UPDATE 1-Lockheed, Austal win U.S. coastal warship orders - Pentagon

Mon Mar 4, 2013 9:05pm EST

* Lockheed gets order worth $697 mln

* Austal order worth $682 mln

* Lockheed beats out rivals for Aegis combat system work

By Andrea Shalal-Esa

WASHINGTON, March 4 (Reuters) - Lockheed Martin Corp and Australia's Austal each won orders to build two more smaller warships for the U.S. Navy, while Lockheed beat out two rivals to remain the chief developer of the Aegis combat system, the Pentagon said Monday.

Lockheed won an order valued at $697 million to build two more of its steel monohull Littoral Combat Ships (LCS) for the Navy using fiscal 2013 funding, the Defense Department said in its daily digest of large weapons contracts. It said work on the two new Lockheed ships would be completed by July 2018.

The U.S. unit of Austal received a contract valued at $682 million to build two more LCS ships based on its aluminum-hulled, trimaran design for LCS ships for the Navy, with the work slated to be finished by June 2018, the Pentagon said.

Navy acquisition chief Sean Stackley said the strategy of buying the new LCS ships in blocks was translating into "tremendous savings."

"One of our imperatives in dealing with this fiscal crisis is to execute our programs as effectively as possible," Stackley said in a statement. "This (latest contract action) again demonstrates our efforts to bring stability to industry, from the shipyards to the small businesses that support these ships' construction, in a period of great uncertainty."

The first LCS ship built by Lockheed, the USS Freedom, began its voyage last Friday to Singapore, where it will be based for some time.

Austal said the contract funded the fifth and sixth ships in a 10-ship block buy awarded to Austal in December 2010. The overall value of the 10-ship block was over $3.5 billion, it said.

Separately, the Pentagon announced that Lockheed beat out a rival team including Raytheon Co and Boeing Co to retain its role as chief developer of the Aegis combat system for use on Navy destroyers, cruises and future warships.

It said Lockheed won a five-year contract with an initial value of $101 million, to be the chief engineer for the design, development, integration, test and delivery of the next generation of the Aegis combat system, which was developed by Lockheed and the Navy and first went into service in 1983.

The Navy had sought to inject competition into the Aegis program by opening the contract, valued by analysts at several hundred million dollars over time, to competition for the first time in 40 years.

Lockheed's top executive for the Aegis program told reporters the company was "thrilled with the news that we get to continue on in this role," calling it a "franchise program" for the Pentagon's biggest supplier.

Jim Sheridan, director of Aegis programs for Lockheed, said the company won the contract by showing the Navy that it would "continue to push the envelope with respect to capability, but doing so affordably in a fiscally responsibly manner."

Navy Rear Admiral Joe Horn, program executive officer for integrated weapons systems, said the contract underscored the Navy's commitment to competition.

"By openly competing the Aegis ... contract, the Navy will benefit from improved systems at a lower cost, which is absolutely critical in light of our budget challenges," Horn said in a statement.

Sheridan said the contract would be allowed to proceed, despite a U.S. congressional budget resolution that bans new programs, because it continued ongoing efforts on the Aegis program and did not constitute a new program.

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