By Andrea Shalal-Esa
WASHINGTON (Reuters) - Lockheed Martin Corp lost $31.5 million in award fees for its new F-35 fighter jet in 2011, the second consecutive year it did not meet Pentagon development goals for the aircraft, which is now facing a third restructuring.
The Pentagon said the $382 billion program to build the radar-evading warplane was still showing "continued progress" and Lockheed said the new aircraft had made outstanding progress in flight test, training and production in 2011.
But the latest news could exacerbate F-35 partner nations' concerns over delays and rising costs. Eight international partners are already reconsidering their orders.
Canada has called a meeting of officials from the partner nations, which also include Britain, Australia, Norway, Denmark, Italy, Turkey and the Netherlands, for March 2 in Washington.
Senior U.S. defense officials met late on Tuesday to review a revised cost estimate and acquisition schedule for its biggest weapons program, but details and a final decision will not be announced for several weeks, said spokeswoman Cheryl Irwin.
The Pentagon's high-level Defense Acquisition Board last met on January 17 to review the plane's development, production and sustainment costs, concluding that it was showing "continued progress," she said.
Lockheed's F-35 program has come under increased pressure in recent weeks given the Pentagon's plan to postpone orders of 179 F-35 fighter planes for five years, as part of defense budget cuts. The move will save $15.1 billion, but will likely drive up the price per plane, according to Lockheed and U.S. officials.
The Pentagon's F-35 program office on Tuesday said that Lockheed, the No. 1 U.S. defense contractor, had earned $21 million in 2011 for meeting two milestones on a $27.4 billion contract for development of the new single-engine fighter jet.
Those involved completion of the first static structural testing, which is used to verify the structural integrity of the airframe, and completion of the first set of sea trials for the Marine Corps variant of the new fighter.
But the company did not meet 100 percent of the criteria on the three other milestones, costing it $31.5 million in possible award fees, said program spokesman Joe DellaVedova.
It was the second consecutive year that Lockheed forfeited F-35 award fees. In 2010, it earned just $7 million of $35 million in possible fees. Former Defense Secretary Robert Gates announced two years ago that he would withhold up to $614 million in possible fees unless Lockheed's performance improved.
"While we're disappointed that we did not meet our customers' expectations on all of the specific elements of the award fee milestones, we believe the F-35 program made outstanding progress in flight test, training and production in 2011," said Lockheed spokesman Michael Rein.
DellaVedova said Lockheed made "significant progress" on one of three milestones it did not fully meet -- initial testing to determine if the F-35 C variant is suitable for use on U.S. aircraft carriers. He said Lockheed did not earn the award fee since the plane's tailhook had to be redesigned.
Lockheed also made progress on another milestone involving development of new software for the F-35 fighter, but it was not sufficiently mature in lab testing to receive clearance for use in flight testing by the award fee deadline of December 1, said DellaVedova. A flight readiness review was completed in January and the software is now cleared for flight tests, he added.
Finally, Lockheed made progress on the readiness of onboard software and the associated ground support system needed for pilot training, but not in time to earn the possible award fee for 2011. Initial flight testing of the training capability is now expected to be completed in the spring, DellaVedova said.
(Reporting By Andrea Shalal-Esa; Editing by Michael Perry)