UK F-35 order seen next month, U.S. orders seen down: sources

Reuters
Handout picture shows Lockheed Martin jet plant in Fort Worth Texas
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This March 22, 2010 handout image, released May 11, 2011, shows the Lockheed Martin plant in Fort Worth, Texas that builds F-35 fighter jets. REUTERS/Fred Clingerman-Lockheed Martin/Handout

By Andrea Shalal-Esa

WASHINGTON (Reuters) - Britain is still expected to order 14 F-35 fighter jets built by Lockheed Martin Corp (LMT) although the $5 billion deal may not be finalized until next month, several sources familiar with the matter said on Tuesday.

The UK deal, which includes fuel, hangars, training and operational support for the jets, was initially expected this week but British authorities put off the announcement to avoid overlapping with the release of a major assessment of weapons systems by Britain's National Audit Office, the sources said.

A spokesman for Britain's Ministry of Defense said the agency expected "an announcement relating to future investment" in the F-35 program soon. "It is not appropriate to comment on speculation while negotiations are ongoing," he said.

The United States is counting on orders from Britain and other countries that helped pay for development of the new F-35 Joint Strike Fighter to offset a series of delays in U.S. orders caused by mounting pressure on military spending.

The U.S. Air Force, Navy and Marine Corps had been slated to order a total of 42 jets in fiscal 2015, which begins October 1, up from 29 in fiscal 2014. But mandatory budget cuts will force the Pentagon to scale back those orders once again, according to the sources.

Several sources said they expected the fiscal 2015 budget request to call for three to six fewer F-35s than expected.

The Pentagon's top arms buyer Frank Kendall told reporters at the Singapore air show earlier Tuesday that tighter budgets would force tough decisions about research and procurement, but the F-35 fighter and other key arms programs remained a top priority.

"The F-35 remains - despite its relatively high cost - a premier, number-one priority conventional warfare program for us, so we're going to continue that under almost any budget level I would imagine that we would have to live with," he said.

Italy, Norway, the Netherlands, Japan and Israel are also ordering F-35 fighters in fiscal 2015 as part of the ninth batch of jets to be built. Turkey is expected to order two jets in coming weeks.

U.S. and foreign orders were initially expected to swell the ninth batch of jets to a new high around 70 planes, but the number will likely come in closer to 65, said one of the sources who was not authorized to speak publicly.

The Pentagon's F-35 program office is expected to award Lockheed a large contract for advanced procurement of titanium and other long-lead materials needed for those jets later this month or early next, according to the sources.

Lockheed and the Pentagon are currently in contract negotiations about the eighth batch of jets, which were funded by the fiscal 2014 budget.

Canada was initially slated to order 4 F-35s as part of the ninth production batch, but officials are rethinking the decision after procurement controversies. Ottawa has also been talking with the makers of four other fighters, including Boeing Co (BA) and Dassault Aviation (AM.PA).

Canada is wrestling with the need to extend the service life of the aging fleet of F/A-18A fighters that it bought from Boeing in the early 1980s.

Ottawa is expected to decide in coming weeks whether to proceed with an F-35 order or launch a fresh competition.

Australia, faced with the same issues several years ago, had estimated the total cost of service life extension and upgrade programs for its F/A-18 A- and B-model planes at over $3.2 billion from 1995 to 2015.

The UK order, when it comes, will include some funding for Lockheed and the other key contractors on the F-35 program, as well as work to be done in Britain on building the infrastructure for the new warplanes.

British Defense Minister Philip Hammond told the BBC on Tuesday that he was not worried about technical issues on the F-35, and remained confident the plane would be fitted with the weapons it needs in time for early operational use in 2020.

(Additional reporting by Brenda Goh in London; Editing by Stephen Coates)

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