UPDATE 4-Pentagon OKs next step in competition for Air Force spy planes

(Adds comment from companies)
By Andrea Shalal
WASHINGTON, Dec 11 (Reuters) - The Pentagon's chief arms
buyer has approved the next step in a long-awaited
multibillion-dollar competition to replace the Air Force's aging
fleet of E-8 JSTARS spy and battle management planes.
Frank Kendall, undersecretary for acquisition, technology
and logistics, this week signed a memorandum approving the start
of the so-called Milestone A phase of the program, Pentagon
spokeswoman Maureen Schumann said on Friday. That paves the way
for funding of demonstrations of the new aircraft, said two
sources familiar with the decision.
Three teams are competing for the work: Northrop Grumman (N:NOC)
Corp NOC.N , which built the existing planes and is teaming
with General Dynamics Corp (N:GD) GD.N ; Lockheed Martin Corp (N:LMT) LMT.N ,
which is working with Raytheon Co RTN.N and Canada's
Bombardier BBDd.TO ; and Boeing (N:BA) Co BA.N .
Additional details about the memorandum were not immediately
available, but a source familiar with the decision said the
Pentagon's fiscal 2017 budget request would include funding for
the program.
Representative Tom Graves, a Georgia Republican, welcomed
the news, calling it a "significant step" toward replacing the
aging fleet with next-generation aircraft.
"I am confident that the Defense Department understands
JSTARS is a major priority for Congress and will complete the
process of updating the JSTARS fleet in a timely manner," Graves
said.
Lockheed said it looked forward to helping assess the
technical maturity of various subsystems, reducing risks
involved with weapon system engineering and working to lower the
cost of operating the new aircraft.
Boeing said it was ready to demonstrate its capabilities and
was convinced that its 737-based solution was the "right-sized
aircraft."
Northrop declined comment.
The source familiar with the decision, who was not
authorized to speak publicly, said the Pentagon had reviewed
alternatives and ruled out the possibility of using unmanned
aircraft.
Kendall met this week with Graves and other U.S. lawmakers,
who have pressed the Pentagon to accelerate work on a
replacement for its fleet of Joint Surveillance Target Attack
Radar System aircraft, or JSTARS, which has flown over 100,000
combat hours and is approaching the end of its service life.
Graves and 59 other members of two key defense committees in
Congress told Defense Secretary Ash Carter in a letter dated
Nov. 20 that they were concerned about delays in the acquisition
program since only half of the current fleet of 16 aircraft were
combat ready at any given time because of maintenance.
"Replacing the existing fleet with next-generation aircraft
is essential, which is why we want to ensure that the critical
mission performed by the JSTARS team is not jeopardized by a
lengthy acquisition process," the lawmakers wrote.