Lockheed, Northrop, BAE investment to push F-35 costs down

(Adds quotes from Lockheed, Pratt & Whitney, byline)

By Andrea Shalal

RAF FAIRFORD, England, July 10 (Reuters) - Key F-35 contractors Lockheed Martin Corp, Northrop Grumman Corp and BAE Systems Plc (Other OTC: BAESF - news) on Thursday said they would invest up to $170 million over the next two years to cut the cost of each of the new warplanes to under $80 million each by 2019.

Lockheed's F-35 program manager Lorraine Martin said the companies had a list of over 300 initiatives that should save $1.8 billion in coming years, and said many of the proposed changes could be executed quickly.

She said the companies had been working with the Pentagon for over a year to hammer out the agreement, called the Blueprint for Affordability, and signed a formal agreement with the Pentagon this spring.

"We really wanted to do something that was win-win for all the parties. Now (NYSE: DNOW - news) it is in place to be implemented," Martin said.

Air Force Lieutenant General Christopher Bogdan, the Pentagon's F-35 program chief, said the agreement would allow the companies to recoup their investment and a small profit, but only after the plane's cost came down.

He said the U.S. government could invest additional money from 2016 to 2018 if the initial cost reductions proved to be successful.

Martin said the savings would cut the cost of each F-35 fighter jet by about $10 million to under $80 million, including an engine, by 2019.

That is down from the $98 million cost of an Air Force F-35 A-model jet, without an engine, that was included in Lockheed's contract to build a seventh batch of jets for the U.S. military.

Bogdan said the agreement meant the Pentagon and other countries would soon be able to buy a "fifth generation" fighter with its unprecedented capability for a price that would nearly equal any "fourth generation" fighters on the market, but with far more advanced capability.

He said the Pentagon was continuing to negotiate contracts with Lockheed and engine maker Pratt & Whitney, a unit of United Technologies Corp, despite an engine fire last month that triggered a fleetwide grounding of the F-35.

He said the department was "in the end game" on both contracts, but still had some additional work to do.

Lockheed and Pratt executives said they expected to finalize the separate agreements soon.

Pratt & Whitney had already invested $65 million to lower the cost of the F135 engine it builds for the plane under its "war on cost" since 2009, and planned further investments of $15 million over the next three years, said spokesman Matthew Bates.

Bogdan said the Pentagon and the companies that build the jet were also looking at possible block buys of F-35s grouping U.S. and foreign orders, to achieve greater economies of scale and further lower the cost.

Efforts were also underway to lower the operating and maintenance costs of the jets by 30 percent, Bogdan said.

Martin said the engine failure was unfortunate but Lockheed and the other contractors would do whatever was needed to correct the issue and get back on schedule with the program. (Reporting by Andrea Shalal; editing by Jason Neely, Bernard Orr)