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House, Senate resume work on 2010 Pentagon budget

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By Andrea Shalal-Esa

WASHINGTON (Reuters) - Lawmakers in the House and Senate returned from an August recess on Tuesday and resumed work on the fiscal 2010 defense budget with an eye to completing their work by the end of September.

Congressional aides from the House and Senate armed services committees said they met twice on Tuesday alone to map out negotiations about the fiscal 2010 defense authorization bill, which authorizes the Pentagon's various programs.

Meanwhile, senators on the Senate Defense Appropriations Subcommittee and the full appropriations committee are due to mark up the fiscal 2010 defense appropriations bill on Wednesday, said Rob Blumenthal, a committee spokesman.

That will pave the way for Senate passage and a conference with the House on the fiscal 2010 defense appropriations bill, which actually funds the Pentagon's operations.

The House passed a $636.3 billion defense appropriations bill in July that killed funding for the Lockheed Martin Corp F-22 fighter under a presidential veto threat, a move that congressional aides expect to stick.

But both authorizers and appropriators are still wrestling with another contested program -- a multibillion alternate engine for the F-35 fighter being built by General Electric Co and Britain's Rolls-Royce Group PLC.

"It's certainly going to be a hard issue to resolve," said one aide, who was not authorized to speak publicly about the closed-door negotiations.

"It'll be the last thing we resolve," added another. "It's a huge concern."

President Barack Obama and Defense Secretary Robert Gates want to kill the alternate engine, arguing that the F135 engine being built by Pratt & Whitney, a unit of United Technologies Corp, is doing well. They say funding the alternate engine will cut money for other needed military programs.

Gates last week reiterated that Obama's advisers would urge a veto if the fiscal 2010 budget had second engine funding.

Proponents of the second engine program acknowledge that keeping two engine programs going will cost more in the beginning, but insist that competition will lead to lower prices on the thousands of engines to be built over time.

"The administration says they're for increasing competition, but not on this program. If competition doesn't make sense for this program, the Pentagon's biggest acquisition program, where does it make sense?" asked one congressional aide, who was not authorized to discuss the negotiations.

The House Armed Services Committee, which included $560 million for the alternate engine in the fiscal 2010 bill, argued that the investment was needed given that the cost of the Pratt engine had soared by nearly $1.9 billion since 2002, two test engines failed during ground testing, and less than two percent of the engine testing planned had been completed.

The Senate removed funding for the program in an anonymous voice vote, but some individual senators are still strongly supportive of the alternate engine.

The actual cost of the Pratt engine rose 50 percent from its estimated level in fiscal 2009, and 56 percent in fiscal 2008, said one congressional aide, who asked not to be named.

The cost increases have prompted Pentagon acquisition chief Ashton Carter to form a high-level, independent Joint Assessment Team to investigate Pratt's cost-structure, look at scrap rates and other production issues, Aviation Week reported on Tuesday. The team is due to visit Pratt later this month and report back to Carter by early October, it said.

GE executives were "very pleased" last week after they met with the F-35 program director, Brig. Gen. David Heinz, to offer a fixed-rate deal on low-rate production engines, said GE spokesman Rick Kennedy, saying the timing was good given reported concerns about the cost of the Pratt engine.

The administration says continued funding for the alternate engine would cut 22 aircraft from the F-35 program over the next five years. But second engine backers say the Pentagon itself trimmed 84 airplanes from the early years of the program when it drafted recent long-range budget plans.

They also bristle at the suggestion by Sen. Joseph Lieberman, who represents Connecticut, where Pratt is based, that Pratt's F135 engine won an earlier competition.

In fact there was no competition, Kennedy said, noting that companies competing to build the F-35 were told to use Pratt's F-22 engine, when preparing their bid proposals.

Even then, the plan was to have competition for the engine. As early as 1996, then-Pentagon acquisition chief Paul Kaminski signed an acquisition strategy that explicitly called for contracts to be awarded to both Pratt and GE for work on competing engines "in an effort to realize potential production cost savings," according to a document obtained by Reuters.

(Reporting by Andrea Shalal-Esa; Editing by Phil Berlowitz)

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