UPDATE 1-Lockheed F-35 fighter costs rise 4.3 pct-Pentagon

Thu Mar 29, 2012 3:57pm EDT

* Cost of engine, plane driven up by slower orders

* Pentagon sets affordability targets for new warplane

* Full-rate production delayed to 2019

By Andrea Shalal-Esa

March 29 (Reuters) - The projected cost of developing and building the Lockheed Martin Corp F-35 Joint Strike Fighter rose 4.3 percent to $395.7 billion last year, the Pentagon said on Thursday, citing, in part, slower orders from the U.S. military and other countries.

The Pentagon's acting chief weapons buyer, Frank Kendall, said he approved continued low-rate production of the supersonic, single-engine fighter, with the plane to hit full-rate production only in 2019, two years later than planned.

Pentagon spokesman George Little also confirmed a new estimate that the total lifetime cost of the new warplane, including production, operating and maintenance costs, and inflation, will reach $1.45 trillion over the next 50-plus years.

The new estimate, first reported by Reuters on Wednesday, includes categories not in last year's estimate, Little said, but he gave no comparison figure.

Little said operating and support costs were now expected to reach about $1.1 trillion, up from last year's estimate of $1 trillion.

Kendall told the Senate Armed Services Committee at a confirmation hearing to keep him in the job that the department heavily focused on driving down the cost of the new plane and its long-term sustainment cost.

"We're doing everything we can to drive down the cost of the Joint Strike Fighter," Kendall testified, saying that production costs were under better control but sustainment costs still needed work.

"We've made some progress there this year in some areas, but we slipped a little bit in some areas as well. That's where we think the greatest potential is," he said.

The new cost data on the F-35 fighter will be reflected in a mandatory annual report that the Pentagon is due to deliver to Congress later Thursday.

It showed that the cost of the F-35 aircraft alone rose 3.3 percent, or $10.7 billion, mainly because of the use of revised escalation indexes, a slower rate of production in the short term, higher labor hours and slower procurement by international partners.

The cost of the F135 engine, built by Pratt & Whitney, a unit of United Technologies Corp, rose 9.7 percent, or $5.6 billion, largely because of an increase in the number of initial spares, revised escalation indexes and smaller near-term production numbers.

The new cost estimate reflects the Pentagon's proposal to postpone orders for 179 planes for five years, a move that U.S. official say will save $15.1 billion through 2017, and should avert costly retrofits if further problems arise during testing of the new fighter, which is only about 20 percent complete.

The Pentagon still plans to buy 2,443 of the new radar-evading, supersonic warplanes, plus 14 development aircraft, in the coming decades, although Air Force Secretary Michael Donley last week warned that further technical problems or cost increases could eat away at those numbers.

Kendall set affordability targets for both production and sustainment costs when he approved continued low-rate production on Wednesday. "The department intends to manage the program to beat these targets, in the case of sustainment costs by a significant margin," it said in a statement.

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