The Pentagon also said it would not pay $1.4 billion in claims that the contractors were seeking for cost overruns already incurred in developing the highly secret, wedge-shaped plane.
The contractors said they would challenge the cancellation in court.
"This program cannot be sustained unless I ask Congress for more money and bail the contractors out," Cheney said in a statement. "But I have made the decision that I will not do that. No one can tell me exactly how much more money it will cost to keep this program going."
The Pentagon has spent $1.2 billion to develop the carrier-based A-12, a flying-wing design similar to that of the Air Force's B-2 bomber.
A twin-engine, two-seat bomber with radar-eluding stealth technology, the A-12 was intended to serve well into the next century as the Navy's key aircraft for attacking ground targets. The bomber was designed to replace the Navy's A-6 Intruder, which entered service in the early 1960s and which cost about $20 million per plane in 1986, shortly before production ended. The cost of each A-12 had been placed as high as $96.2 million.
Previous Pentagon estimates of the excess costs had been around $1 billion, but the Pentagon said yesterday that the estimated cost to complete development of the plane is almost $3 billion above its original $4.8 billion ceiling.
In addition, the plane's first flight had slipped by more than a year, to late 1991.
Pentagon spokesman Pete Williams said the cancellation was "based on the inability of the contractors to design, develop, fabricate, assemble and test A-12 aircraft within the contract schedule and to deliver an aircraft that meets contract requirements."
Williams said he expected the program to shut down immediately. He said the Pentagon would not have to pay any penalty fees to the contractors because it canceled the contract for cause.
General Dynamics announced it would begin laying off 4,000 employees in Fort Worth, Texas, and Tulsa, Okla. McDonnell Douglas said it would lay off 3,000 in Tulsa and St. Louis and might lay off an additional 2,000 in the next few days.
Also, 3,000 others in 39 states will be affected.
"We are deeply disappointed . . . ," said McDonnell Douglas spokesman Lee Whitney. "We firmly believe we are not in default on this contract."
He said the contractors had made "significant strides in overcoming the technological and manufacturing challenges in this program."
General Dynamics issued a similar statement, calling Cheney's decision ''extremely disappointing, especially in light of the substantial progress that has been made."
The program to build 620 of the bombers entered a tailspin a year ago when a congressional committee inadvertently released the first estimate of highly secret program's skyrocketing cost.
At the time, angry Navy officials privately blamed sloppy editing by the House Appropriations Committee for revealing that the service wanted to spend $10.2 billion to build 106 A-12s by 1994, a per-plane cost of $96.2 million. About the same time, Navy sources began warning that the plane weighed too much, a critical shortcoming in a plane designed to be launched off aircraft carriers.
The A-12's woes snowballed rapidly since last month, when the Pentagon's top weapons-buyer quit his post amid criticism he missed nagging problems with the A-12 and allowed Cheney to tell Congress the program was on track.
Cheney threatened to cancel the program late last month, but most government and industry insiders had expected him to slow down the project and buy fewer planes as has happened in other weapons programs that have run into problems.
Congressional staffers working on military issues said they were ''stunned" and "amazed" by Cheney's decision.