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.

{mosads}The GE-Rolls-Royce team hopes that the extended fixed-price offer would create
more competition with Pratt, which in turn will lower costs. GE and Rolls-Royce
officials project that their newest proposal will save $1 billion over the next
five years and $20 billion over the life of the F-35 program.

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 Levin (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.