* Pentagon says 78 percent of issues raised already addressed
* "Scrap and rework" rate said to be coming down
* Inspector general cites nearly 900 quality issues on every jet built
By Andrea Shalal-Esa
WASHINGTON, Sept 30 (Reuters) - Lockheed Martin Corp has resolved many quality problems on the $392 billion F-35 fighter jet program since a troubling audit by the Pentagon inspector general's office last year, top U.S. government and industry officials said on Monday.
The officials were commenting on a report on the year-long in depth assessment by the inspector general, which was completed in December 2012, but not released until Monday.
The report said each radar-evading fighter jet built had over 800 quality issues on average, and faulted both the Pentagon's F-35 program office and the Defense Contracts Management Agency for "inadequate" and "ineffective" oversight of the Pentagon's costliest weapons program.
The report said the issues could lead to "nonconforming hardware, less reliable aircraft and increased cost," but said the F-35 program office was implementing corrective actions.
Additional assessments of the program were being planned, the report added.
The F-35 program is running years behind schedule and 70 percent over initial cost estimates, but Pentagon officials say it has made progress on flight testing, production and long-term operating costs. They have also vowed to protect the program from across-the-board budget cuts to ensure it stays on track.
Lockheed is building three variants of the new jet for the U.S. military and eight countries that funded its development: Britain, Canada, Australia, Norway, Italy, Turkey, Denmark and the Netherlands. Israel and Japan have also ordered jets.
The Pentagon's deputy F-35 program director and Lockheed executives cited significant improvements since the inspector general's assessment concluded last year. The study was the first of its kind ever done on a major weapons program, they said.
"This was a wake-up call that we had to be more rigorous," Eric Branyan, Lockheed's F-35 vice president of program management, told Reuters in a telephone interview.
"We take this very seriously," he said, adding that Lockheed had implemented a host of specific initiatives to focus on quality company-wide and had also set up a global quality council with 10 key suppliers.
Branyan said about 13 percent of the work on any F-35 fighter jet centered on resolving quality issues, down from around 18 percent during the first low-rate production batch.
He said Lockheed expected to drive that "scrap and rework" rate down to around 6 percent in several years when production reaches between 500 and 600 jets. The company's popular F-16 fighter jet only hit that 6 percent rate after production of four times as many jets - around 2,600 planes, he added.
The IG's report acknowledged some improvement in work on the F-35 program, but said further gains were needed since repair and rework rates continued to add significant cost.
It said there were an average of 859 "quality action requests" per aircraft in the fourth lot of low-rate production jets, down from over 900 on each of the three earlier sets.
The IG report said Lockheed's scrap, rework and repair rate fell to 13.11 percent in fiscal year 2013, which ends Monday, from 13.82 percent a year earlier, showing only "moderate" change.
"Although it would be unrealistic to expect first production to be issue free, our contractor assessments indicate that greater emphasis on quality assurance, requirement flow down and process discipline is necessary, if the government is to attain lower program costs," the report said.
Lockheed said it had also reduced the number of hours associated with quality issues on each jet to around 80,000, down from around 190,000 hours seen during production of the first batch of low-rate production jets.
Navy Rear Admiral Randy Mahr, the No. 2 official in charge of the F-35 program, said Lockheed and its suppliers were making progress in addressing issues raised by the inspector general's assessment. He said his office was also working closely with the Defense Contract Management Agency to ensure improved oversight.
Of 343 quality problems identified by the IG assessment, some 269 - or 78 percent - had been addressed and closed through specific action plans, and remedies were under way for all but 10 items, where specific plans still needed approval, said Kyra Hawn, spokeswoman for the Pentagon's F-35 program office.
Mahr said a majority of the findings were consistent with weaknesses previously identified by the DCMA and the F-35 Joint Program Office, and did not present new or critical issues that affect the health of the program. But he stressed that the IG assessment was professional and helpful.
"We're intentionally leveraging the lessons learned," Mahr told a small group of reporters. "You can't inspect yourself. We understand that. That's why the (inspector general) is there. We need people to come in and look and point out areas where we aren't paying enough attention."
The inspector general's office looked specifically at work done by Lockheed, the prime contractor on the F-35 program, and five suppliers: Northrop Grumman Corp ; Britain's BAE Systems Plc ; L-3 Communications Holdings Inc, Honeywell International Inc and the United Technologies Corp unit that makes the plane's landing gears.
F-35 program officials said the inspector general's office initially planned to look at Pratt & Whitney, another United Technologies unit that builds the plane's engine under a separate contract with the government, but later skipped that part of the assessment due to funding constraints.
Two engine-related groundings last year occurred after the inspector general's office completed its assessment, Mahr said.