Pentagon unveils new cost-cutting initiatives for F-35 fighter jet

By Andrea Shalal

FARNBOROUGH, England (Reuters) - The U.S. Defense Department on Monday extended by two years a project that has cut the cost of Lockheed Martin Corp's (LMT.N) F-35 fighter plane by more than $1 million (£777,004) per jet, and kicked off a similar project to cut operating and maintenance costs.

The Pentagon's F-35 programme office is working closely with industry to drive down the cost of the jets - now running just over $100 million per jet - to around $85 million by 2019.

The F-35 programme is the Pentagon's costliest arms programme. The U.S. military plans to spend $379 billion to buy a total of 2,457 F-35 warplanes over the next decades.

Under the Blueprint for Affordability cost-cutting programme first announced two years ago, Lockheed and its key suppliers, Northrop Grumman Corp (NOC.N) and Britain's BAE Systems Plc (BAES.L) were due to invest $170 million in new technologies, materials and processes to lower production costs.

They are due to recoup their initial outlays from the government once the accrued savings are verified. Specific programs included boosting efficiency through improved tooling, automating production by introducing robotics, and even modifying assembly instructions.

The project funded 193 separate initiatives, of which 75 were still in process. The investments are expected to save $1.15 million per aircraft in the ninth production lot, and $1.7 million in the 10th. Over the life of the programme, the changes will save around $4 billion, according to the F-35 programme.

Over the next two years, the companies have agreed to invest $24 million left over from the original programme, and up to $170 million more on continued work to lower the cost of the jets, the programme office said.

In addition, the three companies agreed to invest up to $250 million in projects aimed at cutting the cost of operating and maintaining the jets, with a goal of saving $1 billion over a five-year period, the F-35 programme office said.

Pentagon acquisition chief Frank Kendall said the extra investment by industry would help the military bridge to an F-35 block purchase planned in coming years for international customers that could cut the cost of building the jets by over $2 billion.

Kendall told reporters that the department was "basically ready to move forward" on the block buy, initially with a group of other countries, and then later with the U.S. military.

"We’d like to see that proceed as soon as possible," he said. "We think we’re basically ready to move forward on that."

Kendall said the separate programme to cut operating costs would help the Pentagon achieve its goal of lowering the overall lifecycle cost of the programme - now estimated to be over $1 trillion through 2070 - by 30 percent.

Bennett Croswell, who heads the military engines business of Pratt & Whitney, a unit of United Technologies which makes the F135 engine that powers the F-35, said his company would also set new cost-cutting targets after completing the engine's development programme by the end of this month.

He said the new programme would involve Britain's Rolls-Royce Holdings Plc (RR.L), which makes the lift fan for the F-35B model, which can land vertically like a helicopter.

(Reporting by Andrea Shalal; Editing by Sandra Maler and Mark Potter)