Pentagon report sees drop in cost of Lockheed F-35, other weapons

(Recasts lead, adds quotes from Lockheed, F-35 program office)

By Andrea Shalal

WASHINGTON, March 19 (Reuters) - The Pentagon on Thursday lowered the projected procurement cost of Lockheed Martin Corp's F-35 fighter jet by almost two percent and officials vowed to keep trimming the cost of the largest U.S. arms program.

The U.S. Defense Department's annual report on weapons programs forecast it would cost $391.1 billion to buy 2,457 F-35 jets. That represents a drop of $7.5 billion, or 1.9 percent, from last year's estimate, due to lower labor and estimated inflation rates, and a cut in the number of spares needed.

The report said the net cost of 79 major U.S. arms programs dropped 0.6 percent, or $9.1 billion, to $1.6 trillion, reflecting ongoing efforts to cut costs, improve oversight and keep programs on schedule.

Lockheed and the Pentagon's F-35 program office welcomed the lower cost estimate for the stealthy new warplanes and said they were continuing efforts to cut costs further.

The F-35 program office said its estimate of the cost to operate and maintain the jets through 2065 fell almost $58 billion to $859 billion in 2014, below the unchanged $1.02 trillion estimate of the Pentagon's Cost Assessment and Program Evaluation office.

Lockheed's F-35 program manager Lorraine Martin said the lower forecast was the result of "a laser focus" by the government and all companies involved on cutting costs, improving quality in manufacturing, getter parts faster and reducing design changes.

"We aren't stopping here," Martin said in a statement. "We have numerous initiatives in place ... that will drive program costs even lower allowing us to provide ... a fifth-generation F-35 jet at a fourth-generation price by the end of the decade."

The report put the average procurement cost of each F-35 fighter at $135.7 million, including inflation, over the life of the program. Adding in research, development and military infrastructure, the cost was $159.2 million per jet.

The F-35 program office said the actual cost of jets and engines bought from Lockheed and engine maker Pratt & Whitney, a unit of United Technologies Corp, was coming down each year and remained well below government estimates.

Under the eighth set of production contracts, each conventional takeoff A-model jet and engine cost $108 million, down from $112 million, while the cost of the B-model jet, which can take off and land like a helicopter, dropped to $134 million from $139 million, it said.

The Navy version of the jet, which can land on an aircraft carrier, dropped to $129 million from $130 million, the program office said.

(Reporting by Andrea Shalal; Editing by Susan Heavey and Alan Crosby)