By Megan Scully
April 27, 2010General Electric Co. and Rolls-Royce Group have offered the government a fixed-price deal on the F-35 Joint Strike Fighter alternate engine they believe will save $1 billion over the next five years.
The deal, which has already been briefed on Capitol Hill and the F-35 program office, comes just weeks before congressional defense committees must decide whether to defy a veto threat on the annual defense authorization and appropriations measures and continue an engine program that Pentagon officials have steadfastly opposed.
Officials from both firms said Tuesday that the deal, which they have briefed to the F-35 program office, covers the 150 engines that would be bought during low-rate initial production between 2012 and 2014. Under the deal, the price per engine would decrease each year.
Much of the cost-savings projected in the proposal by the two firms hinges on an expected competitive response from primary engine maker Pratt & Whitney Co., officials acknowledged in a conference call.
"Quite simply, we want to begin the engine competition now," said David Joyce, president and CEO of GE Aviation. "Our offer creates a compelling business case to make competition affordable in the near term and position the program to reap the much larger, recognized benefits from competition over the long run."
Without competition, the GE/Rolls-Royce team argues that Pratt & Whitney will have a monopoly on the $100 billion effort to supply engines for the 5,000 to 6,000 F-35s being bought by the United States and allies.
Both Pratt & Whitney and the GE/Rolls-Royce team last year offered a fixed-price deal for the engines. GE/Rolls-Royce said Tuesday that their latest offer builds on the previous one, which had been limited to one year.
But a Pratt & Whitney spokeswoman called it a "distraction."
"This belated offer and its timing, coming just prior to congressional consideration, is simply a distraction," she said in a statement. "The bottom line is that a duplicative alternate engine is not needed."
The proposal comes amid repeated threats from Defense Secretary Robert Gates that he will recommend President Obama veto any defense legislation that keeps alive the alternate engine program.
Gates told the House Defense Appropriations Subcommittee March 24 that "whatever benefits might accrue [from a second engine] are more than offset by excess cost, complexity and associated risks."
The Pentagon estimates it will need $2.9 billion over the next six years to finish developing the engine and to buy support equipment and spare parts.
But even with that upfront investment, a Pentagon analysis sent to Capitol Hill this year concluded that "the estimated costs of a competitive engine acquisition strategy are projected to be approximately equivalent to a sole-source scenario."
Tuesday, Pentagon spokesman Geoff Morrell said the Pentagon cannot afford to buy both engines.
"The secretary does not believe the JSF needs an extra engine. Period," Morrell said. "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."
The Pentagon has tried since 2006 to terminate the alternate engine, but lawmakers, citing the benefits of competition, have repeatedly added funding to keep the program alive. They inserted $465 million in the Fiscal 2010 Defense Appropriations bill for the unwanted program.
By Megan Scully
April 27, 2010