reporters on a teleconference on Monday. U.S. Army leaders had hoped to launch a new competition for a replacement for the Kiowa Warrior helicopter but funding pressures have raised questions about those plans. Boeing Co, Europe's EADS, Sikorsky Aircraft, a unit of United Technologies Corp, and others had hoped to bid for a contract worth an estimated $6 billion to $8 billion to build a new armed scout helicopter. If the acquisition program proceeds, it will be the Army's third attempt to start replacing the OH-58 helicopters, whose basic airframe dates back to the Vietnam era, although it has been upgraded and modernized several times to keep it current. Lieutenant Colonel Matt Hannah, product manager for the Kiowa Warrior, said there had been some cost growth in the program due to delays in the congressional budget process and the Army's decision to stretch the program for five more years. Over time, the Army's decision to manage the upgrades would save the government about $600 million, largely due to lower labor and overhead rates in government than industry, he said. Colonel John Lynch, capability manager with the Army's Training and Doctrine Command, said the F-model's lower weight would allow it to carry fuel for 30 minutes of extra flying time, or to essentially double its weapons load. The new sensor would also give the scout helicopter the ability to locate possible enemies much faster and more effectively than before, Lynch said. Reporting by Andrea Shalal-Esa; Editing by Eric Beech