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UPDATE 1-US Senate panel adds no funds for F-35 2nd engine

* Panel’s action is victory for United Technologies

* Alternate engine being built by GE, Rolls-Royce

* Full House nears vote on companion legislation

* Outcome could hinge on House-Senate conference (Adds quotes, background, analysis)

By Jim Wolf

WASHINGTON, May 27 (Reuters) - The U.S. Senate Armed Services Committee added no funds to preserve a controversial second engine program for the F-35 fighter jet in its version of the 2011 defense spending bill, a panel member said.

The alternate engine is being built by a joint venture of General Electric Co GE.N and Rolls-Royce Group Plc RR.L.

Without competition, United Technologies Corp UTX.N would have a decades-long monopoly on the projected $100 billion engine market for the more than 3,000 F-35s due to be bought by the United States and partner countries.

Senator Joseph Lieberman, in a statement on the committee’s bill adopted on Thursday, said the decision not to fund the alternate engine was a victory for U.S. taxpayers. Sen. Carl Levin, the panel chairman and a second engine backer, is to hold a press conference on Friday to discuss the bill.

Levin is on record as saying that, as a tactical matter, he would not fight to preserve the second engine in committee, but would support it when a House-Senate conference meets to merge the companion bills.

“I want to do whatever I can to advance it (the second engine),” Levin told Defense Daily, a trade publication, this week. “It may be better to leave it to conference if the House is going to (pass) it.”

The full House of Representatives was nearing a vote Thursday night on adding $485 million to keep the alternate engine program funded in fiscal 2011, which starts Oct. 1.

The issue was among the most contentious in the House’s version of a defense spending bill authorizing $567 billion for core Defense Department and Energy Department national security programs.

Earlier in the day, the White House budget office said President Barack Obama’s senior advisers would recommend a presidential veto of any bill that funded what it called the “extra” engine.

The House Armed Services Committee last week recommended unanimously sticking with the engine competition, citing the prospect of long-term savings.

The House panel also cited a “significant” national-security risk in case of a single engine for the F-35, which is to make up 95 percent of the U.S. tactical fighter fleet.

“The Committee believes it is unwarranted to risk grounding our entire fleet and incurring billions of dollars in unnecessary costs by cutting the second engine, particularly when there may be no additional cost over the life of the program,” it said last week. (Reporting by Jim Wolf; editing by Carol Bishopric, Gary Hill)

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