UPDATE 1-Lockheed sees deals for next F-35 jets in 1st half

Thu Jan 24, 2013 11:59am EST

* Lockheed also sees advanced funding for 8th batch of jets

* Previous contracts took nearly year to sign

* Sees no issue with batteries like those on grounded 787 (Adds comments by CEO and CFO, stock price, other details)

By Andrea Shalal-Esa

WASHINGTON, Jan 24 (Reuters) - Lockheed Martin Corp Chief Executive Marillyn Hewson said the company's F-35 Joint Strike Fighter program was progressing "very well" despite the grounding of the Marine Corps model, and she expected to sign a deal with the Pentagon on sixth and seventh production lots in the first half of 2013.

That would be a marked improvement over the past few years, when Lockheed and government negotiators wound up taking nearly a year to finalize details of production contracts.

Chief Financial Officer Bruce Tanner told reporters that Lockheed also hoped to sign a deal with the Defense Department to free up advanced funding for certain supplies needed for the eighth batch of F-35 jets which will include 48 airplanes, a much larger number than previous production orders.

That order will include 29 planes for the U.S. government and 10 for international partners who helped fund development of the plane, plus nine more for Israel and Japan, Tanner said.

"That will be a telling item when you see those sorts of quantities," Tanner told reporters on a teleconference to discuss quarterly earnings released earlier on Thursday.

Lockheed is building three different models of the F-35 fighter jet for the U.S. military and eight countries that helped pay for its development: Britain, Canada, Italy, Turkey, Denmark, the Netherlands, Australia and Norway.

The Pentagon plans to buy 2,443 of the warplanes in coming decades, although many analysts believe U.S. budget constraints and deficits will eventually reduce that overall number.

Lockheed's upbeat view on the F-35 program contrasts with a detailed report released earlier this month by the Pentagon's chief tester, who said the program still faced myriad problems that demonstrated its "lack of maturity."

Tanner said Lockheed built and delivered 30 planes in 2012, and was slated to build 36 planes this year. "That's a 20 percent increase in the build rate," Tanner said, adding, "investors should watch that to make sure the program is keeping on track."

Hewson said the Marine Corps model of the F-35 was still grounded as investigators looked into a problem that occurred during a training flight at Eglin Air Force Base in Florida last week. She said it was too soon to predict any impact on the fighter jet's test flight program.

"That's why we test these aircraft," she said. "The teams are working closely together to get to the root cause of that investigation and then put in place a fix."

The Pentagon's F-35 program office grounded all 25 F-35B model jets last Friday after a propulsion line associated with the jet's exhaust system failed before takeoff. Flights of the Air Force's A-model and the Navy's C-model were unaffected since they do not use that part.

Hewson acknowledged that the F-35 fighter used similar lithium-ion batteries as those being investigated on Boeing Co's 787 Dreamliner, but said the company saw no problem since the F-35 equipment was made by a different manufacturer and had been tested and vetted extensively.

"It is a different supplier but we also know that we're going through significant test with the batteries and we don't see an issue," she said. "The configuration on the F-35 is such that they're not near equipment that would cause any kind of a fire."

The entire fleet of 50 Boeing 787 Dreamliners is grounded while U.S., Japanese and French investigators look into what caused battery failures on two separate 787s earlier this month.

The lithium-ion batteries used on the 787 are made by Japan's GS Yuasa Corp, while the ones used on the F-35 are built by France's Saft Groupe.

Lockheed shares were down 2.3 percent at $93.87 at midday on Thursday on the New York Stock Exchange.

(Editing by Maureen Bavdek and Matthew Lewis)