UPDATE 2-Second F-35 engine out of US Senate budget plan

* U.S. house 2011 budget has already cut GE-Rolls engine

* Senate bill could come up for vote next week

* GE says budget process not over
(Adds reaction from GE)

WASHINGTON, March 4 (Reuters) – A Senate Democratic budget
plan released on Friday would eliminate funding for an
alternate engine for the F-35 Joint Strike Fighter in a blow to
its manufacturers, General Electric Co (GE.N: Quote, Profile, Research) and Rolls-Royce
Plc (RR.L: Quote, Profile, Research).

Money for the project has already been stripped out of a
budget proposal that passed the U.S. House of Representatives
last month.

The Pentagon has tried to kill the program since 2007, but
Republican and Democratic lawmakers have repeatedly added it
back into the budget, citing concerns about associated jobs and
relying on a single engine design to power thousands of the
fighters.

The latest move may signal that the tide has shifted for
the big weapons program, although its supporters in Congress
could still resurrect the program by introducing amendments
during a floor vote, or in the House-Senate conference to
produce a final bill.

For now, fiscal pressures appear to have given the Pentagon
the upper hand as a record $1.65 trillion budget deficit is
projected for the current fiscal year, equal to 10.9 percent of
the economy.

Republicans have passed a $61 billion spending-cut package
in the House, and Democrats are responding with a proposal that
would trim $6 billion from current levels.

The Democratic bill could come up for a vote in the Senate
early next week.

Lawmakers have given themselves two weeks to resolve their
differences and sign off on a bill that would set funding
levels through the remainder of the fiscal year that ends Sept.
30.

United Technologies Corp’s (UTX.N: Quote, Profile, Research) Pratt & Whitney unit
builds the engine being used in early production of Lockheed
Martin’s (LMT.N: Quote, Profile, Research) F-35.

The alternate engine program carries a price tag of $450
million this year.

The Pentagon argues that terminating the program would save
about $3 billion over the next few years, but GE and Rolls
Royce officials say the cost to complete development of the
engine would be closer to $1.8 billion.

GE spokesman Rick Kennedy said the Senate measure was part
of the process, but the issue was not completely resolved.

“It’s not over,” Kennedy told Reuters. “This is part of the
budget process, but that process and the overall fate of the
F136 (engine) is just not over,” he said.

One former defense official disagreed, noting that the
House vote last month had revealed eroding support for the
program. “I think the tide has turned,” said the official, who
was not authorized to speak on the record.
(Reporting by Andy Sullivan and Andrea Shalal-Esa; Editing by
Gerald E. McCormick and Tim Dobbyn)