US Air Force wants to ink next F-35 deal in spring

WASHINGTON Wed Nov 2, 2011 8:09pm EDT

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WASHINGTON (Reuters) - The U.S. Air Force plans to wrap up a detailed agreement for a fifth batch of F-35 fighter jets with manufacturer Lockheed Martin Corp next spring, a senior service official told lawmakers on Wednesday.

Major General Jay Lindell, director of global power programs in the Air Force acquisition office, said a key issue in the talks between Lockheed and the Pentagon, which are just beginning, was the extent to which the company would share in the cost of any design changes that arose during testing.

Lindell was testifying before a subcommittee of the House Armed Services Committee. Meanwhile, Lockheed officials got the second session of a two-day briefing on the Pentagon's lengthy review of what the next batch of 30 F-35 warplanes should cost on Tuesday and Wednesday, spokesman Michael Rein said.

Completion of the so-called "should cost" review paves the way for the start of formal negotiations between the Pentagon and Lockheed, the Pentagon's largest supplier.

Those talks are being closely watched by investors, given ongoing tough scrutiny of the largest U.S. weapons program, which has seen costs rise sharply over the past 10 years.

Officials now estimate it will cost $382 billion to develop and build 2,447 of the radar-evading fighter jets for the U.S. military, more than twice the initial projected cost, but Pentagon officials have said they intend lower that projected cost sharply through tough cost-cutting measures.

Pentagon officials are "very much positioned" to reach a preliminary deal with Lockheed before the end of the year, said one senior official who was not authorized to speak publicly.

Once the two sides reach an agreement in principle, the government can award Lockheed an "undefinitized contract action" which would allow the company to receive some money toward manufacturing costs that it says are already piling up.

Then the government and Lockheed would continue to work out the details of a final "definitized" contract by the spring.

Lockheed has concerns about the government's push to make the company shoulder some "concurrency costs" -- the money it will take to redesign the plane and retrofit planes already on the production line if problems arise during testing, which is continuing even as the company is already building planes.

Lockheed warned investors last week that the Pentagon won't release any funding for the next planes unless the company agrees to pay concurrency costs.

The company's statement raised eyebrows among defense officials, who were surprised that Lockheed would go public with its concerns rather than work out its issues behind closed doors.

"It takes two to tango," the defense official said, noting that the two sides' ability to sign a contract depended largely on how much effort and staffing they were willing to invest.

Negotiations on the last contract took over eight months, but those talks were complicated by the switch from a cost-plus type contract to one with fixed price terms.

The official declined to give any details about the should-cost estimate since it is part of the ongoing contract talks.

Air Force Lieutenant General Herbert Carlisle, deputy chief of staff for operations, plans and requirements, told lawmakers the service is also working through concerns raised by the Pentagon's chief tester, who recommended the Air Force delay training pilots on the new plane for up to 10 months until further flight tests have been completed.

"Obviously we take the concerns ... very seriously," Carlisle told lawmakers, noting that the Air Force had given Michael Gilmore, the director of testing and evaluation, more information about the program in recent days.

"We have a very diligent and deliberate process to do military flight release and airworthiness certification," Carlisle said. "We believe that we'll be able to do that and satisfy all of his concerns."

(Reporting by Andrea Shalal-Esa and David Alexander; Editing by Gary Hill)

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