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Cost to buy F-35 up 2 percent; to operate down 9 percent: Pentagon

By Andrea Shalal

WASHINGTON (Reuters) - The Pentagon on Thursday forecast the cost of developing and buying Lockheed Martin Corp's F-35 fighter jet at $398.6 billion, up 2 percent from last year, but said the projected cost to operate and maintain the jets was down about 9 percent.

The total cost of the F-35 Joint Strike Fighter, the Pentagon's costliest weapons program, is now seen at $1.42 trillion, down about 6 percent from $1.50 trillion, including research, development, procurement and operations through 2065.

Air Force Lieutenant General Chris Bogdan said the higher acquisition cost was mainly due to postponed orders by the U.S. military and some allies. But he said he was unhappy about a $4.3 billion increase in costs on the plane's engine, which is built by Pratt & Whitney, a unit of United Technologies Corp.

Bogdan told reporters that growing demand for the new fighter jet would drive procurement costs lower in coming years, citing potential orders from South Korea, Israel, and Singapore.

But he said the Pentagon's F-35 program office continued to work closely with Lockheed and Pratt to drive down the cost of building, flying and maintaining the plane.

The Pentagon report estimated the total "lifecycle" cost of the U.S. F-35 fleet at $1.02 trillion, including inflation, down from $1.11 trillion a year earlier, but the F-35 program office said improving reliability and other adjustments meant the number would be closer to $917 billion.

Bogdan said the huge fighter jet program was making steady progress, but there was more hard work to do to complete flight testing, which is about 55 percent complete, drive down costs and start assembling planes in Italy and Japan.

"I'm pretty pleased," he said. "But there's a lot of work to go. We're still in the catch-up phase."

Lockheed is building three F-35 models for the United States and eight countries that paid for its development: Britain, the Netherlands, Canada, Australia, Norway, Denmark, Turkey and Italy. The program's cost is 70 percent over initial estimates, but costs have stabilized since a major restructuring in 2012.

The latest report estimated the average procurement cost of the F-35 would be $138.9 million in then-year dollars, or $162.2 million, including the cost of research and development.

Bogdan said Pratt was spreading its overhead costs over a smaller base, given a dip in its commercial bases, and said the company needed to adjust more quickly to the altered market.

Lockheed spokesman Michael Rein said the new report showed a significant reduction measured in 2012 dollars, the second consecutive year that costs had come down, but the company remained committed to further cost reductions.

"We are confident that as the program continues to grow and mature costs will continue to decrease," he said.

Pratt said it had an aggressive cost-cutting program in place and was continuing to pursue reductions in its supply chain, manufacturing process and overhead rates.

Pratt spokesman Matthew Bates said the company had invested in its factory based on expected orders, but nearly 500 engines had been postponed from 2013 to 2016, a 25 percent reduction in the factory's projected workload.

Despite those cuts and lower spare parts orders for the F119 engine used on the F-22 fighter jet, Pratt continued to lower the price in each successive F-35 engine contract, he said. "Everyone understands how important it is to deliver an affordable, dependable engine; it is our highest priority."

(Reporting by Andrea Shalal; Editing by Bill Trott and Cynthia Osterman)

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