* Process took more than a year * Deal clears way for negotiations on next batch of engines * F-35 is Pentagon's costliest arms purchase By Andrea Shalal-Esa and Jim Wolf WASHINGTON, Feb 5 (Reuters) - The Pentagon has reached an agreement in principle with United Technologies Corp's Pratt & Whitney unit for the production of 32 engines for a fifth batch of radar-evading F-35 fighter planes, both parties confirmed Tuesday. Financial details will be announced when the formal contract is complete, a joint statement said without specifying when this might be. The head of the Pentagon's F-35 program office, Lieutenant General Chris Bogdan, cited in the statement declining engine prices and said he appreciated "everyone's commitment to drive cost out of the program." The agreement was reached late last week after a process that took more than a year, with Pratt agreeing to lower its price by about $20 million, a person familiar with the matter told Reuters earlier this week. The Pentagon awarded Pratt a preliminary contract valued at $1.12 billion for 30 engines in December 2011. Efforts to reach a final deal have been under way since. A total of $9.5 million was added to the preliminary contract in August 2012 for two more engines. The agreement in principle covers 29 engines for installation in the F-35's three models plus three spares, the joint statement said. Pratt drove down the cost of the F-35's engine by more than $1.5 million per unit in 2011 and an additional $1.4 million in 2012, Matthew Bates, a company spokesman, said in an emailed statement. The company also is assuming all risk for any cost overruns ahead of schedule, he said. Britain's Rolls Royce is Pratt's biggest subcontractor. Lockheed Martin Corp is the fighter's prime contractor. The government buys the engines separately. Lockheed wrapped up its own deal with the Pentagon in December for the fifth batch of jets, which are already under construction at the company's Fort Worth, Texas plant. It also reached agreement on a preliminary deal for a sixth batch, which Lockheed, the Pentagon's No. 1 supplier by sales, had been building with its own funds. Pratt is eager to move forward on a deal for the engines to power the sixth batch, Bates said. The agreement in principle includes 22 F135 conventional propulsion engines for the Air Force models, three short take-off vertical landing engines for the Marine Corps models and seven to power the Navy's carrier variant. In addition to the engines, the deal covers engineering support, sustainment and spare parts. The F-35, the Pentagon's costliest arms program, is projected to cost some $396 billion if the military builds the more than 2,400 planes currently planned over the next two decades. The F-35 has been co-developed by the United States and eight foreign partners - Britain, Italy, Netherlands, Turkey, Canada, Australia, Denmark, and Norway. In addition, purchase contracts have been signed by Israel and Japan.