July 30 (Bloomberg) -- Lockheed Martin Corp. and the Pentagon reached an accord for the company to produce 71 more F-35 jet fighters, saying costs per plane have been reduced about 4 percent in a move that will protect the weapons system from automatic budget cuts.
The decrease in costs “coupled with negotiating lower prices on a number of smaller contracts will allow the department to purchase all the aircraft originally planned, including those that were in jeopardy of being cut due to sequestration,” according to a joint statement today from the Pentagon’s F-35 program office and Bethesda, Maryland-based Lockheed, the world’s largest defense contractor.
The contracts may be valued at as much as $7 billion, according to two people familiar with the deal who asked not to be identified while final details remained under negotiation. That’s down from an estimate of $9 billion cited by Pentagon officials discussing the pending contracts at a congressional hearing in April.
The F-35 is the Pentagon’s costliest weapon system, with an estimated price tag of $391.2 billion for a fleet of 2,443 aircraft, up 68 percent from the projection in 2001, as measured in current dollars. The rising costs and troubles in building the plane as it’s still being developed have produced criticism in Congress.
The Senate Defense Appropriations subcommittee, taking action today on the defense budget for fiscal 2014, adopted a provision that would reduce to 36 from 42 the number of F-35 jets the Pentagon could buy from Lockheed during fiscal 2015. That’s the year the military wanted to start ramping up production to 42 from the current 29 jets annually.
The reduction in such advance procurement is a setback to the Pentagon and Lockheed. The three other congressional defense panels that have acted so far on their respective budgets didn’t reduce the Pentagon’s request for funds next year to keep buying hard-to-manufacture parts for the jets to be purchased in 2015.
In their announcement today, Lockheed and the Pentagon said that an “agreement in principle” has been reached on two contracts for 36 and 35 jets. The contracts include the first deliveries of jets for Australia, Norway, Italy and a fourth fighter for the U.K.
“Cost details will be released once both contracts are finalized, however, in general, the unit prices for all three” models of the jets will be at least four percent lower than the fifth production contract, according to the statement.
The 35 aircraft in the seventh contract are estimated to cost 8 percent less than the fifth contract signed in December, according to the statement.
“These two contracts represent a fair deal that is beneficial to the government and Lockheed Martin,” Lieutenant General Christopher Bogdan, the Pentagon’s F-35 program manager, said in the statement. “These agreements are proof that the cost arrow is moving in the right direction.”
The 71 aircraft are in addition to 95 jets already under contract, 67 of which have been delivered.
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