UPDATE 1-Lockheed, US agree funding deal for more F-35s -sources

Fri Dec 28, 2012 4:54pm EST

WASHINGTON Dec 28 (Reuters) - Lockheed Martin Corp and the U.S. Defense Department have reached an agreement freeing up preliminary funding for production of a sixth batch of F-35 Joint Strike Fighters, according to two sources familiar with the negotiations.

Details of the agreement, which covers 31 of the advanced, radar-evading fighter planes to be built for the U.S. military, will be worked out between the two sides in coming months, said the sources, who were not authorized to speak publicly.

The Pentagon plans to spend $396 billion to buy a total of 2,443 F-35 fighter jets from Lockheed over the next decades, making the Joint Strike Fighter the costliest weapons program in U.S. history.

The agreement reached does not include F-35 fighters to be purchased by Italy and Australia as part of the sixth lot of low-rate, initial production. Those agreements will be negotiated next year, according to one of the sources.

The agreement also does not include engines for the fighters, which are purchased under separate contracts negotiated directly between the Pentagon and engine maker Pratt & Whitney, a unit of United Technologies Corp.

The Defense Department two weeks ago finalized an agreement with Lockheed for a fifth batch of planes, a $3.8 billion deal to buy 32 of the advanced, radar-evading aircraft.

At the time, company executives and defense officials said that agreement paved the way for a deal on early funding for the next group of planes by the end of the year.

The agreement obligates funding for that next group of F-35s, safeguarding that money, even if U.S. lawmakers do not avert automatic, across-the-board budget cuts due to start taking effect on Jan. 2.

The agreement also removes a potential $1.1 billion liability that Lockheed said it faced on the program for work done by it and its key suppliers without a signed contract.

Lockheed shares closed $1.49 or 1.6 percent lower at $91.34 on the New York Stock Exchange on Friday.

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