March 12, 2010 / 10:44 PM / 10 years ago

Pratt defends cost-cutting measures on F-35 engine

* Pratt says “war on costs” is working

* Sources say added cost linked to overall delay on F-35

WASHINGTON, March 12 (Reuters) - Pratt & Whitney, a unit of United Technologies Corp (UTX.N), said on Friday its “war on costs” was driving production spending on its F135 engine for the F-35 fighter jet lower and the company had experienced no additional increases in the engine’s development program.

A Navy document leaked this week put the total cost of the F135 engine development program at $7.28 billion, $2.5 billion above the $4.8 billion initially projected for the program. That would be $600 million more than the $1.9 billion in cost increases already disclosed on the Pratt engine.

But Pratt spokeswoman Erin Dick said the company had not seen any additional overruns on the program.

“I can unequivocally say that our costs are coming down; that there are currently no additional overruns associated with the development of the F135 engine and the government has expressed confidence in our cost reduction strategy going forward,” Dick told Reuters.

The added costs stemmed from a 13-month delay on the overall F-35 development program and Pratt’s need for additional flight tests, which would add personnel costs and other overhead, said one source familiar with the program, who was not authorized to speak on the record.

The delay is part of a major restructuring of the Lockheed Martin Corp (LMT.N) F-35 program.

“There is no $600 million surprise or overrun or anything like that in the program at this point,” said the source.

Pratt offered the Pentagon an 11 percent reduction in engine cost in its latest contract proposal, with further reductions of around 10 percent due to take effect in each of three following years, which would result in a 40 percent cut in the cost of the production engines, said the source.

Pentagon acquisition chief Ashton Carter had expressed concern about growing costs on the Pratt engine last year, but endorsed Pratt’s efforts to cut spending in a memo to F-35 international partners dated Feb. 24.

Carter said a special independent “Joint Assessment Team” concluded projected cost growth on the engine could be reduced significantly by investing in affordability measures and through a renewed commitment by Pratt.

The Navy memo also showed an increase in the cost of a second engine built by General Electric Co (GE.N) and Rolls Royce, which the Pentagon wants to cancel.

The memo put the total cost of the GE-Rolls engine program at $2.1 billion, but did not include any funding for the program in fiscal year 2011.

A recent Pentagon analysis said it would cost $2.9 billion over six years to complete work on the GE-Rolls engine, but GE and Rolls-Royce say they need just $900 million to complete the development program and $400 million more for tooling. (Reporting by Andrea Shalal-Esa; editing by Andre Grenon)

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