UPDATE 2-Italy cuts F-35 fighter orders by 30 percent

Wed Feb 15, 2012 1:53pm EST

* Italy to save some 5 billion euros through F-35 cuts

* Italy to order 90, not 131 warplanes

* Australia does not confirm further orders

By Antonella Cinelli and Steve Scherer

ROME, Feb 15 (Reuters) - Italy will cut its order for Lockheed Martin Corp's radar-evading F-35 fighter planes by more than 30 percent as part of Prime Minister Mario Monti's battle against state spending, Defence Minister Giampaolo Di Paola said on Wednesday.

Italy plans to buy 90 warplanes instead of the 131 it agreed to purchase a decade ago, Di Paola said in testimony to the joint Senate and Chamber of Deputies defence committees.

"It's a significant reduction that is coherent with our need to reduce spending," he said. The reduction will save the country about a third of its original spending estimate, he said.

This would mean a saving of around 5 billion euros on the original estimate of 15 billion.

To shore up public accounts and stem contagion of the euro zone debt crisis, Monti imposed 33 billion euros in tax hikes and spending cuts at the end of last year. On Tuesday he refused to back funding for Rome's bid to host the 2020 Olympic Games.

Following U.S. President Barack Obama's lead, Monti has now turned his sights on military spending.

On Monday Obama unveiled a 2013 defence budget that proposes cuts in Pentagon spending for the first time since 1998, slashing $487 billion in projected outlays over the next decade.

As part of the budget, the Pentagon postponed orders for 179 F-35 Joint Strike Fighters over the next five years to save $15.1 billion, although it says it still plans to purchase 2,443 jets in coming decades.

Italy will still play a key role in the multinational program, reinforcing strong security ties with the United States, Lockheed said. Initial F-35s would go to Italy as part of a sixth batch of planes, it said.

"Lockheed Martin understands the financial challenges facing defense budgets around the world and appreciates Italy's continued commitment in the program," said company spokesman Michael Rein.

The Pentagon's F-35 program office had no immediate comment.

Shares of Lockheed were down 1.6 percent at $87 in afternoon trading.

PARTNERS

Schedule delays in developing the Joint Strike Fighter and talk of lingering technical issues have prompted the United States' eight partners on the project -- Britain, Australia, Turkey, Canada, Denmark, Norway, Italy and the Netherlands -- to rethink their own near- and long-term plans.

Australia's military on Wednesday said it would sign a contract for two Lockheed Martin F-35 Joint Strike Fighters in the third quarter this year, but it was keeping its options open on previous plans to buy a further 12.

Australia has committed to buying 14 F-35s, and is considering purchasing up to 100 of the new-generation planes for around A$16 billion ($17 billion).

Britain, the biggest outside contributor to F-35 development, has said it will 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.

The postponements and reductions will drive up the price tag per aircraft, Pentagon and Lockheed officials said on Tuesday. The partners are to finalize their procurement numbers at a meeting in Australia in mid-March.

PATROL BOATS AND SUBMARINES

The F-35 is not the only defence cut Italy is planning. The 183,000 military and 30,000 civilian personnel, which currently account for 70 percent of the nation's military spending, will progressively be cut by 20 percent, Di Paola said.

Italy will close or sell 30 percent of logistical bases and regional headquarters over about five years, and the navy will reduce patrol boats to 10 from 18 and submarines to four from six, Di Paola said. He gave no overall savings estimate.

Italy's state-owned defence company, Finmeccanica, is one of the subcontractors on the project. Finmeccanica's Alenia unit will assemble the planes purchased by Italy, the Netherlands and Norway.

Finmeccanica shares dipped 0.1 percent on Wednesday. They had fallen more than 2.3 percent on Tuesday after Di Paola initially announced reductions in overall military spending without giving details.

On Tuesday, Di Paola said the country remained committed to F-35s both because they will replace Italy's increasingly obsolete fighter force, and because of its industrial importance.

"More than 20 companies have won contracts and there are about 10,000 potential jobs" linked to Italy's portion of the aircraft's production, he said.