* Delay had starting worrying investors and Congress
* Lockheed puts value at over $5 bln
* Lockheed says more cost-cutting work to do
* Deal includes 30 fighters for U.S., one for Britain
(Adds further details, quotes, contract value, byline)
By Andrea Shalal-Esa
WASHINGTON, Sept 22 The Pentagon said on
Wednesday it reached a "fixed-price" agreement with Lockheed
Martin Corp (LMT.N) for a fourth batch of F-35 fighter jets,
wrapping up months of negotiations about the U.S. military's
biggest weapons program.
Pentagon spokesman Bryan Whitman said the deal, concluded
Tuesday, included 30 fighter jets for the United States, one
for Britain and an option for one more for the Netherlands.
He said the contract provided a "fair and reasonable" basis
for the fourth lot of production jets and "sets the appropriate
foundation for future production lots" of the $382 billion
multinational Joint Strike Fighter program.
Lockheed said the new contract was valued at over $5
billion, including sustainment costs for the new radar-evading
fighter jets, and tooling needed for their production.
Pentagon acquisition chief Ashton Carter and Lockheed Chief
Executive Robert Stevens signed the agreement on Tuesday.
Whitman gave no details on the price per airplane
negotiated in the contract, but said it was below independent
cost estimates released earlier this year.
One senior industry executive said all four batches of F-35
production aircraft were now priced below government estimates,
but Lockheed realized it still had "a significant amount of
work" to do to continue driving down costs.
The industry executive, who was not authorized to speak on
the record, said it was imperative for Lockheed to continue
increasing the rate at which it is building the new fighters to
achieve the "economies of scale" needed to lower future costs.
The deal, initially expected in May, took longer to
negotiate given a shift to a "fixed price, incentive fee"
contract structure two years earlier than planned.
Previous F-35 production contracts were on more traditional
"cost plus" contract terms, which make the government liable
for cost overruns.
PENTAGON AGGRESSIVELY MANAGING PROGRAM
Defense Secretary Robert Gates significantly restructured
the program earlier this year, adding 13 months to the
development program, withholding $614 million in award fees
from Lockheed and firing the Marine Corps general who ran it.
"The Department continues to closely monitor and
aggressively manage this important program," Whitman said.
Lockheed shares rose 0.76 percent to $72.20 in afternoon
trading, while the Standard & Poor's 500 index .SPX, of which
it is a component, fell 0.7 percent.
The F-35 Joint Strike Fighter will eventually account for
about 25 percent of Lockheed's yearly revenue.
Lockheed confirmed the agreement in a separate statement,
saying it brought the total number of F-35 production aircraft
under contract to 63, including aircraft for the U.S. military
and three other countries.
"We remain confident that this agreement keeps us on track
to reach our long-term price projections for the F-35 at
full-rate production," said spokesman Joe LaMarca.
"We know we have to adapt to the new reality that we face,
with more demanding affordability goals that place an even
greater premium on program execution and we are committed to
meeting that challenge," he said.
The delay in reaching a deal with the Pentagon had begun to
unsettle investors and lawmakers.
Last week, the Senate Appropriations Committee's defense
subcommittee slashed funding for 10 of 42 F-35 fighters the
Pentagon requested in its fiscal 2011 budget, saying the move
would give the program more time to stabilize production.
Defense consultant Loren Thompson said the deal would
provide a big boost to Lockheed's aeronautics division.
"Any time there's a delay on such a critical contract,
people begin to worry," he said. "With a contract now in place
Congress is less likely to take money away from the F-35
program and use it for other purposes."
Analysts say Lockheed had even begun building some of the
aircraft in the fourth batch using its own funds to ensure that
its production stayed on schedule, despite the long delay in
negotiating a contract.
The industry executive said Lockheed was continuing to
improve the manufacturing process for the new fighter and was
in discussions with the Pentagon about ways to earn back the
entire $614 million in award fees being withheld.
Target milestones were being set during a technical
baseline review due to be completed by a Nov. 23 meeting of the
high-level Defense Acquisition Board.
(Reporting by Andrea Shalal-Esa; editing by Robert MacMillan,
Lisa Von Ahn and Andre Grenon)