By Andrea Shalal-Esa
WASHINGTON (Reuters) - U.S. Defense Secretary Leon Panetta is expected on Friday to remove the threat of termination that has been looming over the Marine Corps version of Lockheed Martin Corp's F-35 fighter jet, according to multiple sources.
Panetta will announce on Friday that he is taking the B-model of the stealthy F-35 fighter off "probation" a year ahead of schedule, given the plane's progress on resolving technical issues, the sources, who were not authorized to speak publicly, told Reuters.
The announcement will come during Panetta's visit on Friday to Naval Air Station Patuxent River in southern Maryland, where some 700 government and industry testers have been evaluating the F-35B model, which can take off from shorter runways and can land vertically, like a helicopter.
The decision would remove a black cloud that has hung over the entire $382 billion Joint Strike Fighter program since then-Defense Secretary Robert Gates announced a year ago that the B-model should be canceled unless significant technical issues could be ironed out during a two-year probationary period.
The B-model is the most complex of three F-35 variants that Lockheed is developing for the U.S. military and eight foreign partners. [ID:nL3E7NK1HY] Lockheed expects the F-35 to account for about 20 percent of revenue once full production begins.
Tom Burbage, executive vice president at Lockheed, said the B-model of the plane was performing well and the company would welcome any move by Panetta to remove the F-35B from probation. "It would lift any doubt that this airplane is viable," he said.
Panetta's expected announcement would reaffirm the U.S. Defense Department's commitment to its largest weapons program at a time when critics are calling for its cancellation to help the Pentagon cut spending by $487 billion over the next decade.
Defense officials have no plans to cancel the program but, as Reuters reported earlier this month, the Pentagon's fiscal 2013 budget will defer production of a large number of jets over the next five years, saving billions of dollars and avoiding costly retrofits should further problems arise during testing.
Emerging details indicate that the Pentagon will postpone orders for 179 of a planned 423 planes over the five years beginning in fiscal 2013, a cut of about 24 percent, according to sources following the budget deliberations.
That would be on top of over 200 jets already pushed off in recent restructurings aimed at reining in rising costs and dealing with a steady stream of technical issues. Lockheed says growing international demand may help offset slower U.S. production rates.
Burbage had no comment on the reported cuts, but said slowing production rates would also impair the company's efforts to drive down the cost of the new plane.
"The cost improvement curve is very much dependent on increasing the volume of production going through the factory," he said. "If you have flat production, you have a fairly flat cost improvement curve."
Lockheed shares closed up $1.43, or 1.7 percent, at $83.71 on the New York Stock Exchange, their highest level since May 2010.
MOVE SEEN AS SHOT IN ARM FOR HUGE WEAPONS PROGRAM
Analysts said Panetta's expected announcement would be a powerful shot in the arm for the F-35 program as it braces for its third restructuring in three years.
"The secretary's personal endorsement is exactly what this program needs at this point," said Jim McAleese, a Virginia-based defense consultant, noting that the move was timed just before Panetta unveils budget plans likely to defer expected production orders by 35 to 40 percent over the next five years.
Defense analyst Loren Thompson of the Virginia-based Lexington Institute said the short takeoff vertical landing variant would be particularly important in coming years, given the U.S. military's shift in focus to the Asia Pacific region.
"The United States is pivoting to the Pacific, where it does not have many bases, so having a Marine Corps version of the F-35 that can land even in places where there are no bases is potentially very valuable," he said.
Officials at the Marine Corps and F-35 program office had no immediate comment on the expected announcement by Panetta.
Marine Corps Commandant General James Amos urged Panetta to take the F-35B off probation in a letter earlier this month, citing excellent progress in development and testing, according to a source familiar with the correspondence.
Marine Corps officials say the new fighter will dramatically increase their capabilities with improved intelligence, reconnaissance and surveillance sensors and data-sharing technologies. Since the plane can take off and land on amphibious assault ships, it will in effect double the number of aircraft carriers to 22, they say.
MARINE CORPS MODEL COMPLETED SHIP TESTS LAST FALL
The expected move comes a week after the Pentagon's director of operational test and evaluation released a new report that showed mixed results in testing of the three different variants this past year, and low reliability.
Among other findings, it said the F-35B had a mean time of 2.05 hours between critical failures, a rate far worse than the expected rate at this point in the aircraft's development.
Last week Lockheed said all three variants of the F-35 completed 100 more flight tests than planned in 2011, achieving 7,823 test points - over 1,200 more than required for the year.
Lockheed said the F-35B variant accomplished 333 flights and 268 vertical landings, hitting 2,636 test points.
The B-model also completed ship suitability testing aboard the USS WASP (LHD-1) off the coast of Virginia in October, with two aircraft executing 72 short takeoffs and 72 vertical landings during the three-week testing period.
Lockheed on Thursday delivered a third F-35B to Eglin Air Force Base in Florida, where the Air Force hopes to begin pilot flight training within the next six months after resolving concerns raised by the Pentagon's chief tester.
The Marines are slated to buy 340 F-35B models, and 80 F-35C models, which will operate from Navy aircraft carriers.
(Reporting By Andrea Shalal-Esa in Washington; Additional reporting by David Alexander; Editing by Gerald E. McCormick, Gary Hill)