* Pratt sees savings of less than 10 pct on next F-35 engine
* F-35 engine sales seen exceeding $2 bln a year by 2018
By Andrea Shalal-Esa
PARIS, June 16 Pratt & Whitney, a unit of United
Technologies Corp, expects to reach an agreement with
the Pentagon within the next 30 days on a contract for engines
to power a sixth batch of F-35 fighter jets, Pratt President
David Hess told Reuters.
Hess said negotiations were still under way with the U.S.
Department of Defense but he expected the final price of the
contract to reflect a cost reduction of less than 10 percent,
continuing a trend seen in recent years. Pratt says the cost of
the engine has declined 40 percent since the program began in
"We're making progress there. We've gotten an offer from the
(Joint Program Office) and I expect we'll get that closed pretty
quickly ... certainly within 30 days," Hess told Reuters in an
interview ahead of the Paris air show.
Hess declined to give details on the projected value of the
contract, which analysts expect will exceed $1 billion.
The company, which is the sole producer of engines for the
single-seat F-35 fighter jet, which is built by Lockheed Martin
Corp, finalized a $1 billion deal with the Pentagon in
May for a fifth batch of 35 F135 engines.
The sixth engine contract currently being negotiated
includes 39 engines, according to Pratt & Whitney.
Separate contract negotiations for the fifth batch of
engines and jets dragged on for nearly a year, but Pentagon and
industry officials were hopeful that agreements would be reached
far sooner this time.
Hess said F-35 engine sales would account for more than 50
percent of the company's military engine revenue in the coming
years, when production ramps up, reaching $2 billion by around
2018. Last year, he said, military engine revenue accounted for
about $4 billion of Pratt's total revenue of $14 billion.
Hess said the F-35 Joint Strike Fighter, which is being
developed by Lockheed for three U.S. military services and eight
partner countries, was making good progress after several major
restructurings in recent years.
He said no major issues or concerns were raised during a
meeting last week of top Pentagon officials, industry executives
and representatives from the eight partner countries: Britain,
Canada, Australia, Netherlands, Italy, Turkey, Norway and
"It was a very upbeat conference," Hess said, adding, "The
international partners seem to have more confidence in the
He said potential orders from Singapore and South Korea
would help expand production in coming years.
Both of those competitions looked promising in short-term,
Hess said, noting that there could be additional customers for
F-35 fighter jets in the Middle East in the future.
Israel has agreed to buy 19 F-35 jets, and was expected to
order some 20 more.
Asked how the U.S. government could maintain Israel's
"qualitative military edge" in the region if Washington sold
F-35s to other Middle Eastern countries, Hess said such
potential buyers could receive a "different configuration" of
the jet. He gave no further details.
He said he was also confident that Canada would decide to
stick with the F-35 program despite its recent discussions about
having a new competition.
If the orders did shift to another company, Pratt & Whitney
could decide to move some of the industrial base work it is
currently doing in Canada, Hess said.
"We might reallocate the work elsewhere," he said, adding
that reduced order volumes would likely trigger changes in
Hess said Pratt continued to work on reducing the production
and operating costs of the new fighter jets. The company was
waiting for a response from the Pentagon to its proposal to
implement a fixed-price contract for maintenance of the engines
in 2015, four years earlier than planned.
Bennett Croswell, head of Pratt's military engines business,
told Reuters that a similar "performance-based logistics
program" had saved an estimated $3 billion in costs on the
engines that Pratt builds for the C-17 transport plane.
The Pentagon has not responded to requests for a comment
about Pratt's proposal.
Air Force Lieutenant General Christopher Bodgan has talked
about his plans to open the operation and sustainment aspect of
the F-35 program to competition in the future, but no details
have emerged about how the government will do that.
Hess said he was not worried about losing the lucrative
operations and maintenance work on the F135 engine under some
future competition. "We're used to competing," he said. "It's
part of our culture."