WASHINGTON (Reuters) – Lockheed Martin Corp and the U.S. unit of Australia’s Austal Ltd each won projected multi-billion-dollar U.S. Navy deals to design and build 10 coastal combat ships through 2015, the Navy said on Wednesday.

The initial award to Lockheed Martin was $436.9 million for the first of its 10 ship package, a new, highly modular class that can switch missions by swapping out equipment packages.

Austal USA received $432.1 million for its first ship in the package deal. The awards vary because of differences in the companies’ proposals, Sean Stackley, the Navy’s top weapons buyer, told reporters.

Each contract calls for a total of nine additional “Littoral Combat Ships,” or LCS, to be purchased by fiscal 2015, subject to congressional funding. Primary missions include antisubmarine warfare, mine countermeasures and surface warfare against small boats, especially in near-shore waters.

The ships are designed to be capable of more than 40 knots, compared to something more than 30 knots for the U.S. Navy’s cruisers and destroyers. They also need less depth to operate, enabling port calls that are not accessible to cruisers and destroyers.

Congress last week cleared the Navy’s request to buy from both contractors, instead of just one as had been initially planned.

The Navy said it was maximizing its buying power by “leveraging” the competition that had taken place between the bidders. Lockheed is teamed with Marinette Marine Corp of Marinette, Wisconsin. Austal USA, based in Mobile, Alabama, partnered with General Dynamics Corp.

WASHINGTON (Reuters) – The Senate Armed Services Committee will hold hearings next month into an Air Force document bungle roiling a transAtlantic rematch for a potential $50 billion aerial-refueling plane contract.

Senate Armed Services Chairman Carl Levin said Wednesday he was prepared to launch an investigation into “the release of proprietary data” from rival tanker bidders Boeing Co and Europe’s EADS.

At issue is what the Air Force calls “a clerical error” that sent Boeing and EADS computerized records in November with sensitive data on each other’s bid for the contract.

“I also intend to hold one or more hearings by February 1 to consider these issues and to review the propriety of the procurement process of the KC-X tanker competition as it relates to this issue,” said Levin, a Michigan Democrat.

KC-X is the codename for the Air Force’s plan to buy 179 tankers to start replacing its 50-year-old Boeing KC-135 refueling fleet, a deal worth up to $50 billion.

The current contest marks the Air Force’s third try to buy new tankers, which are used to refuel fighters and other planes in mid-air. The mixup could lead to a fourth round, for instance if it spurred a successful protest by the loser.

Levin was responding to a push for hearings from Senator Maria Cantwell, a Democrat from Washington state, where Boeing would manufacture tankers based on its 767 wide-bodied jetliner if it won the deal.

WASHINGTON, Dec 22 (Reuters) – The U.S. Congress approved on Wednesday a stripped-down $725 billion defense spending bill that is silent on a controversial General Electric Co (GE.N: Quote, Profile, Research, Stock Buzz)- Rolls Royce Group Plc (RR.L: Quote, Profile, Research, Stock Buzz) alternate engine for the F-35 fighter jet.

President Barack Obama has said he would use his veto against any legislation that funded development of the engine, which the Defense Department has sought to end for the past five years.

The bill, that now goes to Obama for his signature into law, reflected a deal among leaders of the House of Representatives and Senate armed services committees this month to strip out controversial issues, after the Senate was unable to consider the legislation in the normal legislative process.

The defense authorization bill for fiscal 2011, that began Oct. 1, neither authorizes nor restricts funding for the second engine, in effect kicking the can down the road to the new Congress that is to be sworn in on Jan. 5. Meantime, the engine’s development is set to continue under the White House budget office’s interpretation of a lame-duck session stop-gap measure approved by Congress on Tuesday to fund government operations through March 4.

United Technologies Corp’s (UTX.N: Quote, Profile, Research, Stock Buzz) Pratt & Whitney unit builds the engine being used in early F-35 production. At stake in the controversy is what GE and others believe is a $100 billion engine market over coming decades for Lockheed Martin’s single-engine F-35, the Pentagon’s priciest purchase ever.

Obama, in a written May 28 statement, said the military did not want or need an alternate engine for the F-35. He vowed to veto any legislation that funded it.

The House adopted the bill without debate after the Senate approved its version by unanimous consent with few members in the chamber.

WASHINGTON, Dec 21 (Reuters) – The U.S. Congress cleared the Navy to split a roughly $10 billion purchase of the first 20 in a new class of coastal warships between teams led by Lockheed Martin Corp (LMT.N: Quote, Profile, Research, Stock Buzz) and Australia’s Austal Ltd (ASB.AX: Quote, Profile, Research, Stock Buzz), instead of picking just one of the two rival designs as previously planned.

The split would save $2.9 billion through 2016, and yield 20 “littoral combat ships” for the price of 19, Navy Secretary Ray Mabus said last week in urging Congress to approve the revamped purchase plan.

The vote to buy both types of coastal combat ships is likely to fuel controversies over proposed dual purchases of other major military systems.

Among these are engines for Lockheed Martin’s F-35 Joint Strike Fighter aircraft.

Separately the Air Force is preparing to start buying a new fleet of mid-air refueling aircraft either from Boeing Co (BA.N: Quote, Profile, Research, Stock Buzz) or Europe’s EADS (EAD.PA: Quote, Profile, Research, Stock Buzz). In these two cases, the Pentagon is seeking to rely on one model only.

President Barack Obama is expected to sign into law this week the so-called “continuing resolution” that funds the government through March and that contains the split-buy provision for the new ships.

The highly automated vessels are designed to operate close to shore and feature equipment modules that may be swapped out for missions such as combating enemy surface vessels or sweeping for mines.

WASHINGTON, Dec 17 (Reuters) – The U.S. House of Representatives approved a $725 billion defense authorization bill that punts on a General Electric Co (GEA.N: Quote, Profile, Research, Stock Buzz)- Rolls Royce Group Plc (RR.L: Quote, Profile, Research, Stock Buzz) alternate engine for the F-35 fighter jet, an engine that President Barack Obama has said he would use his veto to kill if necessary.

The bill, which the House approved 341 to 48, would provide $1 billion less than Obama’s request to fund the Defense Department, Iraq and Afghanistan operations, and related spending for the fiscal 2011 year that began Oct. 1.

The bill reflects compromises designed to speed it through the House and Senate during the lame-duck session of Congress now under way. It was not immediately clear when the Senate might vote on its version.

The legislation leaves a decision on whether to fund the interchangeable engine to the appropriations committees.

It neither authorizes nor restricts funding for the GE-Rolls Royce engine. Likewise, it does not specifically spell out the number of Lockheed Martin Corp (LMT.N: Quote, Profile, Research, Stock Buzz) F-35 aircraft nor naval warships to be bought.

United Technologies Corp’s (UTX.N: Quote, Profile, Research, Stock Buzz) Pratt & Whitney unit builds the engine being used in early F-35 production. Without the alternate engine, it would have a decades-long monopoly on the projected $100 billion market for the more than 3,000 F-35s due to be bought by the United States and partner countries.

The radar-evading, single-engine F-35 is the Pentagon’s priciest arms purchase yet, at up to $382 billion over the next two decades. Eight co-development partners have helped fund the program — Britain, Italy, the Netherlands, Turkey, Canada, Australia, Denmark and Norway. Israel in October ordered a squadron, and South Korea, Japan and Singapore have shown interest.

WASHINGTON (Reuters) – The U.S. government’s main code-making and code-cracking agency now works on the assumption that foes may have pierced even the most sensitive national security computer networks under its guard.

“There’s no such thing as ‘secure’ any more,” Debora Plunkett of the National Security Agency said on Thursday amid U.S. anger and embarrassment over disclosure of sensitive diplomatic cables by the web site WikiLeaks.

“The most sophisticated adversaries are going to go unnoticed on our networks,” she said.

Plunkett heads the NSA’s Information Assurance Directorate, which is responsible for protecting national security information and networks from the foxhole to the White House.

“We have to build our systems on the assumption that adversaries will get in,” she told a cyber security forum sponsored by the Atlantic and Government Executive media organizations.

The United States can’t put its trust “in different components of the system that might have already been violated,” Plunkett added in a rare public airing of NSA’s view on the issue. “We have to, again, assume that all the components of our system are not safe, and make sure we’re adjusting accordingly.”

The NSA must constantly fine tune its approach, she said, adding that there was no such thing as a “static state of security.”

WASHINGTON, Dec 15 (Reuters) – A test of the sole U.S. defense against long-range ballistic missiles failed on Wednesday, the second failure in a row involving the system managed by Boeing Co (BA.N: Quote, Profile, Research, Stock Buzz), the Defense Department said.

“The Missile Defense Agency was unable to achieve a planned intercept of a ballistic missile target during a test over the Pacific Ocean today,” Richard Lehner, an agency spokesman, said in an e-mailed statement. No preliminary explanation of the failure was provided.

The miss brought the so-called ground-based midcourse defense’s batting record to eight intercepts out of 15 tries, as reckoned by the Missile Defense Agency.

“This is a tremendous setback for the testing of this complicated system,” Riki Ellison, head of the Missile Defense Advocacy Alliance, a booster group, said in a statement. He said it raised troubling questions about the reliability of the 30 or so interceptor missiles deployed in silos in Alaska and California.

The test was a repeat of a Jan. 31 exercise in which an advanced sea-based radar had not performed as expected.

In the test on Wednesday, an intermediate-range ballistic missile target flew successfully from a test site on Kwajalein Atoll in the Marshall Islands, as did a long-range interceptor launched from Vandenberg Air Force Base in California, the agency said.

The sea-based X-Band radar and all sensors performed as planned, and the interceptor successfully deployed a “kill vehicle” designed to collide with the target, the statement said.

WASHINGTON, Dec 15 (Reuters) – The U.S. aerospace industry is headed for continued sales growth in 2011, but warplanes are likely to play a smaller role than in recent years, the industry’s main trade and lobbying group said on Wednesday.

Overall sales are expected to hit a new high of $216.5 billion this year, rising to nearly $220 billion next year, the Aerospace Industries Association said in its annual year-end review and forecast.

The industry has chalked up year-over-year growth since 2004. In 2009, total U.S. aerospace sales were $214.5 billion.

Commercial aircraft sales slipped this year, but this was more than offset by military aircraft sales, which continued a boom that has caused them to nearly double since 2000.

The industry’s civil aerospace category includes commercial, business and general aviation aircraft as well as non-military helicopters, aircraft engines and related parts.

Civil sales dropped nearly six percent in 2010 to $48.2 billion. A rebound is expected in 2011, but its size will hinge on such things as the economy overall, jet fuel prices, aircraft financing availability and environmental regulations, the trade group said.

Military aircraft sales hit $64.5 billion this year, up eight percent from 2009, “but this breakneck pace is likely to ease considerably in the coming years” amid possible cuts in the Pentagon’s budget as part of federal deficit reduction, the association said.

WASHINGTON (Reuters) – The Air Force delayed the award of a long-awaited refueling plane contract until early next year and disclosed a document mixup that could fundamentally change the potential $50 billion rematch.

It said it had earlier this month inadvertently sent rival bidders Boeing Co and Europe’s EADS a limited amount of identical information about each other’s offer.

The contract award was to have been made by December 20, after two bungled efforts to replace Boeing KC-135 tankers, which are on average 50 years old. The Air Force has called the refueling plane its highest acquisition priority for nearly a decade.

The selection was being postponed because certain aspects of the competition were taking longer than originally expected, Colonel Les Kodlick, the Air Force director of public affairs, told Reuters on Friday.

He said the delay was unrelated to the “clerical error” that improperly disclosed the confidential information.

But the mistake could open the way to purchasing aircraft from both bidders as a way to avoid a protest by the loser. Defense Secretary Robert Gates has opposed a split buy, partly because of the added expense of using two aircraft types.

EADS, headquartered in Paris and Munich, is battling for an important beachhead in the United States, the world’s most lucrative arms market.