U.S. delays will raise F-35 fighter price, Japan deal unchanged

WASHINGTON Thu Mar 8, 2012 11:41pm EST

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WASHINGTON (Reuters) - The Pentagon on Thursday acknowledged that a delay in U.S. orders for 179 Lockheed Martin Corp F-35 fighter jets would raise the cost of each new warplane in the short term, but said Lockheed still needed to keep driving down its production costs.

Navy Vice Admiral David Venlet, who heads the Pentagon's F-35 program office, said he had briefed the eight international partners about the effect of the production slowdown, and they affirmed their commitment to the program at a meeting last week.

The Pentagon is postponing the orders to save $15.1 billion through fiscal year 2017, and allow more time for development and testing, a move that has prompted its foreign partners to rethink their own orders.

Venlet declined to identify the scope of the expected cost increase, noting that further details would be released as part of a Pentagon report to Congress later this month.

He said the partner countries -- Britain, Australia, Canada, Italy, Turkey, Denmark, Norway and the Netherlands -- remained committed to the program, although some would likely postpone their own orders as a result of the U.S. move.

Italy has already announced plans to cut its total order of 131 planes to 90 planes, a reduction of 30 percent.

Venlet said the total U.S. planned order remained unchanged at 2,443 fighters for the Air Force, the Marines and the Navy.

JAPAN DEAL "FIRM"

Venlet said he had assured Japan, one of the first two foreign countries outside the partnership to buy the jet, that the terms of its agreement in December to buy 42 F-35 fighter jets would not change as a result of the U.S. move.

"Their deal is firm," he told a defense conference hosted by Credit Suisse and defense consultant Jim McAleese.

Japanese Defense Minister Naoki Tanaka last week said Japan could cancel orders for F-35 jets if the price rose. Japan is due to pay 9.9 billion yen ($121.62 million) per fighter for an initial four F-35s scheduled for delivery by March 2017.

"We can look national leadership in the eye and say, 'Your deal is good, with the (terms) that you were offered,'" Venlet told reporters after his speech at the conference, referring to his conversations with Japanese leaders.

He said Washington was in talks with Singapore, South Korea and other countries about additional foreign military sales of the F-35, which would help offset delays in orders from the United States and its international partners.

He said Israel had expressed interest in a second batch of planes beyond its first order for 19 fighters. "I know that that's out there as an aspiration. We haven't entered any detailed financial discussions with them on it," he said.

Navy Secretary Ray Mabus told reporters the Marine Corps variant of the F-35, which can land vertically like a helicopter, was also seeing more foreign interest after being removed from a two-year "probation" a year ahead of schedule.

PENTAGON PRESSING LOCKHEED TO DRIVE DOWN PRICE

Venlet said the Pentagon was in talks with Lockheed about a contract for a fifth batch of 30 planes, but gave no details.

He said Washington expected the price of those planes to be lower than in the last contract signed with Lockheed, despite the current plateau in annual production levels.

"Both parties know that there's an expected benefit year by year, even though you're flat, and I'm confident that we'll come to a fair and reasonable deal," he said.

Separately, the Air Force said it expects to start operational use of the F-35 later than its previous target of 2016, given the Pentagon's plan to slow down production.

"It will move to the right," Lieutenant General Herbert Carlisle, deputy chief of staff for operations, plans and requirements, told the same conference.

Carlisle said the F-35 would reach "initial operational capability" only after achieving certain milestones, including software development and completion of operational testing, something now expected "later in the decade."

The production slowdown has been widely expected to result in delays in operational use of the new aircraft, but Carlisle's comments provided the first clear indication that the Air Force will not start using its new warplanes until after 2016.

Venlet admitted that delays in operational use could be problematic for some foreign buyers, but said the plane had moved beyond the design phase and was showing solid progress.

He said there was still work to do on software development, the pilot helmet that displays all flight and weapons systems data, a tailhook that catches the carrier variant upon landing, vents for dumping fuel before landing, and airframe durability.

But all those items were normal during the course of developing a new fighter plane, and nothing stood out as an "extraordinary" challenge to the program, Venlet said. He said the program had a significant "reserve" to deal with any new issues that arose "without driving the program into a ditch."

Carlisle said the Air Force would carry out service life extensions and add capabilities to existing F-16 fighters to bridge the gap, but had not changed its plan to buy a total of 1,763 F-35 fighters over the next decades. ($1 = 81.4000 Japanese yen)

(Reporting By Andrea Shalal-Esa; Editing by Gary Hill and Richard Pullin)

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