EXCLUSIVE - Pentagon to take F-35B jet off 'probation'-sources

A F-35 fighter jet prepares for landing with its life fan cover deployed over Patuxent River Naval Air Station, Maryland in this undated handout image.

WASHINGTON (Reuters) - The Pentagon is preparing to lift a "probation" imposed last year on the Marine Corps version of Lockheed Martin Corp's (LMT.N) new F-35 fighter jet after the "B" model made progress on key technical issues, according to multiple sources familiar with the matter.

U.S. Defense Secretary Leon Panetta may announce the move as soon as Friday during a visit to Naval Air Station Patuxent River in southern Maryland, where some 700 government and industry testers have been evaluating the F-35B model.

The B model can take off from shorter runways and can land vertically, like a helicopter.

The decision would remove a black cloud that has hung over the $382 billion Joint Strike Fighter program since then-Defense Secretary Robert Gates announced last January that the B-model faced significant testing problems and should be canceled unless its issues could be ironed out during a two-year probation.

Lockheed Martin is developing three variants of the radar-evading F-35 for the U.S. military and eight foreign partners. It expects the program to represent about 20 percent of revenue once full production begins.

Panetta's announcement would underscore the U.S. Defense Department's commitment to its largest weapons program at a time when critics have called for its cancellation to help the Pentagon slash spending by $487 billion over the next decade.

There are no plans for cancellation, but the Pentagon's fiscal 2013 budget will postpone production of an additional 120 to 175 jets over the next five years, saving billions of dollars in the short term and avoiding more costly retrofits should further problems arise during testing.

That comes on top of 200 jets that have already been postponed over the past two years as officials have tried to rein in rising costs and resolve a steady stream of technical issues; but Lockheed says growing international demand may help offset slower U.S. production rates.

MOVE SEEN AS SHOT IN ARM FOR HUGE WEAPONS PROGRAM

Analysts said Panetta's expected announcement would be a powerful shot in the arm for the F-35 program as it braces for its third restructuring in three years.

"The secretary's personal endorsement is exactly what this program needs at this point," said Jim McAleese, a Virginia-based defense consultant, noting that the move was timed just before Panetta unveils budget plans likely to defer expected production orders by 35 to 40 percent over the next five years.

The Pentagon's decision would give an "official green light" to the Marine Corps version of the plane, said defense analyst Loren Thompson of the Virginia-based Lexington Institute.

He said the short takeoff vertical landing (STOVL) variant would be particularly important in coming years, given the U.S. military's increasing focus on the Asia Pacific region.

"The United States is pivoting to the Pacific where it does not have many bases; so having a Marine Corps version of the F-35 that can land even in places where there are no bases is potentially very valuable," he said.

Marine Corps officials had no immediate comment on the expected announcement by Panetta.

Marine Corps Assistant Commandant General Joseph Dunford told defense analysts in December that he expected the F-35B to be removed from probation soon. He said he was "pretty bullish" on the jet, citing progress in fixing technical problems.

Marine Corps officials say the stealthy new fighter will dramatically increase their capabilities with improved intelligence, reconnaissance and surveillance sensors and data-sharing technologies. Since the plane can take off and land on amphibious assault ships, it will essentially double the number of aircraft carriers to 22, they say.

MARINE CORPS MODEL COMPLETED SHIP TESTS LAST FALL

The expected move comes a week after the Pentagon's director of operational test and evaluation released a new report that showed mixed results in testing of the three different variants this past year, and low reliability.

Among other findings, it said the F-35B had a mean time of 2.05 hours between critical failures, a rate far worse than the expected rate at this point in the aircraft's development.

A spokesman for the Pentagon's F-35 program office was not immediately available for comment. Lockheed referred all questions about the F-35B's status to the Pentagon.

Last week the company said all three variants of the F-35 completed 100 more flight tests than planned in 2011, achieving 7,823 test points -- over 1,200 more than required for the year.

That means the program has accomplished a total of 12,728 test points thus far - about 21.4 percent of the overall requirement, which must be completed by the end of 2016.

Lockheed said the F-35B variant accomplished 333 flights and 268 vertical landings, hitting 2,636 test points.

The B-model also completed ship suitability testing aboard the USS WASP (LHD-1) off the coast of Virginia in October, with two aircraft executing 72 short takeoffs and 72 vertical landings during the three-week testing period.

Lockheed on Thursday expects to deliver a third F-35B to Eglin Air Force Base in Florida, where the Air Force hopes to begin pilot training within the next six months after resolving concerns raised by the Pentagon's chief tester.

The Marines are slated to buy 340 of the F-35B model, and 80 of the C model, which will be able to operate from Navy aircraft carriers.

(Reporting By Andrea Shalal-Esa in Washington; Editing by Gerald E. McCormick)