(Reuters) -- The U.S. government is eyeing Israel, Canada and the United Arab Emirates as possible initial foreign buyers of the V-22 Osprey, a tilt-rotor aircraft built by Boeing Co and Bell Helicopter, a top U.S. Marine Corps official told Reuters.

Lieutenant General Terry Robling, deputy Marine Corps commandant for aviation, said U.S. officials were continuing to drive down the cost of the aircraft and hoped to sell it to allies overseas to keep the production line running past 2018.

U.S. officials plan to show off the aircraft, which flies like an airplane but tilts its rotors to take off and land like helicopter, at the Farnborough Air Show outside London in July. It also made appearances at the Dubai and Singapore air shows in recent months, Robling told Reuters aboard a military aircraft after a Marine Corps event at Eglin Air Force Base in Florida.

Bell Helicopter, a unit of Textron Inc, and Boeing issued a news release in December after the Dubai air show, saying the aircraft had received significant interest from potential customers, but it did not identify them.

Boeing and Bell have been trying to generate foreign interest for years, but potential buyers were holding back to see how the plane did in combat, and because of the relatively high price of buying and operating the plane -- both of which are now coming down.

Washington is increasingly looking to foreign military sales to keep the cost of weapons systems from rising as the Pentagon cuts its own orders to strip $487 billion from its planned defense budgets over the next decade.

Robling said Israel, Canada and the UAE had expressed interest in the aircraft, but had not received formal pricing and technical information for the Osprey.

The Marines will ask lawmakers to approve a five-year procurement plan for 91 aircraft that will run through fiscal 2017 -- 24 less than initially planned for the period.

But the service still plans to buy those aircraft and has not changed its overall requirement, Robling said, although he acknowledged that postponing production resulted in more uncertainty given the current difficult budget environment.

Marine Corps Commandant James Amos this month told U.S. lawmakers that the Osprey, which can cruise at 290 miles an hour -- twice the rate of military helicopters -- has performed exceedingly well since being put into operation. He said it gives U.S. and coalition forces a maneuver advantage and operational reach unmatched by any other tactical aircraft.


The plane got off to a rocky start, with 30 Marines killed during its development, but it has amassed more than 130,000 flight hours since being fielded by the U.S. military in 2007.

More than 160 V-22s are now flown by 10 Marine Corps and two U.S. Air Force Special Operations Command squadrons.

Amos told lawmakers the MV-22B has made multiple combat deployments to Iraq, four deployments at sea, and it is currently on its fifth deployment to Afghanistan.

The Pentagon's chief weapons tester Michael Gilmore in December recommended that the Navy, which oversees Marines Corps acquisition, continue development and testing to improve the aircraft's overall reliability.

Gilmore said the plane generally met reliability and maintainability requirements, but its average mission capable rate was 53 percent from June 2007 to May 2010, well below the required rate of 82 percent.

Robling said the plane's operating cost was declining from rates as high as $12,000 per flight hour to an all-time low of $8,300 achieved last month. He attributed the decline to a variety of factors, including more reliable parts and different flying protocols that cut down on maintenance needs.

Robling said the current average cost-per-flight hour for the V-22, including fuel, parts and labor, was around $10,000, but he was pressing maintainers to drive that number down.

We've shown ... that we can get it down lower. So we just continue to work on it, he said. At some point we'll sustain probably somewhere around $8,500 at today's cost.

He said Boeing and Bell Helicopter had also been working to reduce the cost of producing the planes. The companies recently submitted a letter with a not-to-exceed price for the new multiyear agreement, which achieves the 10-percent cost savings required for congressional approval, Robling said.

Now, the government will start tough negotiations with the contractors to iron the details, Robling said, adding the process could take six to eight months.

Boeing has said it expects to sign the new multiyear agreement by the end of 2012.

He said the Marines could have saved $6 million to $8 million more per airplane if they had been able to keep the 24 aircraft in the five-year plan, but the Pentagon needed the savings to achieve its cost-cutting goals for fiscal 2013.

(Reporting By Andrea Shalal-Esa; Editing by Maureen Bavdek)