REUTERS SUMMIT-Lockheed, Pentagon say near deal on next batch of F-35s

(Updates throughout with comments from Pentagon, BAE)

By Andrea Shalal

WASHINGTON, Sept 9 (Reuters) - Lockheed Martin Corp is in the final stages of negotiations with the Pentagon about an eighth batch of F-35 fighter jets, with an agreement weeks or perhaps only days away, a company executive and a senior military officer said Tuesday.

The deal, valued by analysts at over $4 billion, will cover 43 of the most advanced U.S. warplanes. Lockheed is building three models of the Joint Strike Fighter, or Lightning II, for the U.S. military and nearly a dozen foreign countries.

The Defense Department expects to spend nearly $400 billion to develop the radar-evading plane and buy 2,457 jets in coming decades. It is the largest U.S. and global weapons program.

Pratt & Whitney, a unit of United Technologies Corp, is also close to a deal worth over $1 billion for 84 engines, but that will be cleared only after Pratt and the government determine the cause of an engine failure that grounded the F-35 fleet for weeks this summer.

Industry and Pentagon officials said the engine issue was being addressed and should not affect the Marine Corps' plan to start using the jets in combat starting next July.

Orlando Carvalho, executive vice president of Lockheed's aeronautics division, told the Reuters Aerospace and Defense Summit the company was in touch daily with the Defense Department about a few remaining issues in the contract talks.

"We are in the endgame of the negotiation," he said. "Our hope is that we'll close shortly. I'll say weeks ... maybe if we're a little bit lucky, days."

Pentagon officials originally hoped to conclude the current round of contract negotiations with Lockheed and Pratt by late May or June, but the talks were delayed after an engine failure and fire on an F-35 A-model jet at a Florida air base in June.

Rear Admiral Randy Mahr, F-35 deputy program director, told the summit at Reuters' Washington bureau that a deal with Lockheed could be finalized in coming days or weeks, followed by a Pratt deal once the engine issue had been resolved.

Mahr said the Pentagon had also decided to negotiate the next two production contracts with Lockheed at the same time to ensure higher order quantities and better pricing.

He said those contracts would still be awarded to the company one year at a time given the U.S. budget process and tight restrictions on multiyear contracts.

Carvalho said the ninth and 10th batches of the F-35 were expected to include 154 aircraft, which would help provide stability to the company's suppliers. He said Lockheed hoped to segue into true multiyear agreements that contained more assurances once the plane reaches full production in 2018.

Lockheed and the Pentagon negotiated a deal for the sixth and seventh batches of jets at the same time several years ago, and Pratt & Whitney is now in talks about two years' worth of engines.

Mahr said the overall F-35 program was doing "pretty well" but said he continued to worry about the pace of retrofitting existing jets to fix problems discovered during flight testing.

He said the Pentagon is also trying to increase how often the new jets are available for operational use. The goal was to boost the "availability rate" to 57 percent by the end of the year, up from rates of around 30 percent to 40 percent now.

Mahr said current rates were low because some components were not lasting as long as expected. The rates also include jets that are out for repairs and those whose engines must be inspected every three hours after the June engine failure.

Carvalho said top executives from Lockheed, Pratt & Whitney, Britain's BAE Systems (LSE: BA.L - news) and Northrop Grumman Corp were also in talks about driving down the cost of operating and maintaining the jets, which the Pentagon has estimated will reach over $1 trillion over the next five decades.

Mahr said the Pentagon was considering one proposal for trimming operating costs that was modeled on a "Blueprint for Affordability" announced in July under which Lockheed and other key suppliers will invest $170 million to drive down production costs, but can recoup the money if the measures work out.

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(For more summit stories, see ) (Additional reporting by Victoria Walker; Editing by Ros Krasny and Jonathan Oatis)