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Pentagon sees deal with Lockheed, Pratt on next F-35 lot by end May

A Lockheed Martin F-35B Lightning II joint strike fighter flies toward its new home at Eglin Air Force Base, Florida in this U.S. Air Force
A Lockheed Martin F-35B Lightning II joint strike fighter flies toward its new home at Eglin Air Force Base, Florida in this U.S. Air Force

By Andrea Shalal

WASHINGTON (Reuters) - The U.S. Air Force general who runs the F-35 fighter jet program for the Pentagon said he hoped to reach agreements with both Lockheed Martin Corp and engine-maker Pratt & Whitney by the end of May for the next order of fighter planes.

Lieutenant General Chris Bogdan told reporters he expected Pratt, a unit of United Technologies Corp, to cut the cost of the engine it builds for the fighter plane by more than the "weak" 2.5 percent reduction in the last contract. He forecast some "tough negotiating ahead."

Bogdan said Pratt had not met any of the targets it set in 2009 for lowering the engine's cost. He said reduced order quantities had limited the company's ability to lower costs, but overhead costs were also likely to blame.

"It's not just the quantities," Bogdan told reporters after a hearing of the Senate Armed Services Committee's airland subcommittee. "It's just not going down as fast as I want it to."

Bogdan told senators the cost of the Air Force model of the jet stands now at around $112 million, including the engine, but the program office and industry expected to drive that cost down to between $80 million and $85 million per plane by 2019.

Lockheed is developing three models of the F-35 for the U.S. military and nearly a dozen U.S. allies at a cost of around $392 billion. That is about 70 percent over initial estimates, but costs fell in 2012, and are likely to come down again this year.

Bogdan acknowledged that delays in U.S. military and foreign orders for the F-35 jets had slowed progress in lowering the planes' cost. But he said orders from additional countries like Israel and Japan were helping to offset the reductions.

He said Lockheed would produce 43 jets in 2015, with production rising steadily until it reached 180 planes in 2023.

The Pentagon's F-35 program office is negotiating contracts with Pratt & Whitney for a seventh and eighth batch of F135 engines to power the new warplane. It is negotiating a separate contract with Lockheed for the eighth batch of jets.

The Pentagon finalized a contract with Pratt worth $1.1 billion for 38 engines in a sixth batch last October, which lowered the cost of the common configuration engine built for the Air Force and Navy models by 2.5 percent.

Bogdan said he expected to finalize agreement with both companies around the same time, possibly around the end of May, but added that he would "not rush into a bad deal."

CONTRACTOR ACCOUNTABIITY

Bogdan's deputy, Navy Rear Admiral Randy Mahr, on Monday said Pratt had been told "in no uncertain terms" that it needed to work harder to lower the engine's cost.

Bogdan told the Senate subcommittee that he was trying to hold both companies more accountable for the program by shifting responsibility for cost overruns to the contractors.

Pratt spokesman Matthew Bates said his company had already cut the engine's cost by 40 percent, and was continuing to work on reducing overhead and production costs, but the key to bigger cost reductions would be to increase order quantities.

Bates acknowledged that Pratt had not met its cost reduction targets, but said that was largely because of delays in orders for the new fighter plane in recent years.

"We're not where we'd like to be," Bates said. "A production increase would accelerate reaching our cost-reduction goals."

Lockheed said it submitted its proposal for the eighth batch of jets in December and was now in talks with the Pentagon.

(Reporting by Andrea Shalal; Editing by Sandra Maler and Jan Paschal)

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