Australia said Thursday it will delay its order of 12 F-35 Joint Strike Fighter (JSF) jets by two years to save money in an aggressive drive to return the budget to surplus.
The move is a setback to defence contractor Lockheed Martin, which has struggled with delays and cost blowouts on the project, with the stealth plane's price tag doubling in real terms over the past decade.
It has also battled criticism that the jets, which are supposed to form the backbone of the future American air fleet, will not deliver the promised level of capability and had been outclassed by new Russian and Chinese aircraft.
Defence Minister Stephen Smith said he spoke to his US counterpart Leon Panetta Thursday morning and assured him the decision would not affect the US-Australia alliance, which has been stepped up in recent months.
"That effectively mirrors the decision which Secretary of State Panetta made with respect to over 150 Joint Strike Fighters proposed to be ordered by the United States," Smith told reporters.
"We are now essentially on the same timetable for the delivery of our first batch of joint strike fighters as the United States is."
Australia is a key ally of the United States and the two have recently reinforced their defence cooperation in a significant geo-strategic shift by Washington that has irked Beijing.
Australia is contractually obliged to purchase two JSF jets, which have already been delivered in the United States for testing and training. The other 12 were initially scheduled for delivery between 2015 and 2017.
Canberra has long-term plans to buy up to 100 F-35s but has made no commitment beyond the first 14. Several other countries have also announced they are delaying or cutting orders, including the US and Italy.
The Australian government announces its budget next week and the delay on delivery of the F-35s will provide a Aus$1.6 billion (US$1.64 billion) boost to the bottom line.
Mining-powered Australia was the only advanced economy to weather the global downturn without entering recession, and returning the budget into the black is seen as key test of the struggling government's economic management.
Further cost savings will be made with the cancellation of a project to acquire self-propelled howitzers, Smith added.
But the government said it would push ahead with the acquisition of 12 advanced new submarines to replace the Navy's ageing Collins fleet.
It announced Aus$214 million in funding towards detailed design and analysis for the future project.
"This will be the largest defence capability project the Commonwealth has embarked upon," said Smith. Reports said that overall the submarine project was expected to cost around Aus$40 billion.
In announcing the decisions, Prime Minister Julia Gillard guaranteed that overseas defence operations would not be impacted by spending cuts in the May 8 budget and there would be no reduction in military numbers.
"The budget will protect the men and women on the front line," she said, adding that the government had commissioned a new defence white paper a year ahead of schedule.
Gillard said there had been a number of significant developments both domestically and internationally since the previous white paper in 2009, citing a strategic global shift towards Australia's region.