* No more money for fixing problems - Air Force Secretary
* F-35 official says Pentagon, Lockheed ties "worst" he's ever seen
* Helmet, software, computer system said still struggling
By Andrea Shalal-Esa
WASHINGTON, Sept 17 (Reuters) - Pentagon officials slammed Lockheed Martin Corp's performance on the $396 billion F-35 fighter jet program and said they would not bail out the program again if problems with the plane's cutting-edge pilot helmet and software were not resolved.
Deputy F-35 program manager Air Force Major General Christopher Bogdan said on Monday the government's relationship with Lockheed was the "worst I've ever seen" in many years of working on complex acquisition programs.
He said those tensions posed a bigger threat to the Pentagon's biggest weapons program than even nagging problems on the plane's software, helmet and a complex computer system that manages functions ranging from parts supply to mission planning.
The F-35 was designed to work with a sophisticated helmet that displays all the information the pilot needs to fly the plane.
Air Force Secretary Michael Donley told reporters the Pentagon had no more money to pour into the program after three costly restructurings in recent years. That meant any additional cost overruns would eat into the number of planes to be ordered, schedule delays or reduced capabilities, he said.
"The department is done with major restructures that involve transferring billions of dollars into the F-35 program from somewhere else in the defense budget. There's no further flexibility or tolerance for that approach," Donley said.
The unusually public criticism of Lockheed's work on the F-35 program followed a "very painful" Sept. 7 review that focused an array of ongoing program challenges.
Lockheed responded with a brief statement, saying it would continue to work with the Pentagon's F-35 program office to deliver the new fighter. "We remain committed to continuing our work to solve program challenges and build on the momentum and success we've achieved during the past couple of years," said spokesman Michael Rein.
Bogdan, who joined the program five weeks ago and is slated to move into the top spot later this year, said the Pentagon needed to revamp its overall approach to the program even as it maintained pressure on Lockheed to improve its performance.
"We've got to shed our baggage," Bogdan told reporters after a speech at the annual Air Force Association conference, vowing to shake up the Pentagon's program office once the U.S. Senate confirms him to replace retiring Navy Vice Admiral David Venlet.
"We've got to fundamentally change the way we day to day do business with Lockheed Martin," Bogdan said, citing his dissatisfaction with contract talks for a fifth batch of fighters that have dragged on for over nine months. He said the Pentagon also needed to stop making changes to the program, calling such moves destabilizing to an already complex program.
Bogdan is no stranger to difficult programs, having led the Air Force's controversial effort to buy a new refueling plane, which eventually saw Boeing Co beat out Europe's EADS.
On Monday, Bogdan used his first public appearance since switching to the F-35 program to speak openly about the program's challenges. He said it was important to be realistic.
Lockheed Chief Executive Robert Stevens has publicly expressed frustration about the Pentagon's demands for thousands of pages of additional cost data as part of those negotiations, arguing that requests were delaying the contract talks.
Bogdan faulted both sides for the impasse, noting Lockheed had dragged its heels in answering some of those requests, but also questioning why all the data was needed in the first place.
He said Lockheed and the Pentagon needed to streamline the contract negotiations process or production would have to be further slowed down, a prospect that could prove problematic for the company and its many suppliers, who had been counting on much higher production rates by this point in the program.
Bogdan said there was more actual cost data available, given that the company had been building planes for some time, but said the government still pressed for more savings.
Bogdan gave a lukewarm assessment of the program, saying it was at a "good point, not great," and that he had only "reasonable confidence" that the current plan would succeed.
He said the program still had a significant amount of flight testing to do, having completed only about one-third of the required flight testing.
There were also continuing issues with the plane's helmet, overall software development and the automated logistics system, Bogdan said, adding that the Pentagon was working closely with Lockheed to address those areas.
The project is incredibly ambitious, given that the helmet integrates data from all of the F-35's sensors and cameras, allowing pilots to essentially see through the plane's floor and all around it. It must update the data constantly even when the plane travels at supersonic speeds and carries out complex maneuvers.
The helmet is being designed by a joint venture of Israel's Elbit and Rockwell Collins.
Lockheed has also signed a contract with BAE Systems for work on a slightly less ambitious helmet but Bogdan told reporters on Monday that the Pentagon was still evaluating how quickly the alternate helmet could be integrated into the airplane.
Bogdan said Lockheed was improving its production process, and costs were coming down, but the pace of improvement needed to pick up. He said Lockheed's suppliers were doing a better job reducing scrap and rework rates than the prime contractor.
He said the Pentagon needed to look at different approaches to the overall issue of sustaining the plane to bring in more competition across the board, including on the troubled Autonomic Logistics and Information System (ALIS).
Security challenges to that system required a revamp earlier this year, but Bogdan said the new version was being tested and should be ready in time for the Marine Corps to start using it when it stands up an initial squadron in Arizona in November.
He said it was imperative to fix the ALIS system because it was so integral to the plane's operation, adding, "If we don't get ALIS right, we don't fly airplanes. It is that simple. It is that critical to the program."
He said he was less optimistic that all the issues with the helmet, including jitter in the display, delays and night vision gaps, would be fully addressed by 2015, when the Marines want to begin using the new single-seat, stealthy fighters.
"Time is not on our side when it comes to the Marine IOC (initial operational capability)," Bogdan said.
Bogdan said the program also had work to do on the F-35C-model being developed for use on board Navy aircraft carriers. He said a reworked tailhook system succeeded only five of eight times during flight tests earlier this year, but said he was confident that the issue would be fixed.
"That one is not rocket science," he said.