PARIS (Reuters) - Northrop Grumman Corp NOC.N said a contract to build the first two production models of the U.S. Navy's new twin-engine E-2D Advanced Hawkeye command and control aircraft was worth $432 million.

The fixed-price contract, which contains an incentive fee, includes funding for two production aircraft and will finance the acquisition of long-lead items for two more, the company said in a statement.

The Navy awarded Northrop the contract on Monday after the program passed a major milestone review, allowing Ashton Carter, the Pentagon’s chief arms buyer, to approve the start of low-rate production of the plane, which acts as a type of digital quarterback, for the Navy.

Northrop won an initial $1.9 billion contract to design and develop the plane in August 2003.

“This contract award confirms that the E-2D Advanced Hawkeye design is stable, and we have the critical manufacturing processes in place to produce and deliver a high-quality, reliable weapons system to the warfighter,” said Jim Culmo, Northrop vice president in charge of the program.

Culmo said Northrop was on track to deliver the first pilot production aircraft in 2010.

The E-2D Advanced Hawkeye aircraft are equipped with an advanced Lockheed Martin Corp LMT.N radar that will pick up smaller targets at a greater range than currently deployed systems. Once fielded, it will join the F-35 Joint Strike Fighter and EA-18G Growler on Navy carriers.

The Navy said Carter signed an acquisition decision memorandum on June 11 allowing continued work on the program after cost increases triggered a review that could have led to its cancellation.

Carter also approved low-rate production, which allows a ramp-up in manufacturing of a new weapon system, giving the program time to iron out any production problems before it moves into full-rate production.

The Navy said a rigorous review of the program showed cost increases could be mitigated by buying the aircraft at a more efficient rate. It said it was also pursuing cost-cutting initiatives, including possible multi-year procurements.

The current plan calls for the Navy to buy two aircraft in both fiscal years 2009 and 2010. It plans to buy 75 aircraft overall.

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