The project uses an "innovative" new mechanism to encourage
companies to invest their own funds to lower production costs, Dave
Hess, president of Pratt & Whitney, told Reuters in an interview on
Thursday, ahead of his retirement at the end of the month. Pratt is
a unit of United Technologies Corp <UTX.N>
He said the effort is spearheaded by F-35 prime contractor Lockheed
Martin Corp <LMT.N> and its chief executive, Marillyn Hewson, but
drew lessons from Pratt's own "war on cost" that used government-
and company-funded investment to drive the engine price 40 percent
lower in recent years despite a slowdown in U.S. orders.
Hess said the CEO-level effort is due to be unveiled early next
year, with details still to be worked out. It's "a concrete plan
with more concrete targets," he said, declining to elaborate.
Lockheed is building three models of the F-35 for the U.S. military
and eight countries that helped fund its development: Britain,
Canada, Australia, Turkey, Italy, Norway, Denmark and the
Netherlands. Israel and Japan have also ordered the jet.
Pratt builds the single F135 engine that powers the jet, while
Northrop Grumman Corp <NOC.N> and Britain's BAE Systems Plc <BAES.L>
are key subcontractors on the airplane.
The Pentagon estimates that it will cost $392 billion to develop the
new planes and buy 2,443 jets over coming decades, about 70 percent
more than initial projections. However, top Pentagon officials have
said repeatedly that the cost of the program must come down from
those levels, given tighter military spending budgets and other
Lorraine Martin, Lockheed's F-35 program manager, last week said all
the companies involved in the program and the government were
working on a "blueprint for affordability" to lower the cost of the
new warplanes. She said the cost of the F-35 conventional takeoff
A-model would be around $75 million in 2019, and possibly even
lower, putting it on par with the cost of current fighter jets like
One source familiar with the F-35 program said the target cost for
the F-35 would be in a range around that price level.
Hess initiated Pratt's own "war on cost" after Ashton Carter, the
Pentagon's acquisition chief at the time, challenged him during a
high-level F-35 meeting in Fort Worth, Texas, asking "Why does the
F135 engine cost so much?"
The question galvanized Hess, who had just taken over as president
of Pratt a few months earlier, and he quickly launched a two-month
effort to develop a plan for lowering the cost of the F135 engine.
[to top of second column]
ORDER DELAYS AFFECT COST CUTTING
As he prepares to leave Pratt, Hess said the concerted effort to
drive down the cost of the F135 engine was one of the company's
biggest accomplishments during his tenure.
He said Pratt had executed "nearly perfectly" on the cost reduction
plan, but conceded that U.S. government decisions to delay a ramp-up
in production had affected the company's ability to lower costs as
quickly as expected.
"There's an impact when volumes get pushed to the right," he said,
adding, "But we've got a plan to get back on the learning curve."
Hess said Pratt would also be able to apply new technology
developments to the F135 engine, which could increase the engine's
thrust and fuel efficiency by about 5 percent.
Pratt will deliver 56 F135 engines by the end of the year, and has
built over 130 in total. The cost of the engine has come down 40
percent since the first engine was built.
Deliveries will rise slightly in 2014, and ramp up more
significantly in 2015 and 2016, Hess said, noting that the company
also expected to deliver its first F135 engine from a new line
established at the company's West Palm Beach, Florida, facility by
the end of the year.
The company hopes to complete negotiations with the Pentagon by the
end of the year on operations and maintenance of the next batch of
engines, with a larger contract for actual production to follow
early next year.
Company officials have said they expect to match or beat the 2.5
percent reduction achieved on 32 of 38 engines that were included in
a $1 billion contract for a sixth batch of jets. The company
completed those negotiations with the Pentagon in August. It is now
negotiating about the seventh and eighth batches of jets, each with
about 40 jets.
(Editing by Matthew Lewis)
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