Pentagon, Lockheed "getting close" on next F-35 contract: Kendall


Lockheed Martin Corp and the Defense Department are nearing agreement on a long-delayed contract for a fifth batch of F-35 fighter jets, the Pentagon's chief weapons buyer told Reuters on Wednesday.

"I think we're getting close," Defense Undersecretary Frank Kendall told Reuters after a speech to an investor conference hosted by Credit Suisse.

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Kendall said he had "a very positive meeting" on Tuesday with Lockheed President Marillyn Hewson about a range of issues, including the $396 billion F-35 program, the Pentagon's largest weapons program.

Lockheed, the Pentagon's largest contractor, and its suppliers are already building the fifth batch of planes under a preliminary contract, but the two sides have been struggling to finalize the terms of the deal since last December.

Agreement on the terms would free up additional funding for early work on a sixth set of planes, which the company had been funding on its own for some time.

Lockheed warned investors last month that it faced a potential termination liability of $1.1 billion on that sixth batch of planes, unless it received additional funding by year end.

Lockheed received some initial "long-lead" funding for advanced procurement of materials for the planes, but that money ran out a while ago.

The Pentagon has refused to release any more money for the sixth batch of planes until the two sides resolve their differences and sign a contract for the fifth batch of planes after nearly a year of negotiations.

In September, Air Force Major General Christopher Bogdan, who is moving up to head the F-35 program next week, said the protracted contract talks were a sign of how tense relations had become between Lockheed and the Pentagon. He said ties between Lockheed and the U.S. government were "the worst" he had ever seen in his years working on big acquisition programs.

(Reporting By Andrea Shalal-Esa; Editing by Tim Dobbyn)