Pentagon, Lockheed finalize talks on ninth lot of F-35 jets

November 2, 2016 5:37 PM EDT

Lockheed Martin's logo is seen during Japan Aerospace 2016 air show in Tokyo, Japan, October 12, 2016. REUTERS/Kim Kyung-Hoon


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By Mike Stone

WASHINGTON (Reuters) - The U.S. Department of Defense and Lockheed Martin Corp (NYSE: LMT) concluded negotiations on their ninth contract for F-35 fighter jets after 14 months of negotiations on the more than $6.1 billion deal, the Pentagon said on Wednesday.

The unilateral agreement on the contract for 57 of the new war planes, will give profit margin certainty to Lockheed and its partners who have been producing the jet under a placeholder agreement known as an "undefinitized contract action".

People familiar with the contract negotiations who spoke under condition of anonymity said the tenth production contract, a 94-plane deal, was still under negotiation.

In a statement, Lockheed said that the contract was "not a mutually agreed upon contract, it was a unilateral contract action, which obligates us to perform under standard terms and conditions, and previously agreed-to items." Adding, "We are disappointed with the decision by the government to issue a unilateral contract action."

People familiar with the procurement process said that the unilateral decision was rare.

The previous lot of 43 jets, lot 8, had an average unit price of $108 million per plane. Planes in lot 9 are about $107 million per plane, 3.7 percent less, making it the lowest price per jet thus far.

The F-35 is the Pentagon's costliest arms program. The U.S. Defense Department expects to spend $391 billion to develop the plane and buy 2,443 of the supersonic, stealthy new warplanes, in the coming decades.

The ninth batch of jets includes 42 F-35 A-model jets for the U.S. Air Force, Norway, Israel and Japan; and 13 F-35 B-model jets, which can handle short takeoffs and vertical landings, for the Marine Corps and the British navy, as well as two carrier-variant F-35C jets for the U.S. Navy.

Lockheed, and its main partners including Northrop Grumman (NYSE: NOC), Pratt & Whitney (NYSE: UTX) and BAE Systems , have been developing and building F-35s for the U.S. military and 10 allies.

Lockheed's F-35 program manager Jeff Babione had previously said that the price of the F-35A conventional takeoff and landing version of the jet would drop to under $100 million per plane in the 10th low-rate production batch.

On Oct. 25 Lockheed, the world's largest defense contractor, reported a quarterly profit that handily beat analysts' expectations, as sales of its Sikorsky helicopters pushed total revenue up 14.8 percent.

(Reporting by Mike Stone in Washington; Editing by Bernard Orr)



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