GE, Rolls-Royce again fighting for multi-billion fighter engine

Fresh off their hard-fought victory last year, General Electric and Britain's Rolls-Royce are readying once again for a fierce lobbying battle to save a multi-billion-dollar engine program for the Joint Strike Fighter (JSF).

Even though the companies succeeded in having money restored in last year's budget to continue work on an alternate-engine program for the multinational JSF, this year success may not be a sure thing.

With the defense budget squeezed tight by war costs and competing weapons-system modernization needs as well as increased congressional oversight, the companies have to make a solid case to have about $400 million added in the 2008 budget.

The Pentagon decided for the second year in a row to scrap the funding request for the alternate engine.

Rep. John Murtha (D-Pa.), chairman of the Defense Appropriations subcommittee, and Rep. Ike Skelton (D-Mo.), chairman of the House Armed Services Committee, directed members of their panels to examine every issue in the defense budget with a fresh eye.

"They told us to examine everything all over again," said Rep. Neil Abercrombie (D-Hawaii), chairman of the Armed Services Air and Land Forces subcommittee. "We are taking a fresh look at everything. It is not a given" that Congress will restore money for the alternate engine, Abercrombie added.

The United States, the United Kingdom and seven other international partners are developing the $256 billion JSF to replace a wide range of U.S. and foreign fighter jets. The Pentagon was planning to offer funding for a choice of engines for the first fighters, built by Lockheed Martin.

The contenders for those engines are Pratt & Whitney, a unit of United Technologies Corp., and the GE-Rolls-Royce team. Pratt & Whitney has a contract to build the engine for the first JSF.

The GE-Rolls-Royce team won a $2.4 billion contract two years ago to develop the second engine, which would be available four years after the Pratt engine is ready. After that, the military can choose which engine it wants to go into the JSF.

Full production of the fighter jets is expected to start in 2014. In some ways, the fight for GE and Rolls-Royce will be more intense this year, said several sources.

"We are just three years away [from] having a full competing engine and we spent about half the money appropriated," said Rick Kennedy, a GE Aviation spokesman. "The move this year is to make people realize that we are getting close."

The team would have already spent $1.5 billion by the end of this year and will need about $1.7 billion to finish the project. Stopping the program now means the $1.5 billion will go to waste, Kennedy added.

Pentagon officials justified the cut by determining that the cost of the investment in an alternate engine is not offset by reducing the risk of having only one engine available for the JSF.

But that rationale may not sit well with some strong supporters of the dueling-engine program and of GE and Rolls-Royce.

The engine team is planning to revisit with its key champions in the coming days to lay the groundwork for the upcoming battle.

Among last year's supporters are Murtha and Sens. Edward Kennedy (D-Mass.) and John Warner (R-Va.), as well as the Indiana and Ohio delegations. Rolls-Royce North America, which is headquartered in Indianapolis, and Rolls-Royce in Bristol, England, have been each building parts of the engine. GE is assembling the engines in Cincinnati.

Last year, Congress appropriated $340 million for the Pentagon to continue the second engine program for the JSF, the costliest fighter-jet program to date.

Congress also directed the Department of Defense to continue competition and called for independent studies on the value of competition in the program. A Government Accountability Office report will be released in March.

For the two companies, the stakes are high in the battle to save the alternate-engine program for the JSF: They could be effectively shut out of the largest fighter-jet market for the next 40 years, several defense industry sources said.

Critics of the Pentagon's decision also argue that the stakes could be high for the Air Force, the Navy and the Marine Corps, which have joined together on the program, because having a single engine producer for the entire fleet could be too risky and make them less reliable.

JSF planners originally projected that producing two engine programs would create competition, lower prices and provide a backup if one of the engines broke down.

After several fiascos with the F-14, F-15 and F-16 fighter jets, which relied on one engine made by Pratt & Whitney, Congress more than a decade ago started an alternative fighter-engine program, which became known as the "great engine war."

The result of such battles is that one company receives a certain percentage of the engine contract and another the rest.Congress has provided funding to GE and Rolls-Royce for the alternate-engine program since 1996.