The Defence Department has recommended that the contract with US manufacturer Kaman Aerospace Corporation be terminated.

And senior government sources say the axe could fall on the project to refurbish the Vietnam-era helicopters as soon as next Wednesday's meeting of federal cabinet's National Security Committee.

The Seasprite helicopters have been dogged by software engineering glitches and airworthiness issues, with the project running more than six years behind schedule.

The twin-engine SG-2G(A) Super Seasprites, equipped with Penguin anti-ship missiles, are designed to operate from the navy's Anzac-class frigates, providing a maritime strike and surveillance capability for the surface fleet.

If the Seasprites are dumped, Defence will buy a new helicopter for the Anzacs, choosing between the US Seahawk, which is already in service with the navy, and the European NH-90, in an investment likely to cost at least $1.5 billion.

The failure of the project will be an embarrassment for the Howard Government, which is extolling its virtues as a superior economic manager against new Labor leader Kevin Rudd.

The Government is expected to counter that it was burdened with the project by the previous Labor government of Paul Keating.

Kaman executives have been in Canberra this week lobbying hard for the retention of the project, arguing that the Seasprites are safe to fly, with only Australian airworthiness certification procedures yet to be met.

But the latest estimate from Defence is that the navy will now not have a fully operational Seasprite squadron until 2010, at the earliest.

The original $667 million contract with Kaman, signed in 1997, called for the supply of 11 helicopters. The one-off project involved fitting a wholly new avionics package designed for the Royal Australian Navy into a 1960s airframe.

Ten of the Seasprites have been delivered to the navy but were grounded last year after concerns about their airworthiness and problems with their flight control systems.

If the project is scrapped, it is likely Defence will attempt to sell the remaining Seasprites.

More than a decade in development and now running six years late, the Seasprite has been one of Defence's most troublesome "legacy projects" - those that originated before the election of the Howard Government in 1996 and before major reforms of the Defence Materiel Organisation, the organisation that manages new equipment purchases.

Defence Minister Brendan Nelson has made no secret of his unhappiness at the state of the Seasprite program and his readiness to consider an alternative solution for the navy.

Dr Nelson met senior Kaman executives in Washington in December to express his concerns at the continuing delays in achieving an operational capability for the navy's Fleet Air Arm.

"The company has failed to understand that they have lost the confidence of the customer," one senior government source told The Weekend Australian.

A decision to scrap the Seasprite would come as a bitter blow to the helicopter's manufacturer, which maintains that all the major hurdles to achieve a fully operational capability have been met.

Kaman estimates that meeting Australia's current airworthiness certification regulations, which fall outside the original contract specification for the Seasprites, will take a further 29 months and cost $US35 million ($45million).

Kaman is confident that it has solved all technical problems associated with the Seasprites' flight control system. This includes the handling glitches in the Seasprite's air data computer before last year's grounding of the machines.

"We have really done all of the testing to this point to convince us that the aircraft meets all of its specified requirements," Kaman Aviation's vice-president of engineering Mike Bowes told The Weekend Australian.

This included bench and flight testing of it and its sensors and weapons systems, including the Penguin anti-ship missile.

"We have just completed an enhancement of the flight control system which the commonwealth asked us to do to allow us to get an interim airworthiness certificate," he said.

Mr Bowes said Kaman had agreed a statement of work with the commonwealth to achieve full air certification by mid-2009.

The additional $US35 million cost will cover further software engineering and installation of additional redundancy in the Seasprites' flight control system as well as new software to comply with regulations.

Kaman is confident it has satisfactorily resolved a list of outstanding concerns presented by Defence last year relating to the performance of the Seasprites. These included the helicopter's performance when it was equipped with the Penguin missile and its stability when the missile was fired.

Dr Nelson has compared the ambition of the program, in which the latest avionics have been incorporated into an older airframe, to trying to put a "2010 motor vehicle into an EH Holden". "If this were a domestic purchase and you had the project in your garage, you would be sitting around your kitchen table with your wife saying, 'Look, do you think we should be continuing with it?"' he told The Weekend Australian last year.

"If it was my money, my project, and it involved my domestic arrangements, I know what I would be doing."