January 15, 2016 / 8:25 PM / 3 years ago

UPDATE 1-Pratt seals deal with Pentagon for 167 F-35 engines

(Adds savings on engines, other negotiations, byline)

By Andrea Shalal

WASHINGTON, Jan 15 (Reuters) - Engine maker Pratt & Whitney has reached an agreement with the Pentagon about two separate contracts to build 167 engines to power the F-35 fighter jet built by Lockheed Martin Corp, the company and Pentagon said in a joint statement.

The statement did not include the value of the two contracts - a ninth batch of 66 engines and a 10th batch of 101 engines - because details will only be finalized in coming weeks.

However, a source familiar with the matter said the two deals, which also include engineering support, spare parts and program management, would be worth more than $3 billion to Pratt, a unit of United Technologies Corp.

“This agreement for the next two lots of F135 engines continues to drive down costs and that’s critical to making the F-35 more affordable for the U.S. military and our allies,” said Air Force Lieutenant General Chris Bogdan, who runs the $391 billion program for the Pentagon. “We are ramping up production and witnessing tangible results.”

The Pentagon’s F-35 program office and the company said the agreement would lower the price of the 140 engines used for the conventional takeoff version of the jet, and the carrier variant by 3.4 percent from the previously negotiated price.

The price of the 27 engines that will power the short takeoff and landing version of the jets was reduced by 6.4 percent from the previous contract, according to the statement.

The eighth batch of engines had cost 3.5 percent to 4.5 percent less than the previous batch.

Pratt had hoped to reach agreement on the two new contracts before the end of last year, but negotiations dragged on longer than expected.

Lockheed continues to negotiate with the Pentagon about two separate contracts to build about 160 F-35 fighter jets for $15 billion.

Company and Pentagon officials had also hoped to finalize those deals last year, but sources familiar with the discussions now say it may take a month or more to reach agreement.

Bogdan has set a goal of reaching a price tag of $80 million to $85 million per aircraft, including the engine, by 2019.

Lockheed is developing three versions of the stealthy, supersonic fighter jet for the U.S. military and key U.S. allies and nine other countries that have already ordered jets: Britain, Australia, Turkey, Italy, Norway, the Netherlands, Japan, South Korea and Israel. (Reporting by Andrea Shalal; Editing by Chris Reese and Lisa Shumaker)

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