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AIRSHOW-Lockheed says rocket launch venture urgently needs U.S. law waiver

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By Andrea Shalal

PARIS, June 14 (Reuters) - Lockheed Martin Corp issued a warning on Sunday over prospects for its rocket launch joint venture with Boeing Co, saying it urgently needed the United States to waive a law banning the use of Russian engines to launch military and spy satellites.

Rick Ambrose, who heads Lockheed's space business, told Reuters in an interview that concerns about the United Launch Alliance (ULA) venture's prospects had prompted the partners to approve funding for its new U.S.-powered Vulcan rocket only one quarter at time.

He said it was "prudent" for the partners to proceed cautiously, given uncertainty about both ULA's ability to use its Russian-powered Atlas 5 rocket for military and intelligence satellites, and growing competition in the commercial market.

The U.S. Air Force last month certified privately held Space Exploration Technologies, or SpaceX, to compete for some of the national security launches, plunging ULA into a competitive market for the first time since its creation in 2006.

The company has said it needs a waiver to keep using its Atlas 5 launch vehicle, which is powered by the Russian RD-180 engine, until the new U.S. rocket is ready for use. The company also has a U.S. powered engine called Delta 4, but it is too expensive to compete against SpaceX's cheaper Falcon 9 rocket.

"It's unclear whether there's sufficient market to maintain two companies," Ambrose said in his frankest comments to date on the difficult climate facing the launch venture.

He said the Atlas 5 rocket was only now starting to break even after billions of dollars of investment by the U.S. government and the companies. That highlighted the risks involved in the space business, he said.

Ambrose said the U.S. Air Force was expected to ask top Pentagon officials to waive a provision of a 2015 law that bans use of any RD-180 engines purchased after Russia's annexation of Ukraine's Crimea region in 2014. ULA argues that it should be allowed to use engines included in an umbrella contract before that had not been fully paid for.

He said more details about the terms and scope of any waiver should emerge within a month. Those details would also help Lockheed and Boeing decide whether to approve another large purchase of Russian engines that ULA is considering.

"We need to make sure that we can close the business case," Ambrose said. "You don't know what's going to happen with U.S. policy, as well as the market shifts."

Ambrose noted that Japan and China were getting into the commercial space launch business, which could undermine ULA's push to secure more commercial launches.

ULA and Air Force officials began pressing for a waiver after Senator John McCain, the powerful head of the Senate Armed Services Committee, and others rejected calls by Air Force officials to modify the existing law.

(Reporting by Andrea Shalal; Editing by Mark Potter)