UPDATE 1-Lockheed F-35 to beat Pentagon estimate by 20 pct
* Working toward fixed-price contract
* Carrier variant to make first flight soon
* 93 test flights done so far this year (Adds details, quotes, byline)
WASHINGTON, June 1 (Reuters) - Lockheed Martin Corp (LMT.N) is making good progress negotiating a U.S. contract for a fourth batch of 32 F-35 Joint Strike Fighter planes and expects to beat the Pentagon's cost estimates by more than 20 percent, a senior company official said on Tuesday.
Lockheed is also working toward a contract based on a fixed price with an incentive fee that would kick in two years ahead of when this type of contact is scheduled, the official said.
The company's willingness to move away from the cost-plus contract often used in early production underscored its confidence in the program, said the official, who was not authorized to speak publicly and asked not to be identified.
The comments on the talks between Lockheed and the Pentagon came as the U.S. Defense Department told Congress that the F-35 fighter program and five other big weapons programs were vital to national security and should continue, despite big cost overruns that triggered live-or-die reviews.
The Pentagon restructured the F-35 program earlier this year and fired the Marine Corps general who was running it, adding 13 months and $2.8 billion to the plane's development phase and slowing the timetable for full production.
It also withheld up to $614 million in performance fees from Lockheed because its performance fell short of expectations.
But program has seen a spate of successes in recent months, including progress on a more ambitious flight test schedule and development work on a carrier variant, the last of three versions of the fighter, said the official.
The carrier variant of the new multinational fighter jet, which Lockheed is building for the Navy, is expected to make its first flight in the "very near term," or a matter of days.
The company had also completed 93 test flights of the new fighter so far this year, beating its target for the period, and bringing the overall number of test flights to over 250.
The Pentagon plans to tell Congress on Tuesday that it will continue work on the F-35 fighter program and five other big weapons programs, despite cost overruns that triggered live-or-die reviews, according to spokesman Bryan Whitman.
Defense officials told lawmakers in April a restructuring of the F-35 would result in a sharp increase in unit costs, driving the overall program of the program to $328 billion.
The Pentagon's selected acquisition report said each fighter would cost $93 million to $112 million in fiscal year 2010 dollars, up from the $59 million initially expected.
Those cost estimates included military construction costs, spares and other equipment, said the Lockheed official.
Excluding those costs, the average unit recurring flyaway cost of the F-35 would be around $60 million in 2010 dollars, about the same as the U.S. military paid for its fleet of F-16 fighters, also built by Lockheed, said the official.
That figure encompassed the cost of a combat-ready aircraft, including radars, targeting equipment, and electronic warfare and jamming equipment.
Lockheed's next low rate initial production contract would likely beat the target set by the Pentagon's Cost Assessment and Program Evaluation (CAPE) by over 20 percent, said the official, who declined to give specific numbers.
Sources close to the process said the Pentagon has spent the past few weeks trying to whittle down the price per plane by about $20 million and was also seeking some additional equipment for the next batch of airplanes.
The two sides have since narrowed their differences, said one source briefed on the negotiations, and were now "very close" to a deal. "How far apart we are is not that much," said the source, who was not authorized to speak on the record. (Reporting by Andrea Shalal-Esa; Editing by Ted Kerr)
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