Pentagon stops accepting F-35 jets from Lockheed over repair cost dispute

By Mike Stone

WASHINGTON (Reuters) - The U.S. Department of Defense has stopped accepting most deliveries of F-35 jets from Lockheed Martin Corp because of a dispute over who will cover costs for fixing a production error found last year on more than 200 of the stealthy jets, three people familiar with the matter said.

Last year the Pentagon stopped accepting F-35s for 30 days after discovering corrosion where the carbon fibre exterior panels of the planes were fastened to the airframe. Once a fix had been devised, the deliveries resumed, and Lockheed hit its target aircraft delivery numbers for 2017.

Deliveries were paused again over a dispute as to who will pay for what will likely be a complex logistical fix that could require technicians to travel widely to mend aircraft based around the world, said the people, who spoke on condition of anonymity because they were not authorized to speak publicly about the matter.

When the Pentagon stops taking delivery of F-35s, foreign customers can also be affected. So far at least two foreign governments have stopped accepting F-35s as a result of this issue, two of the sources said.

The Pentagon did not immediately respond to a request for comment.

A Lockheed spokeswoman said on Wednesday: "Production on the F-35 programme continues and we are confident we will meet our delivery target of 91 aircraft for 2018. While all work in our factories remains active, the F-35 Joint Program Office has temporarily suspended accepting aircraft until we reach an agreement on a contractual issue and we expect this to be resolved soon."

It was not clear when the suspension of deliveries began.

Shares of Lockheed erased a 2.7 percent gain on the day after the news, and were trading flat at 3.32 p.m. (1932 GMT).

The delivery pause is the latest of several production issues that have arisen in the Pentagon's most expensive weapons programme, and comes at a time when the administration of President Donald Trump has criticized the cost of the fighter.

In 2016, a fix for insulation problems in the fuel tanks and lines of the jets caused a slowdown in deliveries.

Two jets were received by the Pentagon despite the suspension because of specific needs in the field, one of the people said.

During routine maintenance at Hill Air Force Base in Utah last year, the Air Force detected "corrosion exceeding technical limits" where the carbon fibre exterior panel is fastened to the aluminium airframe. A lack of protective coating at the fastening point that would have prevented corrosion was identified as the primary problem, the Pentagon said at the time.

(Reporting by Mike Stone; Editing by Chris Sanders and Rosalba O'Brien)