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Lockheed Martin Poised to Win Orders for Up to 71 F-35s

April 25 (Bloomberg) -- Lockheed Martin Corp. may receive orders in June for as many as 71 F-35 fighter jets, according to the Pentagon’s program manager for the costliest U.S. weapons system.

“We believe we can have a negotiation settlement” by May 31, “followed by final contract award in June,” Air Force Lieutenant General Christopher Bogdan, the program manager, said in written testimony submitted yesterday to a Senate Armed Services Committee panel.

The orders would include two U.S. contracts for as many as 60 F-35s, and purchases by other nations may bring the total to 71. The orders may be valued at about $9 billion, according to a person familiar with negotiations between the Pentagon and Lockheed, who asked not to be identified in discussing the private talks.

The Pentagon has worked to protect the F-35 from the federal spending cuts called sequestration. Some of the money for the next group of fighters to be produced already has been obligated, sparing those funds from the across-the board reductions. Other funds may be subject to the cuts, which Air Force, Navy and Pentagon officials continue to assess.

The F-35’s estimated cost for a fleet of 2,443 aircraft has risen to $395.7 billion, up 70 percent from $233 billion in 2001, as measured in current dollars, according to the Pentagon.

Containing Costs

Bogdan, who has pressed Lockheed to do a better job containing F-35 costs, said the Bethesda, Maryland-based company will absorb a greater share of overruns than under previous contracts.

Signing the sixth and seventh F-35 production contracts in June would be about seven months after a preliminary agreement in December. That’s far faster than the 14 months needed to negotiate the fifth F-35 accord, a pace that underscored strains between Lockheed and the Pentagon, its biggest customer. The fifth agreement, for 32 planes, was valued at as much as $3.8 billion.

In September, Bogdan said relations with Lockheed, the world’s largest defense contractor, had deteriorated to “the worst I’ve ever seen.”

“It should not take 10 or 11 or 12 months to negotiate a contract with someone we’ve been doing business with for 11 years,” Bogdan said at the time.

Speeding Process

The lessons learned should help speed the process in pending negotiations over the next production contract, Marillyn Hewson said Dec. 14 in an interview when she was the company’s chief operating officer.

Hewson, who became the company’s chief executive officer in January, said “the reason why it took longer is that there was a real need to understand the cost, on both sides, from the government side, from Lockheed Martin’s side.”

Bogdan gave a generally upbeat assessment of the F-35’s progress in his statement yesterday.

“The basic aircraft design is sound and we can deliver on our promises,” Bogdan said. “Our progress continues at a slow but steady pace.”

Frank Kendall, the Pentagon’s chief weapons buyer, told reporters yesterday that “I feel much more comfortable” about the F-35 program compared with 18 months ago.

Lockheed’s performance since a strike of its aerospace workers ended in July “has been fairly stable and the program has seen marked improvement in design stability,” Bogdan said.

Software Quality

Bogdan was less optimistic on development of software used in the jet. He said he had “moderate” confidence in Lockheed’s capability to deliver mid-level versions needed to train pilots on the aircraft and give it an initial combat capability.

On-time delivery of so-called Block 3F software, to give the F-35 full combat capability by 2017, is more at risk, Bogdan said.

Lockheed and its subcontractors “still need to improve both the speed and quality of software development” to “catch up from previous software delays,” he said.

Lockheed reported a first-quarter profit on April 23 that beat analysts’ estimates as sales fell 2 percent compared with a year earlier. Revenue from the F-35 was “up slightly” compared with the same quarter a year earlier, according to the company. The fighter accounted for 14 percent of the company’s sales last year, according to a regulatory filing.

To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net.

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net.

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