Grounding, budget woes cloud F-35 warplane sales push in Australia

CANBERRA/WASHINGTON (Reuters) - This year's second grounding of Lockheed Martin Corp's vaunted F-35 warplane, plus looming U.S. defense cuts, are likely to complicate a push this week by Lockheed and U.S. officials to convince wary Australian lawmakers and generals to stick to a plan to buy 100 of the jets.

Australia, a close American ally, is considering doubling its fleet of 24 Boeing Co F/A-18 Super Hornets amid delays and setbacks in Lockheed's $396 billion F-35 project.

That means Canberra could buy far fewer F-35s than initially planned, at a critical time when Canada is also rethinking its plans to make the F-35 - also known as the Joint Strike Fighter (JSF) - its future frontline warplane.

Budget cuts have already forced Italy to scale back its orders, and Turkey has delayed its purchases by two years, though orders from Japan and Israel have buoyed the firm, and additional Israeli orders are expected in 2013.

Singapore has also taken a more active interest in the radar-evading jet, and South Korea is expected to announce a winner in its fighter contest late this year.

Australia and others are watching orders and problems with the jet with growing concern, since every reduction drives up the price of the remaining fighters to be built.

Given that, Friday's news that the plane was being grounded for the second time in two months, this time after a routine inspection revealed a crack on a turbine blade, was especially inopportune for Lockheed.

"It is a nuisance," said a spokesman for the Dutch defense ministry, which has already paid for two test planes but will determine the size of its total F-35 order later this year. "We wait for results of the inquiry."

Australian officials know the stakes are high.

"We're only a small player, but other countries are watching. Of course Lockheed don't want to see orders vanishing," said a source at Australia's Defense Materiel Organisation, part of the defense department, who was not authorized to speak publicly.

U.S. Lieutenant General Christopher Bogdan, the Pentagon's F-35 program chief, approved the fleetwide grounding just before leaving Washington for a major air show in Melbourne, Australia which starts this week, when it will draw attention from potential customers in Asia.

Lockheed executives have been trying to reassure Canberra that the JSF is on course. They insist that problems with software and design, including imaging and night vision functions of the pilot's helmet, are being resolved, and testing is ahead of schedule.

BUDGET CUTS

One U.S. defense official, who was not authorized to speak publicly, said the technical problems bedeviling the new fighter were less troubling than Washington's budget woes.

Sweeping budget cuts due to take effect in the United States on March 1 could cut funding for the Pentagon's biggest weapons program and delay work on seven jets this year alone.

"What the foreign partners worry about is the stability of the program writ large," said the official. "We're solving the technical challenges. There are no showstoppers there, although they're not cheap."

In the U.S., military budgets are already slated to be cut by nearly $500 billion over the next decade, an amount which could double unless Congress acts in the next week to avert spending reductions known as "sequestration".

Australia's yearly defense budget of A$26.3 billion ($27.10 billion) was cut by 10.5 percent to A$24.2 billion this fiscal year, while the military's estimated budget to 2015-16 was slashed by A$5.5 billion.

Australia will decide at the end of this year on the timing of an order for an initial 12 F-35s while it considers options to replace 71 early model F/A-18 fighter jets and a recently retired fleet of 24 Vietnam-era F-111 supersonic bombers.

After the latest grounding, a former Australian defense minister in the Labor government, Joel Fitzgibbon, criticized the country's military commanders for their "obsession" with the troubled F-35.

"I think there is an almost obsession with the JSF within the uniformed ranks. This is their brand new toy," Fitzgibbon, who still holds a senior government role, told local media.

Many defense insiders expect plans for a fleet of F-35s to be revised to feature 48 Super Hornets - 12 equipped as EA-18G Growlers with radar-jamming electronic weapons - and as few as 50 Joint Strike Fighters.

A source familiar with the matter said Canberra's decision could come within the next three to six weeks.

"The Super Hornets will eat into F-35 orders," said Sam Roggeveen, a former Australian government intelligence and arms analyst, now with the Lowy Institute security think tank.

"It's not too crude to say it will be a one for one replacement, because so far that's the kind of basis that defense has so far been working on anyway," Roggeveen said.

MASSIVE U.S. ORDER

F-35 program vice-president Steve O'Bryan and executive vice-president Tom Burbage, who is retiring at the end of next month, have travelled to visit all the program's international partners in recent weeks.

"We will continue to drop the price of the airplane out to approximately 2020 where the U.S. government estimate is for an airplane, with the engine and all mission equipment, to be approximately $67 million," O'Bryan said in Australia last week.

Lockheed is building three different models of the F-35 fighter jet for the U.S. military and eight countries that helped pay for its development: Britain, Canada, Italy, Turkey, Denmark, the Netherlands, Australia and Norway.

The Pentagon plans to buy 2,443 of the warplanes in the coming decades, although many analysts believe U.S. budget constraints and deficits will reduce that number.

The Lowy Institute's Roggeveen said the F-35 and Lockheed would survive even a serious drop in foreign orders.

"The scale of the order from the U.S. is so much bigger than international customers that Lockheed are not anywhere near the point of desperation."

($1 = 0.9704 Australian dollars)

(Additional reporting by Ivana Sekularac; Editing by Daniel Magnowski)

Source: http://news.yahoo.com/grounding-budget-woes-cloud-f-35-warplane-sales-010214791--finance.html

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