Pentagon, Lockheed see price of F-35 going up

OSLO/WASHINGTON Tue Feb 14, 2012 4:03pm EST

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OSLO/WASHINGTON (Reuters) - Delays in U.S. and international orders for Lockheed Martin Corp's new F-35 fighter jet will increase its total cost, Lockheed and U.S. officials said on Tuesday, as Italy announced a cut in spending on the warplane.

On Monday, the Pentagon confirmed plans to put off orders for 179 F-35s over the next five years to save $15.1 billion and allow more time for testing, a third restructuring in recent years.

U.S. officials insist they have not changed their plans to develop and buy 2,443 jets at a cost of $382 billion over the next few decades.

Continued schedule delays and talk of lingering technical issues have prompted the eight countries that are helping to fund development of the new plane -- Britain, Australia, Turkey, Canada, Denmark, Norway, Italy and the Netherlands -- to rethink their own near- and long-term plans.

Acting Pentagon acquisition chief Frank Kendall said the U.S. decision and any delays in international orders would drive up the average price per unit of the F-35 Joint Strike Fighter, the Pentagon's costliest weapons program.

Kendall, speaking to reporters after a defense conference hosted by Aviation Week, gave no detailed cost estimates.

In Oslo, Lockheed executive vice president Tom Burbage told Reuters that U.S. plans to drag out its purchases of the F-35 would increase the price of the plane somewhat.

"It will raise the overall average cost of the total procurement of all the airplanes bought," Burbage said during a visit to discuss Norway's plans for the fledgling aircraft.

David Van Buren, acquisition chief for the U.S. Air Force, said he expected the U.S. slowdown in production to have a "reasonably small" impact on the cost per airplane, if Lockheed took additional measures to rein in infrastructure, overhead and other costs of the program.

"We're going to have to work with the company to downsize the infrastructure cost as much as possible," he told the Aviation Week conference later in the day. The support levels in place were "simply not affordable" since production rates were not yet at 80 airplanes per year, as once planned, he added.

Lockheed, like other defense companies, had to "think about what size of a business they have going forward," he said when asked if Lockheed needed to close some manufacturing facilities as Boeing Co has done with its large Wichita, Kansas plant.

In Rome, Defense Minister Giampaolo Di Paola said Italy would cut investment in the radar-evading new fighter, although he said the plane was "still an important commitment" for the country's defense system.

He gave no details, but Italian media reports forecast Italy would cut 40 warplanes from the 131 originally planned.

TRYING TO KEEP PARTNERS ON TRACK

Kendall said he was encouraging the international partners to stay with the program, despite the Pentagon's own plans to postpone orders for 179 jets for five years.

He said the Pentagon's unit cost projections for the F-35 fighter program factored in the expected sale of over 700 airplanes to international partners over the next decade, including a significant number over the next five years.

"If they slip, it'll push (the price) up," Kendall said.

Kendall said Washington was seeking to assure its partners that it would ramp up production rates as soon as possible, and it was working hard to drive down the long-term cost of buying and operating the jets.

Current plans call for the Pentagon to buy a total of 244 jets over the next five years, starting with 29 jets in fiscal 2013 and fiscal 2014, but rising sharply in the following years. Sales to partner countries and Israel and Japan are slated to total 285 over the same time period, but may yet change.

Kendall said he would get more details about the partners' procurement plans at a meeting of the program's joint executive steering board in Australia in mid-March.

Kendall said he spoke to one of the partner countries on Monday, and the official assured him that their purchases would remain unchanged in the near term. He did not name the country.

He said the Pentagon was trying to be transparent about remaining design challenges on the F-35 -- and their solutions -- so that the other countries could make well-informed decisions.

Norwegian Deputy Defense Minister Roger Ingebrigtsen on Tuesday said Norway's purchase plan would be firmed up with little change and presented to the parliament for approval by early April.

Before that, he said, he would attend a gathering of international buyers called by Canada ahead of a formal meeting in mid-March where they are to outline firm order plans.

"It is a kind of fact-finding meeting," he said. "What is the price in Canada and what is the price in Norway? Why do we sometimes see different numbers for different countries?"

CANADA SETS MARCH MEETING ON PROGRAM

Canada has sent out invitations for a meeting at its embassy in Washington from March 1-2.

Canadian Defense Minister Peter MacKay repeatedly dodged a question on Tuesday on whether the government was rethinking its planned F-35 purchases, saying only that Canada was committed to buying aircraft that would aid its troops.

Steve O'Bryan, the Lockheed official in charge of international orders, told Reuters he had assured Canadian officials during a visit last week that the price of their jets would increase by a nominal percentage amount "in the low single digits" as a result of the U.S. slowdown.

Britain, the biggest outside contributor to F-35 development, has said it would wait until 2015 to decide how many jets to buy.

Turkey has halved its initial order for four planes, part of a larger order that it has not yet reduced, and Australia is thinking about changing the pace of 12 initial orders.

Lockheed's Burbage said none of the international partners had scaled back their formal commitments yet.

(Reporting by Walter Gibbs in Oslo and Andrea Shalal-Esa in Washington; Additional reporting by Steven Scherer and Massimiliano Di Giorgio in Rome, and Louise Egan in Ottawa.; Editing by Gerald E. McCormick and Andre Grenon)

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