UPDATE 2-Lockheed satellite deal unlikely before year-end -USAF
* More work needed to finalize agreement -Air Force
* Government playing 'hardball' -analyst
WASHINGTON Dec 20 (Reuters) - The U.S. Air Force is unlikely to reach an agreement with Lockheed Martin Corp before the end of the year on a multibillion-dollar purchase of new military communications satellites, a top Air Force acquisition official said.
Lieutenant General Charles Davis, the top military official in charge of Air Force acquisition, said the two sides still had "a little bit of work to go in negotiations" about the fifth and sixth Advanced Extremely High Frequency (AEHF) satellites, making it unlikely that a deal could be struck before year-end.
"We will not obligate the funds until we are sure ... that we have a fair deal for us and Lockheed," Davis told Reuters in an interview. "I don't think the plans get us to an award on that before the end of the year."
Air Force officials had hoped to sign a fixed-price, incentive fee contract with Lockheed for the next two AEHF satellites this summer, with an eye to reaping savings of well over 10 percent over earlier contracts.
But the two sides have not yet reached agreement on the terms of the contract, which is valued at nearly $2.6 billion.
Once the two sides reach agreement, senior Pentagon officials must still sign off on the deal, Davis said.
Lockheed spokesman Michael Friedman said negotiations with the Air Force were continuing.
"We are working closely with the Air Force to finalize a contract for these critical national security satellites in a timely fashion," he said.
Already in orbit are two AEHF satellites designed to ensure that military communications continue among top military commanders and the White House in the event of a nuclear war, as well as provide transmission of more routine communications such as targeting data and video data feeds.
Defense consultant Loren Thompson, who has close ties to Lockheed and other weapons makers, said the government was pressing Lockheed to accept fairly aggressive contract terms, especially in the absence of major new military threats.
"The contract will eventually get signed, but the government is going to play hardball on terms and conditions," Thompson said. He said the military could meet some of its communications needs by using cheaper service offered by commercial and other military satellites, although the AEHF satellites would still be needed for future large-scale conflicts.
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