US House,Senate negotiators fund 2nd F-35 engine

* U.S. Senate passes military spending bill

* Bill negotiators fund total $6 bln for 30 F-35s

* U.S. House may vote Thursday on compromise bill
(Adds Pentagon, White House reaction, Senate passage) By Andrea Shalal-Esa

WASHINGTON, Oct 6 (Reuters) - U.S. House and Senate negotiators defied a White House veto threat and agreed on Tuesday to include $560 million in the fiscal 2010 defense authorization bill for an alternate F-35 engine, several sources familiar with the talks told Reuters.

President Barack Obama and Defense Secretary Robert Gates have repeatedly said they oppose funding for the second F-35 engine, which is being built by General Electric Co (GE.N) and Britain's Rolls-Royce Group Plc (RR.L) given mounting pressures on the U.S. defense budget. But administration officials issued more cautious statements on Tuesday, which several sources said signalled that the White House was easing off its veto threat.

"If the final bill this year once again calls for further investment in a second engine, the department will carefully evaluate the impact of that before making a recommendation to the president about whether or not to veto the legislation," said Pentagon spokesman Geoff Morrell. "We need to see the whole bill," said Kenneth Baer, press secretary for the White House budget office. The White House had said Obama's advisers would recommend a veto if the final bill would "seriously disrupt" the F-35
program, but that phrase left officials some "wiggle room," said one congressional aide, who asked not to be identified. Morrell's response to the move was "pretty qualified," said a second congressional aide, noting that this case clearly differed from the F-22 fighter, which lawmakers agreed to halt after a direct and forceful veto threat from the president.

"People just weren't willing to fall on their swords for this one," said the second aide. Congress has funded work on the second engine for 13 years, eager to support high-paying jobs and maintain competition in a weapons program that is valued at over $100 billion over time. If Congress prevails in funding the engine this year, it would be the fourth straight year that it has overriddenefforts by the Pentagon to scrap the program.

Funding for the second engine was in addition to the program budget, and did not reduce the Pentagon's $6 billion request to buy 30 F-35 fighters, said two sources, who were not authorized to speak on the record. The conferees were due to meet again on Wednesday to finalize the compromise bill, which authorizes Pentagon programs, followed by a vote in the full House on Thursday.

Separately, the Senate approved a separate measure that actually funds Pentagon programs. The Senate's fiscal 2010 appropriations bill included no funding for the second engine program, but Senator Daniel Inouye, who heads the Senate Appropriations Committee, favors
funding the engine, which means the compromise version of that bill is likely to include some money for it as well.

Lockheed Martin Corp (LMT.N) builds the F-35 fighter. Pratt & Whitney, a unit of United Technologies Corp (UTX.N), which builds the airplane's main engine, has lobbied hard to shore up support for proceeding with just one engine for the fighter. Pratt spokesman Jay DeFrank said the bill was not yet done,and the administration's reaction could still affect its final outcome. GE spokesman Rick Kennedy said the GE-Rolls team had not been formally notified of what the congressional negotiators decided, but funding for the competing F-35 engine would be "a victory for acquisition reform."

Proponents of the second engine, which Congress first began more than a decade ago, argue that competition is imperative in a program involving over 3,000 engines. They say the Pentagon's own studies conclude it would save $2.2 billion over time by keeping both engine teams on their toes. The initial House version of the fiscal 2010 defense authorization bill included $603 million in funding for the alternate engine, while the Senate included none.

Morrell last week said the department was also concerned about ensuring that Congress did not cut the number of airplanes in the program or shift development funds, whichcould increase the cost of the program in the longer term.