March 2, 2011 / 1:25 PM / 9 years ago

CORRECTED - Pentagon wants price cut on next F-35 contract

(Corrects penultimate paragraph to show program has completed 33 or 34 vertical landings, not test flights, this year)

* Pentagon sees pressure on Lockheed to cut costs

* Official looking for “lowest price” possible

By Andrea Shalal-Esa

WASHINGTON, March 1 (Reuters) - The U.S. Defense Department said on Tuesday it wants further price cuts when it negotiates the next contract to buy F-35 fighter jets from Lockheed Martin Corp (LMT.N).

Major General C.D. Moore, the No. 2 official running the $382 billion weapons program, said he was looking forward to a productive year of testing, training and production after a second major restructuring of the program in a year.

He said the Pentagon would also continue to press Lockheed to lower the cost of building the new radar-evading fighter jets, starting with talks about a fifth batch of production jets due to get under way soon.

The Pentagon saved $4 billion by cutting 124 F-35s out of a five-year budget plan sent to Congress last month and the program — the biggest U.S. weapons program in history — remains under close scrutiny as pressure mounts to cut U.S. federal budget deficits.

Moore said the Pentagon achieved significant savings in the next contract and changing to fixed-price terms would put additional pressure on Lockheed to meet its cost targets.

Two F-35 planes are due to arrive at Eglin Air Force Base in Florida soon for development of maintenance protocols, and pilots are to start training on them this fall, Moore said.

Moore said discussions with Lockheed for over 30 planes to be funded in fiscal 2011 could be delayed by wrangling in Congress over the overall federal budget, creating some uncertainty. But the intention was the negotiate additional savings in the next contract.

He declined to give a specific target for desired savings, saying only that he was seeking the “lowest price” possible.

Moore said the F-35 program office would also negotiate with Lockheed later this year about whether it could earn back $614 million in incentive fees that Defense Secretary Robert Gates put on hold during the last restructuring last year.

Lockheed’s F-35 program manager, Larry Lawson, told Reuters last month said the fees would be negotiated as part of the government’s rebaselining of the program, but said he remained convinced that incentive fees were an important tool to push for better performance.

He said the F-35 program office was working with Lockheed and the Defense Contracts Management Agency to recertify the company’s earned value management system later this year.

Lockheed had about 100 fighter jets in work now and production was on schedule, Moore said.

The troubled Marine Corps version of the F-35, which Gates put on a two-year probation, had already completed 33 or 34 vertical landings this year, three times the number completed in all of 2010, he said.

The short takeoff, vertical landing variant (STOVL) should be ready for testing aboard a ship later this year, Moore said. (Editing by Steve Orlofsky, Dave Zimmerman)

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