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Pentagon says F-35 fighter delayed, costs rise 4.3 percent

By Andrea Shalal-Esa

(Reuters) - The cost of developing and building the F-35 Joint Strike Fighter rose 4.3 percent to $395.7 billion last year and the plane will not reach full-rate production until 2019, two years later than planned, the Pentagon said on Thursday.

It cited a slowdown in orders from the U.S. military and other countries as a reason for the higher cost of the Lockheed Martin Corp next-generation combat plane, which has been dogged by delays and cost overruns.

The Pentagon's acting chief weapons buyer Frank Kendall approved continued low-rate production of the supersonic, single-engine fighter, according to an acquisition memorandum dated March 28.

New projections by the Pentagon also show that the total lifetime cost of the new warplane, including development, production, operating and maintenance costs, and inflation, will reach $1.51 trillion over the next 55 years.

The new estimate compares with a previous one of about $1.38 trillion over the life of the program, but adds three years to the equation, from 2062 to 2065, at the highest inflation rate, and uses 2012 as a baseline rather than 2002.

Operating and support costs alone are now expected to reach about $1.1 trillion, up from last year's estimate of $1 trillion, according to a Pentagon report to Congress.

Lockheed is developing three variants of the new plane for the U.S. military and eight partner countries - Britain, Canada, Australia, Italy, Turkey, Denmark, Norway and the Netherlands. The partners now plan to buy a combined total of 697 planes, down from 730 in the previous Pentagon estimate.

Japan, one of the first foreign customers outside the partnership, said in late February it might cancel orders for 42 F-35 fighters if the price goes up or deliveries are delayed, prompting Vice Admiral David Venlet, who heads the program, to say he had assured Japan that its deal would not be invalidated.

Kendall told the Senate Armed Services Committee at a confirmation hearing to keep him in the job that the department was heavily focused on lowering the cost of the plane.

"We're doing everything we can to drive down the cost of the Joint Strike Fighter," he testified, saying that production costs were stabilizing but sustainment costs still needed work.

"We've made some progress there this year in some areas, but we slipped a little bit in some areas as well. That's where we think the greatest potential is," he said.

The Pentagon's report to Congress said it would continue to analyze options for cutting operating costs, including where to base the planes and how many people were needed in a squadron, as well as a range of other initiatives to drive costs lower.

Kendall also set affordability targets for both production and sustainment costs when he approved continued low-rate production on Wednesday. "The department intends to manage the program to beat these targets, in the case of sustainment costs by a significant margin," the Pentagon said in a statement.

The department said the average cost of the Air Force version of the F-35, excluding development and military construction costs, should be $71.5 million per plane in fiscal year 2019, measured in 2012 dollars.

That compares with the Pentagon's newest projection, which put the "unit recurring flyaway cost" at $78.7 million.

Steve O'Bryan, vice president of business development for the Lockheed program, said the company was intensely focused on meeting the Pentagon's affordability targets.

"We think they're achievable when the program is able to capture the economies of scale that it was designed for," O'Bryan told Reuters. He said the new plane would ultimately save the U.S. military money by replacing at least older aircraft systems, and streamlining logistics and maintenance.

Winslow Wheeler of the Center for Defense Information said the new cost estimates showed the program remained in deep trouble. "The costs are going up, the performance continues to be compromised, and the schedule has more delays. This is nothing new for the F-35; we can only expect more," he said.

The new F-35 cost data was sent to Congress on Thursday as part of a required report on the cost of major weapons programs.

The projected cost of the F-35 aircraft alone rose 3.3 percent, or $10.7 billion, mainly because of revised inflation rates, a slowdown in U.S. production in the short term, higher labor hours and slower procurement by international partners.

The projected cost of the F135 engine, built by Pratt & Whitney, a unit of United Technologies Corp, rose 9.7 percent, or $5.6 billion, mainly due to an increase in spares, revised inflation rates and lower production in the near term.

The Pentagon split the cost projections for the engine and the aircraft this year, following congressional orders.

The new cost estimate reflects the Pentagon's proposal to postpone orders for 179 planes for five years, a move that U.S. official say will save $15.1 billion through 2017, and should avert costly retrofits if further problems arise during testing of the new fighter, which is only about 20 percent complete.

The Pentagon still plans to buy 2,443 of the new radar-evading, supersonic warplanes, plus 14 development aircraft, in the coming decades, although Air Force Secretary Michael Donley warned last week that further technical problems or cost increases could eat away at those numbers.

The report cited progress on technical challenges facing the F-35 program and said it had logged 2,698 total flight test hours, but software development remained a big challenge.

O'Bryan said the company was about three months behind schedule on software development, but had invested about $150 million in new laboratories and hired 200 new software engineers to pick up the development pace. "We recognize that it is challenge and we're putting resources toward it,' he said.

(Reporting By Andrea Shalal-Esa; Editing by Phil Berlowitz, Steve Orlofsky and Michael Watson)

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