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Lockheed gets up to $4.9 billion in further F-35 funding

By Andrea Shalal-Esa

WASHINGTON (Reuters) - Lockheed Martin Corp on Friday was awarded up to $4.9 billion in additional funding for its F-35 Joint Strike Fighter program, the Pentagon announced on Friday, providing a significant end-of-year boost in orders for the largest U.S. defense contractor.

The U.S. Defense Department said it had reached agreement with Lockheed on a preliminary contract valued at up to $3.68 billion for 31 F-35s in a sixth batch of planes to be built for the U.S. military, with details to be finalized the coming year.

It also awarded Lockheed additional separate contracts valued at up to $1.2 billion for spare parts and sustainment of the new radar-evading warplane.

The Pentagon plans to spend $396 billion to buy a total of 2,443 F-35 fighter jets from Lockheed over the next decades for the U.S. Air Force, Navy and Marine Corps, making the Joint Strike Fighter the costliest weapons program in U.S. history.

Lockheed is developing the single-seat, single-engine plane for the U.S. military and eight international partners -- Britain, Australia, Italy, Canada, Turkey, Denmark, Norway and the Netherlands, which helped pay for the plane's development.

The production contract announced on Friday includes 18 conventional takeoff and landing jets for the Air Force, six short takeoff and landing variants for the Marine Corps; and seven carrier variants for the Navy.

It does not include three F-35 fighters to be purchased by Italy and two to be purchased by Australia as part of the sixth lot of low-rate, initial production.

Those agreements will be negotiated next year, said Joe DellaVedova, spokesman for the Pentagon's F-35 program office.

He said an agreement reached earlier this month on a fifth batch of jets had helped speed up negotiations on the preliminary sixth production contract.

"The F-35 Joint Program Office continues to work diligently to ensure that managing jet cost, remaining on schedule during test and production and driving production efficiencies ... are incentivized in contract negotiations while ensuring that respectable profit is available to the contractor," he said.

He said the Pentagon continued to push the company to reduce its "rework" rate, which refers to production work that has to be redone because of mistakes, and also the amount of time needed to make any required changes to the plane's design.

Lockheed welcomed the agreement with the Defense Department.

"We remain committed to reducing costs while building upon our excellent production performance in 2012," said spokesman Mike Rein. "Our top priority remains to deliver the F-35's 5th generation capability to our U.S. and partner nations."

The agreement also does not include engines for the fighters, which are purchased under separate contracts negotiated directly between the Pentagon and engine maker Pratt & Whitney, a unit of United Technologies Corp.

Sources familiar with the government's talks with Pratt & Whitney said they were making good progress.

The Defense Department two weeks ago finalized an agreement with Lockheed for a fifth batch of F-35 planes, a $3.8 billion deal to buy 32 of the aircraft.

At the time, company executives and defense officials said that agreement paved the way for a deal on early funding for the next group of planes by the end of the year.

The agreement obligates a significant portion of the funding for that next group of F-35s, safeguarding that money from cuts, even if U.S. lawmakers do not reach a deal to avert automatic reductions due to start taking effect on January 2.

The agreement also removes a potential $1.1 billion liability that Lockheed said it faced on the program for work done by it and its key suppliers without a signed contract.

Lockheed shares closed $1.49, or 1.6 percent, lower at $91.34 on the New York Stock Exchange on Friday.

(Reporting by Andrea Shalal-Esa; Editing by Richard Chang, David Gregorio and Bob Burgdorfer)

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