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U.S. general's Australian outburst could undermine F-35 program

Workers can be seen on the moving line and forward fuselage assembly areas for the F-35 Joint Strike Fighter at Lockheed Martin Corp's facto
Workers can be seen on the moving line and forward fuselage assembly areas for the F-35 Joint Strike Fighter at Lockheed Martin Corp's facto

By Andrea Shalal-Esa

(Reuters) - An outburst in Australia this week by the Pentagon's chief buyer for the costly F-35 Joint Strike Fighter risks undermining the program at home and abroad, U.S. defense officials and industry experts say.

At an Australian air show, Lieutenant General Christopher Bogdan accused the plane's manufacturer, Lockheed Martin Corp and engine maker Pratt & Whitney, a unit of United Technologies Corp , of trying to "squeeze every nickel" out of the U.S. government for the planes.

Bogdan, who took over the $396 billion program in December, told reporters it's not his job to be a "cheerleader for the F-35." But for some in the industry, the words stung.

"Airing dirty laundry in front of a key customer who's on the fence about buying more competing aircraft, is a very dangerous game," said aerospace analyst Richard Aboulafia of the Teal Group. He said Australia is already considering plans to buy more Boeing F/A-18 Super Hornets, which could wind up reducing its planned purchase of 100 F-35 fighter jets.

"By implying that the contractors are greedy ... he could inspire politicians to cut funding as a form of punishment, which would raise unit costs and inspire them to cut funding again. It's the classic death spiral," Aboulafia said.

A similar dynamic undercut an Air Force's plan in the 1990s to buy 750 F-22 fighter jets from Lockheed, raising the unit cost and leaving the Air Force with just 183 planes in the end.

The cost of each F-35 jet has already risen in recent years as Washington delayed orders until later in the decade. Unit costs are calculated assuming 2,443 orders for the U.S. military and over 600 orders for eight partner countries.

Bogdan's remarks in Australia raised eyebrows among some senior Pentagon leaders, who prefer a more measured, less public approach to dealing with industry. The comments came up when the service chiefs of the Air Force, Navy and Marines Corps met to review the F-35 program on Thursday, said one official who could not speak publicly about the private meeting.

"The U.S. government does not negotiate with industry through the press," said the official.

Lockheed and Pratt responded to Bogdan's salvo by saying that they had already reduced costs sharply, and were taking on high levels of risk.

"His word choice was ironic, since that's what the companies think he's doing to them," said one executive familiar with the contract talks, who was not authorized to speak publicly.

"Bogdan's commitment to running the program is sincere, but he's acting like a bull in a china shop," agreed one U.S. government official who was not authorized to speak publicly. "Orders from some of the partner nations are already tenuous, so those kind of comments are just not helpful."

The general's blunt language, coupled with escalating U.S. budget woes and a steady trickle of vexing technical challenges, could make it even harder for military officials in Australia and Canada to stick with the huge fighter development program that they helped finance, said the government official.

Both countries are rethinking their plans to buy dozens of F-35s; Italy has already slashed its purchase by 30 percent and may see further cuts, and Turkey and the Netherlands may soon reduce their orders as well.

Australia's conservative opposition, which is likely to win elections in September, supports the F-35, but delays in the program mean Australia will likely buy more F/A-18 fighters in coming years at the expense of F-35 orders.

Aboulafia said the negative comments could also affect a 60-plane South Korean competition that pits Lockheed's F-35 against a modified Boeing Co F-15 fighter and Europe's Eurofighter Typhoon.

"South Korea should have been a slam dunk; now it's a horse race," he said, noting that the F-35's rising cost made the F-15 look like a "pretty good deal" for Seoul, which had long been expected to follow Japan's lead in ordering F-35 planes.

South Korea's defense acquisition agency plans to announce a winner in the 8.3 trillion Korean won ($7.65 billion) competition in the first half of the year, but a spokesman said it was too early to predict the outcome.

(Additional reporting by Ju-min Park in Seoul, Jane Wardell in Avalon and Rob Taylor in Canberra, Australia; Editing by Ros Krasny and Eric Walsh)

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