Lockheed, Pentagon ‘still working toward F-35 fighter deal’

WASHINGTON - Reuters

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Lockheed Martin Corp and the Pentagon missed their end-of-March target for reaching agreement on $15 billion in new F-35 fighter jets, but should complete work on the contracts in April, according to sources familiar with the matter.

“We’re closer now than we were at the beginning of the month,” said one of the sources, who was not authorized to speak publicly.

“It’s not an impasse. They’re down to the nitty gritty.”

Pratt & Whitney, a unit of United Technologies Corp, reached agreement with the Pentagon in early January about two separate contracts to build 167 engines to power the F-35 fighter jet.

But the negotiations between Lockheed and the Pentagon, initially expected to conclude last autumn, have taken longer than expected due to differences over cost, the sheer size of the contract and the large number of foreign countries involved, the sources said.

Lockheed is currently earning margins of 8 to 9 percent on the program and wants to boost its profits as it expands production, while the Pentagon is pressing the company to lower costs further.

Lockheed has run into resistance from Northrop Grumman Corp , a key supplier to Lockheed on the program, which has refused to drop its prices significantly, said one of the sources.

Air Force Lieutenant Chris Bogdan, who runs the $379 billion F-35 program for the Pentagon, told reporters in February that he was “not rushing into a bad deal.”

Lockheed is building three models of the F-35 for the U.S. military and nine international customers - Britain, Australia, the Netherlands, Norway, Turkey, Italy, Japan, Israel and South Korea.

The Pentagon expects to spend $379 billion to develop the plane and buy 2,457 of the supersonic, stealthy new warplanes.

The Pentagon’s annual weapons report to Congress last week forecast the average cost of the F-35A conventional takeoff and landing model would be $100.6 million, including inflation.

Bogdan has said he expects to lower the cost of the jets to around $85 million per copy by 2019.