| AVALON, Australia
AVALON, Australia The Pentagon program chief for the F-35 warplane slammed the main contractors on the program, Lockheed Martin (LMT.N) and Pratt & Whitney, accusing them of trying to "squeeze every nickel" out of the U.S. government and failing to see the long-term benefits of the project.
U.S. Lieutenant General Christopher Bogdan made the comments on Wednesday during a visit to Australia, where he has sought to convince lawmakers and generals to stick to a plan to buy 100 of the jets, an exercise complicated by the second grounding of the plane this year and looming U.S. defense cuts.
Pratt & Whitney, a unit of United Technologies Corp (UTX.N), is sole supplier of engines to the $396 billion F-35, or Joint Strike Fighter. Lockheed Martin is the prime contractor for the radar-evading jet, the biggest weapons program in history.
"What I see Lockheed Martin and Pratt & Whitney doing today is behaving as if they are getting ready to sell me the very last F-35 and the very last engine and are trying to squeeze every nickel out of that last F-35 and that last engine," Bogdan told reporters at the Australian International Airshow in southern Victoria state.
"I want them both to start behaving like they want to be around for 40 years," he added. "I want them to take on some of the risk of this program, I want them to invest in cost reductions, I want them to do the things that will build a better relationship. I'm not getting all that love yet."
Bogdan's tough remarks sent shock waves through the Pentagon and U.S. industry on Wednesday.
Lockheed said it was "singularly focused" on executing its contracts to develop, produce and sustain the new warplane, and insisted it was on track to finish development by 2017.
"We do this in partnership with Lieutenant General Bogdan and the entire JSF Program Office and strive daily to drive costs out of the program," said spokesman Michael Rein.
He said the company had reduced costs by 50 percent since the first production airplanes were built, and remained confident that the sixth and seventh production deals, currently under negotiation, would result in further savings.
Pratt & Whitney issued a strongly worded statement late on Wednesday, saying it had invested heavily to cut the cost of the plane's engine and was shouldering more risk than usual.
"Despite numerous cuts in the F-35 acquisition plan, Pratt & Whitney has maintained a long-term view and demonstrated our commitment by investing more than $50 million dollars of our own funds and taking on risk ahead of contract schedule to prevent the program from experiencing delays," company spokesman Matthew Bates said in a statement.
He said the company had offered to cover 100 percent of cost overrun risk for a fifth batch of engines, a year ahead of the government's plan, a step he described as "highly unusual" at such an early stage of a new weapons program. Pratt said it also invested heavily to cut the engine's cost by 40 percent since delivery of the first production engine for the new warplane.
Bogdan caused a stir shortly after joining the F-35 program last August when he described the relationship between the government and Lockheed Martin as the worst he'd ever seen. There had been little improvement since then, he said.
"Are they getting better? A little bit," he said. "Are they getting better at a rate I want to see them getting better? No, not yet."
If the project stays on track, Pratt & Whitney will eventually provide 4,000 engines and Lockheed Martin 3,000 planes to the U.S. military and its allies. The Pentagon plans to buy 2,443 F-35s in the coming decades, although many analysts believe budget constraints and deficits will reduce that number.
Australia, a close American ally, is considering doubling its fleet of 24 Boeing Co (BA.N) F/A-18 Super Hornets amid delays and setbacks in the F-35 project. That means Canberra could buy far fewer F-35s than initially planned.
Bogdan was also critical of what he suggested were leaks from Pratt & Whitney's camp about the engine issue, which led the Pentagon to suspend F-35 flights last Friday.
Two sources told Reuters that Pratt is 99 percent sure the fan blade problem that grounded the jets was not caused by high-cycle fatigue, which could force a costly design change, and the aircraft could be flying again within the week.
"Until all those tests are done and I see the results, I don't know what's going on," Bogdan said. "However ... my gut would tell me it's on the spectrum of the minor side - 99 percent is bold, flying next week is bold."
Bogdan also gave the example of taking six months to close a deal with Pratt & Whitney for engines on its fifth bloc of jets, shortly after General Electric Co (GE.N) had been dropped as a second supplier of engines for the program, leaving Pratt & Whitney as sole supplier for the next 40 years.
"Now, you would think a company like Pratt & Whitney that was just given the greatest Christmas gift you could ever, ever get for a company would act a little differently," Bogdan said.
Bogdan is flying back to the United States this weekend, just in time to hear about the future of U.S. military budgets, which are slated to be cut by nearly $500 billion over the next decade, an amount which could double unless Congress acts in the next week to avert spending reductions known as "sequestration".
Bogdan said he was confident he could keep the program on track and budget if he got the discretion to deal with any cuts.
The risk is that money is cut from the $6 billion set aside for the development program by the end of October next year.
"I need every penny of that $6 billion to get over the finish line," he said. "If they take money out of development, something's going to have to give. I'm either going to have to push the program out or I'm going to have to shed capability."
Budget cuts have already forced Italy to scale back its F-35 orders, and Turkey has delayed its purchases by two years. Orders from Japan and Israel have buoyed the project, and additional Israeli orders are expected in 2013.
(Additional reporting by Andrea Shalal-Esa in Washington; Editing by Dean Yates, Leslie Gevirtz and Ken Wills)