By Roxana Tiron - 04/27/10 05:38 PM EDT
General Electric and Rolls-Royce are trying to woo the Pentagon with a new pricing offer intended to keep the engine makers in the game for the F-35 Joint Strike Fighter (JSF).
The GE-Rolls-Royce team is building a secondary engine for the F-35 and is eyeing a competition with the primary engine maker, Pratt & Whitney, over the life of the fighter jet program.
The stakes are high, as the market for the F-35 engine is projected to be $100 billion over several decades.
The team announced on Tuesday that it has made a fixed-price offer for early-production engines bought in 2012, 2013 and 2014. The fixed price will fall progressively lower in 2013 and then in 2014, GE and Rolls-Royce officials said.
The GE-Rolls-Royce team is facing an uphill battle at the Pentagon, where Defense Secretary Robert Gates has already threatened to recommend that the defense bills be vetoed if they contain funding for the secondary engine.
The fixed-price offer comes less than a month before congressional defense committees are expected to start considering the fiscal 2011 budget, renewing their tug-of-war with the administration over the benefits of having two engines for the Pentagon’s largest fighter jet purchase.
The defense committees have provided funding to develop the secondary engine despite the Pentagon’s efforts to kill it over the last four years.
“Funding the F136 engine means buying what’s best for the U.S. armed forces and the U.S. taxpayer,” said Dan Korte, the president of Rolls-Royce’s defense unit. “It means a vote for choice and a vote against a sole-source monopoly, which will raise prices and choke competition across the sector for generations to come. Competition works, and we are already seeing that in action.”
David Joyce, the president of GE Aviation, said on a call with reporters that the engine team has submitted its proposal and briefed the F-35 program office as well as staff on the House and Senate Armed Services and Appropriations committees. The next step, he said, was to discuss the proposal with Pentagon acquisitions chief Ashton Carter, but a meeting is not yet set.
While the fixed-price offer applies for the early-production engines, GE and Rolls-Royce likely will need at least $1.8 billion over the next several years to develop the engine and bring it into early production. That money would have to be appropriated by Congress, because the Pentagon did not include any funding in its budget request for 2011.
The $1.8 billion necessary to finish the development of the secondary engine and the necessary infrastructure is the estimate of the GE-Rolls-Royce team. In February, a Pentagon analysis, performed by the Cost Assessment and Program Evaluation Office (CAPE), found that the government would have to spend $2.9 billion over the next six years for the development of the engine, infrastructure and spare parts.
The Pentagon has argued that there is no compelling business case to keep funding a secondary engine, projecting that the costs of having competition for the engine would equal that of just staying with one producer — Pratt & Whitney.
At the time of the CAPE analysis, Rep. Ike Skelton (D-Mo.), the chairman of the House Armed Services Committee, warned that the Pentagon focused too much on the near-term benefits instead of the long-term benefits and ignored the risks posed by having only one engine for more than 2,000 fighter planes.
“The secretary does not believe the JSF needs an extra engine. Period,” Pentagon press secretary Geoff Morrell said in an e-mailed statement on Tuesday. “What's more, the department is certainly not convinced that the speculative benefits of competition will offset the very real upfront and ongoing costs of pursuing an extra engine. We simply can't afford to buy two of everything.”
Pratt on Tuesday dismissed the GE-Rolls-Royce proposal as a “distraction.”
“The fact is the DoD [Department of Defense] and two presidential administrations have said an alternate engine for the F-35 is not wanted or needed,” Erin Dick, Pratt’s spokeswoman, said in an e-mailed statement.
“There is no military requirement for it, which is why they have requested for the last five years that Congress stop funding it.”
Jean Lydon-Rodgers, GE’s Aviation Military Systems’ vice president and general manager, said that the alternate engine team would save $500,000 of the $1 billion just by the cost-reduction initiatives as part of the fixed-price proposal, with the rest of the savings coming from driving competition between the engine makers several years earlier than expected.
Instead of letting the government bear the risks traditionally associated with early production of engines, GE and Rolls-Royce will take on those risks by offering a fixed price, officials from both companies said Tuesday.
Critics of the Pentagon’s decision argue that having a single engine producer for the entire fleet could be too risky and make the fighters less reliable. Leading defense authorizers and appropriators in the Senate and House, including the late Rep. John Murtha (D-Pa.) and Sen. Carl LevinCarl LevinAs other regulators move past implementing Dodd-Frank, the SEC falls further behind Will partisan politics infect the Supreme Court? Fight for taxpayers draws fire MORE (D-Mich.), repeatedly have made the case for granting funds to makers of both engines in an effort to save money down the line.
The “engine wars” started after several fiascos with the F-15 and F-16 fighter jets, which relied on one engine. As a consequence, Congress started an alternative fighter-engine program that provided funding for rival companies to produce engines for the same planes. One company receives a certain percentage of the engine contract, the other the rest.