Monday, May 10, 2010

F136 Team In Bid To Jump-Start Competition

General Electric and Rolls-Royce are pinning hopes of saving the F136 from cancellation on an extended offer of fixed prices on early production engines. The proposal bids to offset projected costs to complete development used by the Pentagon to justify canceling the second engine for the Lockheed Martin F-35 Joint Strike Fighter.
With half the savings expected to come from price reductions on the F136, and half from Pratt & Whitney matching the offer with competitive prices for its F135, the GE/Rolls Fighter Engine Team (FET) believes the proposal will save $1 billion over the next five years before head-to-head competition is planned to begin.
The claimed savings are intended to offset the $2.9-billion cost to complete development and begin production of the F136 projected by the Defense Department’s Cost Assessment and Program Evaluation (CAPE) group and used to justify zeroing funding for the F136 in its Fiscal 2011 budget request.
GE/Rolls does not agree with the CAPE analysis, estimating it will take $1.8 billion to complete F136 development and tool up for production, says FET Chairman Jean Lydon-Rodgers. Fixed prices shift to industry the risk that manufacturing costs will not come down the learning curve as fast as planned, she says.
Making its fifth consecutive attempt to cancel the second engine, the Pentagon is not impressed with the new offer. “The [Defense] secretary does not believe the JSF needs an extra engine. Period,” says Geoff Morrell, Pentagon press secretary. “We simply can’t afford to buy two of everything.”
But the new offer is aimed squarely at Congress, which for the second year faces the threat of a presidential budget veto if it adds funding for the F136. The threat was defused last year by finding the money from outside the JSF budget, but the rhetoric has stepped up this year.
The timing is crucial. In updating the cost analysis conducted in 2007, the CAPE says the business case for a second engine has improved to break-even as a result of the “sunk costs” for F136 development during the past three years. That leaves the CAPE’s disputed $2.9-billion estimate of the cost to completion as the hurdle to be overcome.
“This offer will take $1 billion out of the first five years and turn the business case from neutral to very positive. This is a way through the short-term cost pressures to get to the long-term benefit,” says GE Aviation President and CEO David Joyce, noting the Government Accountability Office projects savings from competitive procurement of close to 20% over the program’s life.
Part of the CAPE’s higher estimate comes from its assumption that Pratt’s learning curve will suffer if it builds fewer engines as a result of competitive procurement. “We don’t believe learning curves are an entitlement,” says Joyce, noting that GE and Rolls already assume that risk in their commercial engine programs.
GE/Rolls offered a fixed price for Fiscal 2011 engine procurement last September, and the new proposal extends this to 2012, with progressively lower prices in 2013 and 2014. The offer covers about 150 low-rate initial production F136s planned for procurement before 2015, when head-to-head competition is scheduled to begin.
Pratt says it was first to offer to submit a fixed-price proposal, in early spring of last year, but that the JSF Program Office (JPO) declined, saying it wanted to stick with its cost-plus acquisition strategy for early production engines. “Since then, we have continued to make that offer available to the JPO,” the company says.
GE/Rolls says it has submitted to the JPO a formal “offer to do business,” with legally binding fixed prices for three years of F136 procurement. The original offer is no longer an option, the team says, as the JPO has reduced expected procurement in 2011 to only a small number of engines.

By Graham Warwick(AviattionWeek)
Photo: GE/Rolls Royce

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