UPDATE 2-U.S. general suggests GE, Rolls pay for F-35 engine

* Says cost to finish development is $1.9 bln

* Says GE-Rolls funding could change minds at Pentagon

* Won't rule out possible savings longer term (adds Pentagon comment)

By Andrea Shalal-Esa

WASHINGTON, Oct 12 (Reuters) - The U.S. Air Force chief of staff on Tuesday mapped out a possible compromise to end the fight between the Obama administration and Congress over a second engine for the F-35 fighter plane.

Gen. Norton Schwartz said if General Electric Co (GE.N) and Britain's Rolls Royce (RR.L) agreed to fund more of the remaining development of their F136 engine this could diminish opposition to funding the program.

The Pentagon has tried for years to save money by canceling the GE-Rolls engine, which is being developed as an alternate to an engine built by United Technologies Corp (UTX.N) unit Pratt & Whitney.

Lawmakers, arguing that maintaining competition between the engine teams will save money in the longer-term, have continued to fund the controversial program.

Defense Secretary Robert Gates has repeatedly said he will recommend that President Barack Obama veto any bill that funds the second engine.

Speaking at the National Press Club on Tuesday, Schwartz said he would not deny that maintaining competition in the program might well result in long-term savings. But he said the problem was that the Pentagon could not afford it now.

"If Rolls and GE are so confident that their product will succeed and bring value to the taxpayer ... it would be nice if they put a little more against that $1.9 billion bill that they'd like the taxpayer to undertake," he said.

Asked if his suggestion could point toward a way to resolve the issue, Schwartz told Reuters, "This is the secretary's business. My point was that if Rolls and GE (were) predisposed to use their own investment dollars to field the engine, then it might change people's view."

He said he did not know how much of that funding GE and Rolls would have to cover.

GE spokesman Rick Kennedy said both companies had already invested a "considerable amount" of money in the program, but gave no details.

Pentagon spokeswoman Cheryl Irwin said Gates continued to oppose the need for an alternate engine in the F-35 program.

She said development of the F136 GE-Rolls engine was continuing with research and development funding appropriated by Congress in fiscal year 2010 that had been carried over to the new fiscal year, which began Oct. 1.

She said there were sufficient funds for the period through Dec. 3 covered by a continuing resolution. "If the continuing resolution is extended, the department will make a decision at that time concerning further funding," she said. (Reporting by Andrea Shalal-Esa; editing by John Wallace and Carol Bishopric)