By Andrea Shalal

WASHINGTON, Dec 7 (Reuters) - Aerojet Rocketdyne Holdings Inc is in talks with the U.S. Air Force about government funding for the AR-1 rocket engine that it is developing as an alternative to a banned Russian engine, said two sources familiar with the issue.

The discussions began two weeks ago and could stretch for several months before the Air Force awards Aerojet a contract, said the sources, who were not authorized to speak publicly.

Aerojet Rocketdyne spokesman Glenn Mahone said the company never discussed contract negotiations before they were finalized.

The Air Force had no immediate comment on the issue. It launched a competition earlier this year for initial work on a new U.S. rocket engine to replace the Russian RD-180 engine.

Aerojet told reporters in September that its plan to complete the AR-1 rocket engine by 2019 could be delayed if it did not receive enough U.S. government funding.

Aerojet earlier this year offered $2 billion to acquire United Launch Alliance (ULA), a 50-50 rocket launch venture of Lockheed Martin Corp and Boeing Co in what analysts called a strategic move to try to shut out rival Blue Origin, a company owned by Amazon.com founder Jeff Bezos, that is developing a new engine favored by ULA.

ULA has said Blue Origin's engine is about two years ahead of Aerojet's work on the AR-1 engine, a claim Aerojet disputes.

Work on the new engines gained urgency after U.S. lawmakers passed a ban on use of Russian RD-180 engines for launches of U.S. military or spy satellites following Russia's annexation of the Crimea region of Ukraine last year.

The Air Force had been expected to award initial contracts for work on the new engines in the fourth quarter of 2015, but that date has now slipped by several months. The Air Force plans to split a total of about $160 million among rival bidders.

The Air Force competition is a public-private partnership, with each of the bidders asked to provide one-third of the funding, with the Air Force to provide a two-thirds share.

Space Exploration Technologies, or SpaceX, and Blue Origin, both of which are privately held, have self-funded their engine work, and say they are not necessarily looking for government funding.

The Air Force did not initiate contract discussions with another industry team that included Pratt & Whitney, a unit of United Technologies Corp, which had proposed building a domestic version of the RD-180 engine, according to one of the sources.

(Reporting by Andrea Shalal; Editing by Andrew Hay)