Pentagon, Lockheed sign F-35 contract

By Andrea Shalal-Esa
Thursday, September 23, 2010

The Pentagon said Wednesday that it has reached a "fixed-price" agreement with Lockheed Martin 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 includes 30 jets for the United States and one for Britain and an option for one for the Netherlands.

He said the contract provides 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, based in Bethesda, said the new contract was valued at more than $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 Tuesday.

Whitman gave no details on the price per airplane negotiated in the contract, but he said it was below independent cost estimates released earlier this year. He said 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.

Defense Secretary Robert M. Gates retooled the program earlier this year, adding 13 months to the development program, withholding $614 million in award fees from Lockheed and firing the Marine general who ran it.

"The Department continues to closely monitor and aggressively manage this important program," Whitman said.

The F-35 Joint Strike Fighter will eventually account for about 25 percent of Lockheed's 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.

The delay in reaching a deal with the Pentagon had begun to unsettle investors and lawmakers.

Last week, the Senate Appropriations 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.

- Reuters

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