UPDATE 3-US House,Senate negotiators fund 2nd F-35 engine

* U.S. Senate passes military spending bill

* Bill negotiators fund total $6 bln for 30 F-35s

* U.S. House may vote Thursday on compromise bill
(Adds Pentagon, White House reaction, Senate passage)

By Andrea Shalal-Esa

WASHINGTON, Oct 6 (Reuters) - U.S. House and Senate
negotiators defied a White House veto threat and agreed on
Tuesday to include $560 million in the fiscal 2010 defense
authorization bill for an alternate F-35 engine, several
sources familiar with the talks told Reuters.

President Barack Obama and Defense Secretary Robert Gates
have repeatedly said they oppose funding for the second F-35
engine, which is being built by General Electric Co (GE.N) and
Britain's Rolls-Royce Group Plc (RR.L) given mounting pressures
on the U.S. defense budget.

But administration officials issued more cautious
statements on Tuesday, which several sources said signalled
that the White House was easing off its veto threat.

"If the final bill this year once again calls for further
investment in a second engine, the department will carefully
evaluate the impact of that before making a recommendation to
the president about whether or not to veto the legislation,"
said Pentagon spokesman Geoff Morrell.

"We need to see the whole bill," said Kenneth Baer, press
secretary for the White House budget office.

The White House had said Obama's advisers would recommend a
veto if the final bill would "seriously disrupt" the F-35
program, but that phrase left officials some "wiggle room,"
said one congressional aide, who asked not to be identified.

Morrell's response to the move was "pretty qualified," said
a second congressional aide, noting that this case clearly
differed from the F-22 fighter, which lawmakers agreed to halt
after a direct and forceful veto threat from the president.

"People just weren't willing to fall on their swords for
this one," said the second aide.

Congress has funded work on the second engine for 13 years,
eager to support high-paying jobs and maintain competition in a
weapons program that is valued at over $100 billion over time.

If Congress prevails in funding the engine this year, it
would be the fourth straight year that it has overridden
efforts by the Pentagon to scrap the program.

Funding for the second engine was in addition to the
program budget, and did not reduce the Pentagon's $6 billion
request to buy 30 F-35 fighters, said two sources, who were not
authorized to speak on the record.

The conferees were due to meet again on Wednesday to
finalize the compromise bill, which authorizes Pentagon
programs, followed by a vote in the full House on Thursday.

Separately, the Senate approved a separate measure that
actually funds Pentagon programs.

The Senate's fiscal 2010 appropriations bill included no
funding for the second engine program, but Senator Daniel
Inouye, who heads the Senate Appropriations Committee, favors
funding the engine, which means the compromise version of that
bill is likely to include some money for it as well.

Lockheed Martin Corp (LMT.N) builds the F-35 fighter. Pratt
& Whitney, a unit of United Technologies Corp (UTX.N), which
builds the airplane's main engine, has lobbied hard to shore up
support for proceeding with just one engine for the fighter.

Pratt spokesman Jay DeFrank said the bill was not yet done,and the administration's reaction could still affect its final
outcome.

GE spokesman Rick Kennedy said the GE-Rolls team had not
been formally notified of what the congressional negotiators
decided, but funding for the competing F-35 engine would be "a
victory for acquisition reform."

Proponents of the second engine, which Congress first began
more than a decade ago, argue that competition is imperative in
a program involving over 3,000 engines. They say the Pentagon's
own studies conclude it would save $2.2 billion over time by
keeping both engine teams on their toes.

The initial House version of the fiscal 2010 defense
authorization bill included $603 million in funding for the
alternate engine, while the Senate included none.

Morrell last week said the department was also concerned
about ensuring that Congress did not cut the number of
airplanes in the program or shift development funds, which
could increase the cost of the program in the longer term.

RELATED NEWS:

* ANALYSIS-Compromise seen on F-35 engine [ID:nN02340845]

* Engine problem won't delay F-35 tests [ID:nN14505160]

* UTC sees 30 pct cut in F-35 engine cost [ID:nN23415685]
(Additional reporting by Caren Bohan and Andy Sullivan;
Editing by Julie Vorman, Gerald E. McCormick and Carol
Bishopric