The decision could mean tens of billion of dollars in extra sales over 25 years for Pratt & Whitney, a United Technologies unit, said consultant Loren Thompson, chief executive of the nonpartisan, Virginia-based research group the Lexington Institute.

The plan, subject to approval by the White House budget office and the U.S. Congress, would be a setback for General Electric Co. (GE.N: Quote, Profile, Research) and Rolls-Royce Plc (RR.L: Quote, Profile, Research), which have been developing a separate but interchangeable engine.

"They have killed the alternative engine," said Thompson, who has close ties to the Pentagon and industry.

A spokeswoman for the Pentagon office overseeing the project did not return a phone call seeking comment. GE said the decision was far from final, citing high-level support in Britain among other countries involved in the project.

The F-35, which will be the Pentagon's biggest purchase at an estimated $256 billion, is a family of three warplane variants being built by Lockheed Martin Corp. (LMT.N: Quote, Profile, Research) with eight overseas co-development partners, including Britain, the Netherlands, Italy and Turkey.

The Pentagon plans to buy as many as 2,480 of the aircraft in the three versions being developed for the U.S. Air Force, Navy, Marine Corps and the British Royal Navy.

Some of the biggest revenue from engines comes in maintenance and spare parts over their lifetimes. GE and Rolls-Royce are 60-40 partners in developing their version of the turbofan engine that would power the single-engine, radar-evading aircraft.

Thompson said the decision to cancel the back-up engine was formalized in a memorandum prepared for the fiscal 2007 budget that President George W. Bush is due to send to Congress in early February. He said the budget was "locked down" on Dec. 23, meaning it is no longer subject to change within the Pentagon.

Rick Kennedy, a GE spokesman, said the company was counting on Congress to restore the engine, pushed by Britain and other co-development partners.

"The budget process has a long way to go," he said. "This isn't our first struggle. We've had them before."

GE received a $2.4 billion development contract for the alternative engine in July due to last until 2012, or about $400 million per year, he said.

Congressional proponents of an interchangeable engine, along with GE, have cited potential savings through competition. They also describe it as a hedge against having to ground the entire fleet in case of trouble with any one engine. But a second engine has boosted the aircraft's development costs, something the Pentagon is under pressure to pare.

United Technologies shares were down 54 cents, or 1 percent, to $56.33, while GE added 8 cents to $35.19, both on the New York Stock Exchange. Rolls Royce shares closed at 429.48 pence in London trading.

United Technologies shares have gained about 11 percent in 2005 and trade at a forward price-to-earnings ratio of 16.2 times. But they have underperformed the Dow Jones U.S. Aerospace and Defense Index, which has gained almost 16.6 percent for the year and trades at a PE ratio of 16.7.