* Lockheed sees contract agreement soon
* System making progress after cyber issue last year
* Big focus on cutting costs
By Andrea Shalal-Esa
WASHINGTON, Aug 22 (Reuters) - Lockheed Martin Corp said it is close to an agreement with the Pentagon for a more portable and 40 percent cheaper version of the operations and logistics system that controls the F-35 fighter, the Pentagon's most expensive weapons program.
Lockheed aims to finalize a contract with the Pentagon's F-35 program office in coming weeks that will pay for development of lighter units to operate the new warplanes when they are deployed or based on ships, company officials told Reuters late on Wednesday.
Lockheed began work on the project last month using its own funding to ensure that the new system would be ready by the first quarter of 2015, in time for the Marine Corps to start using the F-35 B-model in combat by the middle of that year.
The Lockheed is developing and building three variants of the F-35 Joint Strike Fighter for the U.S. military and eight partner countries: Britain, Canada, Australia, Turkey, Italy, Norway, Denmark and the Netherlands. The U.S. development and procurement program is expected to cost $392 billion.
The Pentagon had been projecting that it would cost an additional $1 trillion to operate and service those planes over 55 years, but recently slashed its forecast by more than 20 percent to $857 billion.
As it developed and started producing the new planes, Lockheed has also been building a computer-based system, the Autonomic Logistics Information System, or ALIS, that will serve as the management "backbone" for the global fleet of F-35s - a project large enough to qualify as a major weapons program on its own.
ALIS got a lot of attention last year after Navy "hackers" uncovered a cyber vulnerability during a planned security test. Industry and government officials say it has made progress since then, although they are still trying to drive down the cost.
Built using many commercial off-the-shelf software systems, ALIS enables daily operations of the F-35 fleet, including mission planning and flight scheduling to repairs and scheduled maintenance, as well as the tracking and ordering of parts.
Technicians use ruggedized portable computers instead of paper manuals to check all the plane's systems, and far more rapidly repair any gaps in its radar-evading stealth coatings.
The system includes a giant server based at Lockheed's Fort Worth, Texas facility, where the jets are built; one separate gateway system for each country that uses the F-35; and individual computer units for each squadron of planes.
Military officials have pressed for a more "deployable" version of those individual computer units since the new planes will eventually be used on a variety of Navy ships and at other locations around the world, where space is limited.
Mark Perreault, Lockheed program manager for the F-35 ALIS system, declined to give the overall value of the contract being negotiated with the Pentagon, but said each of the new standard operating units (SOU) would be far cheaper.
"The projected overall acquisition cost of an SOU is going to be greater than 40 percent reduced," Perreault told Reuters in an interview near the Pentagon.
The new operating units will weigh just 1,000 pounds (455kg), about half of what they weigh now, and each will be broken down into smaller, more portable components. Eventually more than 150 such systems will be purchased, mostly at the new lower price.
The Pentagon's F-35 program office had no comment on the discussions with Lockheed. It said the portable version of ALIS must be affordable and meet the military's needs.
Tom Curry, another key Lockheed official on the ALIS program, said that while the ALIS system was not perfect Lockheed was making good progress in maturing the system. He said the company had developed a preliminary way of safeguarding security through an "air gap" that requires personnel to manually transfer data between the classified and unclassified systems.
The fix, called a "sneaker patch" by the Marines, takes up to 45 minutes now for each F-35 flight, but that will be cut to a few minutes in an updated version of ALIS planned for delivery in the summer of 2014, according to Lockheed officials. They said additional security changes will be phased in over time.
The ALIS system is already used to operate and maintain F-35s at eight locations, including Edwards Air Force Base in California and the Marine Corps air station in Yuma, Arizona, which will receive the first of the newer more portable units.