Lockheed agrees to cut price for new F-35 fighter jets: Pentagon

WASHINGTON (Reuters) - The Pentagon and announced on Friday an $11.5 billion contract for 141 F-35 fighter jets from Lockheed Martin Corp LMT.N, the biggest batch yet, lowering the price for the most common version of the stealthy jet by 5.4 percent to $89.2 million.

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A preliminary deal was struck in July, and reported first by Reuters, clearing the way for a larger multi-year purchase that aims to bring the cost per jet down to $80 million by 2020. Most of the jets are for the U.S. military, and others are for a number of allied countries.

Reducing the cost of the world’s most expensive defense program is crucial to securing orders in the United States and more from abroad. Lockheed is the No. 1 U.S. defense contractor.

“Driving down cost is critical to the success of this program,” Vice Admiral Mat Winter, head of the Pentagon’s F-35 office said.

The agreement removes a roadblock from negotiations for a multi-year deal for the fighters that is expected to consist of three tranches over fiscal years 2018-2020.

President Donald Trump and other U.S. officials have criticized the F-35 program for delays and cost overruns, but the price per jet has declined as production increased. The price of the last batch of F-35A’s in 2017 cost 7 percent less than the previous jet order.

Greg Ulmer, head of the F-35 program at Lockheed, said the Bethesda, Maryland-based company expects to cut the cost of the F-35A to $80 million by 2020.

In addition, negotiations were ongoing for a multi-year deal that was said to be worth more than $37 billion, and encompassing a record 440 F-35 fighter jets.

Negotiations for this 11th batch of jets were extended because Trump-appointed Pentagon leadership drilled deep into the program to understand its costs, prolonging negotiations for the multi-year “block buy,” people familiar with the talks have said.

Last summer, Reuters had reported on this 11th round of contract negotiations between Lockheed and F-35 customers including Australia, Denmark, Israel, Italy, Japan, the Netherlands, Norway, Turkey, South Korea, Britain and the United States. At the time, the anticipated price was for about $88 million per jet.

The F-35 comes in 3 variants: the F-35A conventional take-off and landing model; the F-35B, a short take-off/vertical landing version; and the F-35C, used aboard aircraft carriers.

This deal includes 91 jets for the U.S. including 53 of the A variant, 24 of the B variant and 14 of the C variant. In addition, there are 28 F-35’s for international partners and 22 for Foreign Military Sales customers in this batch.

The F-35 program is aiming to expand the fleet to more than 3,000 jets and bring the unit price of the F-35A closer to $80 million in 2020 through efficiencies gained by ordering in larger quantifies.

Lockheed is aiming to deliver 91 jets in 2018 and the Bethesda, Maryland-based weapons maker hopes to nearly triple annual production to more than 160 jets in 2023.

Lockheed is the prime contractor for the jet. Its partners including Northrop Grumman Corp NOC.N, United Technologies Corp's UTX.N Pratt & Whitney and BAE Systems Plc BAES.L

Reporting by Mike Stone in Washginton; Editing by Chizu Nomiyama and David Gregorio