* Pentagon, Lockheed said nearing deal for more jets
* Air Force spends 15 pct of investment budget on F-35 alone
By Andrea Shalal-Esa
NEW YORK, Nov 29 The U.S. Air Force affirmed on
Thursday its plans to buy 1,763 F-35 fighter jets built by
Lockheed Martin Corp in coming years, as Lockheed and
the government neared agreement on a multi-billion dollar
contract for a fifth batch of planes.
Air Force Secretary Michael Donley told an investor
conference that the service remained committed to the F-35 Joint
Strike Fighter, which alone accounts for 15 percent of the
service's annual investment spending, and had no plans to revise
its projected purchase of 1,763 of the new radar-evading jets.
"I don't think there's any reason to revisit that anytime in
the near future," Donley told the Credit Suisse conference,
underscoring his support for the Pentagon's biggest weapons
He said it was not feasible to consider cutting orders or
make other major changes to the $396 billion F-35 program, which
has already been restructured three times in recent years to
allow more time for technology development and to save money.
The Pentagon is looking closely at every aspect of its
budget given mounting pressure to cut defense spending, and
programs as large as the F-35 are always potential targets.
But Lockheed executives argue that the Defense Department
has already reduced production of the new plane sharply from
projected levels, cutting into the economies of scale that were
supposed to make the new warplane more affordable.
Donley said he had heard proposals about cutting F-35
purchases to save money for other priorities, but said such
ideas did not make sense at this point in the program.
"These are good theoretical discussions, but when you look
at where we are in the program, it makes no sense to have these
discussions until about 2025," Donley said. "There is nothing in
the near-term about this program that will change; there is
nothing that it will contribute to deficit reduction in the next
ten years with the exception of its cancellation."
And cancellation of the program, he said, was something no
one would recommend.
Donley said the U.S. government was "getting close" to an
agreement with Lockheed about a fifth batch of F-35 jets.
Lockheed President Marillyn Hewson told the conference
earlier on Thursday that talks with the Pentagon - which have
been under way for about a year - were going well and an
agreement was likely before the end of the year.
"Those negotiations are progressing well," she said at her
first major presentation to Wall Street investors since being
named Lockheed president and chief operating officer earlier
this month. "I do feel confident that we're going to get to
closure on Lot 5 this year," she said.
Lockheed and the Pentagon were also making progress in talks
about additional funding for early work on the sixth batch of
F-35 jets, said Hewson. She will become Lockheed's CEO in
January, succeeding Christopher Kubasik, who was forced out
after admitting to having an affair with a subordinate.
Lockheed Chief Financial Officer Bruce Tanner said Hewson
had played a key role in the company's talks with the Pentagon,
and the two sides had "closed a lot of our differences."
Details of the expected agreement were not immediately
available, but sources familiar with the negotiations said they
expected it to include a reduction in the cost for each F-35
fighter jet from the fourth production contract, although the
number of jets to be ordered will not increase.
The Pentagon's chief weapons buyer, Frank Kendall, told
Reuters on Wednesday that the two sides were "getting close" to
an agreement on the fifth production contract.
He said he had "a very positive meeting" on Tuesday with
Hewson about a range of issues, including the F-35.
Lockheed, the Pentagon's largest contractor, and its
suppliers are already building the fifth batch of F-35 planes
under a preliminary contract, but the two sides have been
struggling since last December to finalize the deal.
In September, Air Force Major General Christopher Bogdan,
who is moving up to head the F-35 program next week, said ties
between Lockheed and the U.S. government were "the worst" he had
ever seen in his years working on big acquisition programs.
Hewson told analysts earlier this month that the F-35
program would be one of her top priorities in her new job.
Agreement on the terms of the fifth F-35 contract would free
up additional funding for early work on a sixth set of planes,
which the company has been funding on its own for some time.
Lockheed last month told investors that it faced a potential
termination liability of $1.1 billion on that sixth batch of
planes, unless it received more funds soon.
The Pentagon has refused to release any more money for the
sixth batch of planes until the two sides resolve their
differences and sign a contract for the fifth batch.