UPDATE 1-Pentagon says will sign F-35 deal with Lockheed
* Preliminary deal for sixth batch of planes also near
* Canada slated to restart fighter competition later
WASHINGTON, Dec 12 (Reuters) - The U.S. Defense Department said it will sign a contract with Lockheed Martin Corp on Friday for a fifth group of 32 F-35 Joint Strike Fighter jets, a long-awaited deal that moves forward the most costly weapons program in U.S. history.
The Pentagon also expects to reach an agreement soon with Lockheed on early funding for a sixth group of F-35s, a step that could help reduce a potential $1.1 billion liability the weapons maker faced from work it had already done on the jets without a signed contract, a senior defense official said.
The official gave no details on terms of the fifth production contact, valued at around $3.8 billion. The final amount will be determined on Friday, since it must factor in the exchange rate of the British pound, said the official, who spoke on condition of anonymity.
The Pentagon announced on Nov. 30 that it had reached an agreement in principle with Lockheed on the fifth production contract, which will pay for 32 additional jets, and said it expected to finalize terms by the end of the year.
The contract will also pay for manufacturing support equipment, instrumentation for flight testing and other mission equipment needed for the new radar-evading warplanes.
Signing the contract before year-end will safeguard funds for the F-35 from $52.3 billion in automatic budget cuts due to kick in on Jan. 2 for fiscal 2013 unless Congress acts.
It also will allow Lockheed and its suppliers on the program -- Northrop Grumman Corp and Britain's BAE Systems Plc -- to log additional orders in their 2012 results.
The Pentagon is negotiating a separate contract with Pratt & Whitney, a unit of United Technologies Corp, which builds the engine for the single-seat, single-engine F-35.
Two sources following those discussions said they were moving along, but it was unclear if a deal would be reached before the end of the year.
No details were immediately available on the cost per airplane agreed in the fifth production contract, but Lockheed officials had said that the company expected to reduce labor costs by 14 percent from the actual costs of the fourth lot.
Separately, Canada -- one of the eight international partners helping to develop the new plane -- is expected to announce later Wednesday that it will restart its search for new fighter jets, potentially calling into question its previous plans to buy 65 F-35s at a cost of C$9 billion.
A government source told Reuters last week that Canada would study other possible fighters, but could still wind up buying the F-35.
Canada's decision to launch a new competition is not expected to have much short-term impact on the F-35 program since Canada was only slated to start buying jets in several years.