* GE-Rolls plan to continue with reduced team
* Companies cite support from House and Senate leaders (Adds Pratt statement)
WASHINGTON, April 12 General Electric Co (GE.N) and Britain's Rolls Royce (RR.L) on Tuesday vowed to continue work on a second engine for the Lockheed Martin Corp (LMT.N) F-35 fighter jet despite news that a compromise fiscal 2011 defense budget will not fund the program.
"We will work closely with our congressional supporters to bring competing JSF engines to the fiscal 2012 budget process," GE spokesman Rick Kennedy said in a statement.
"With the development program nearly complete, we have no intention of abandoning this engine."
Kennedy cited a "significant willingness" among lawmakers to revisit the debate over funding the second F-35 engine when Congress considers the fiscal 2012 budget, and said House and Senate leaders were encouraging the company to fight on.
GE and Britain's Rolls Royce have been developing an alternate engine for the F-35 Joint Strike Fighter under a program initiated by Congress in 1996, but the Pentagon has tried for five years to kill the program.
The Pentagon last month issued a stop-work order to GE and Rolls Royce, calling the second engine "a waste of taxpayer money that can be used to fund higher departmental priorities."
At the time, GE said it would keep funding the program despite a stop-work order issued by the Pentagon. It said its F136 engine was meeting or exceeding expectations while the primary engine built by United Technologies Corp (UTX.N) unit Pratt & Whitney had cost overruns of $3.4 billion.
Pratt has said that $2.7 billion of the cost overrun on its engine program was due to changes in Pentagon requirements.
The company issued a statement on Tuesday welcoming the latest move to cut funding for what it called the "unnecessary extra engine." It said it remained focused on reducing costs and delivering dependable and proven engines to the military.
It said the latest low-rate production contract for the Pratt F135 engine cut the price by 16 percent, and the engine had completed 750 flight tests, 1,200 flight hours and 74 vertical landings.
GE and Rolls-Royce said they would maintain a core team of about 100 engineers "to protect, enhance and advance propulsion technologies for JSF and future combat aircraft."
Kennedy said the team had been spending about $28 million a month on the program until the stop-work order was issued three weeks ago, but had been scaling back since then.
GE alone would shift about 800 workers who had been on the F136 to commercial projects, Kennedy said.
"We hope the government will allow for some common sense and preserve the $3 billion already invested in the F136 engine," Kennedy said, citing some research that pointed to savings of $20 billion over the life of the new fighter jets.
GE and its backers say House and Senate leaders could resurrect the program by introducing amendments during a floor vote, or in the House-Senate conference to produce a final defense budget for fiscal 2012, which begins on Oct. 1.
Republicans and Democrats last week reached a compromise on the fiscal 2011 budget, averting a government shutdown. An initial stopgap measure funding the government until Thursday passed both houses of Congress and was signed into law.
Lawmakers are expected to consider and vote on a measure that will fund programs through Sept. 30 later this week. (Reporting by Andrea Shalal-Esa; Editing by Maureen Bavdek, Bernard Orr)