* AEHF satellites enable advanced military communications
* Company focused on cutting costs
* Agreement safeguards funds against budget cuts due in January
WASHINGTON, Dec 28 (Reuters) - Lockheed Martin Corp has won a contract valued at $1.9 billion to build two additional advanced military communications satellites for the U.S. Air Force, the Pentagon said on Friday.
The contract, which runs through January 2022, covers production of the fifth and sixth satellites in the Advanced Extremely High Frequency satellite program.
Lockheed welcomed the contract, saying it underscored the government’s confidence in the company’s work on the program.
“As protected and resilient satellite communications become increasingly vital to global security, the AEHF program has developed into an indispensable element of the nation’s military space architecture,” said Mark Calassa, vice president of Lockheed Martin’s Protected Communications mission area.
He said the first two satellites were operating exceptionally in orbit, and the company was implementing several affordability initiatives together with the Air Force that were already reducing program costs.
The terms of the contract had been switched from cost-plus to fixed-price, with an incentive fee, which allowed the government to limit its risk, Calassa said in a statement.
The Air Force’s decision to buy two satellites at one time also allowed Lockheed to significantly reduce costs through economies of scale, he said.
A top Air Force acquisition official last week told Reuters the service was unlikely to reach an agreement with Lockheed on the new satellites before the end of the year.
It was not immediately clear how the two sides managed to work through the remaining issues so quickly.
Agreement on the contract terms does safeguard funding for the satellites from automatic across-the-board cuts if U.S. lawmakers do not find a way to avert significant Pentagon reductions due to take effect in January.
Air Force officials had initially hoped to sign the contract with Lockheed this summer, with an eye to reaping savings of well over 10 percent over earlier contracts.
The cost of the contract had been projected at $2.6 billion, well above the level announced on Friday.
The two AEHF satellites already in orbit are designed to ensure that military communications continue among top military commanders and the White House in the event of a nuclear war.
The satellites also provide transmission of more routine communications such as targeting data and video data feeds, and serve international partners including Canada, the Netherlands and the United Kingdom.