Last week, while opposing sides Pratt & Whitney and GE/Rolls Royce faced off at the Air Force Association’s annual conference at the National Harbor, the Senate Appropriations defense subcommittee dropped funding for GE/Rolls Royce’s F-35 extra engine. The decision could ultimately prove irrelevant, since predictions have the bill moving forward through an omnibus or continuing resolution, but was important politically nonetheless.
Naturally, Pratt & Whitney did a little dance, stating:
This Senate action is a clear message that the Senate Appropriations Subcommittee for Defense supports President Obama and Secretary Gates in their position that funding an alternate engine will not save taxpayer’s money or improve military readiness in any way.
GE and Rolls Royce, on the other hand, seemed to sit stunned in silence… until Thursday.
Thursday brought new news from the Government Accountability Office (GAO) on the potential cost of funding an extra engine. Highlights after the jump…
DOD projected that it would need $2.9 billion of additional funding to support the alternate engine program to the point where DOD believes it could begin competition in 2017… DOD’s estimate would be characterized as a “rough order of magnitude” cost analysis. This type of analysis is typically developed when a quick estimate is needed and limited information is available, and does not include the same level of fidelity and precision normally associated with a detailed, comprehensive cost estimate.
We note that the projected completion of the JSF aircraft development program has slipped about 3 years while projected completion of F136 engine development has slipped about 7 months. Therefore, we believe the risks of concurrency in this situation would be considerably lower than that of the overall JSF program.
The two key assumptions we highlight in our report—the number of years of noncompetitive procurements and the need for government funded component improvement programs—are examples where past studies and historical data provide evidence that the funding requirements could be lower than DOD’s projection.
As result, we believe DOD’s $2.9 billion projection should be viewed as one point within a range of possible costs.
Senator Carl Levin, who requested the GAO study, issued his response right away:
The DOD estimated cost of $747 million assumes that, since the underlying JSF development program has slipped 3 years, competitive purchases of the F136 would have to slip 3 years. However, as GAO points out, the F136 development program is only 7 months behind the contract schedule and 2 years of noncompetitive procurements could still allow sufficient time to complete the alternate engine development and qualify the engine. A reduction in the period of noncompetitive procurement would tend to reduce the estimated cost of the competition alternative, and tend to push the economic argument in favor of competition.
…GAO points out that competition and the pressures on the two engine teams might cause them to invest their own corporate funds, and thereby, the Government would not have to pay for a component improvement program, estimated by DOD to cost roughly $345 million. The GAO report also points out that a JSF Joint Program Office program management advisory group study concluded in 2002 that competition has the potential to offset or eliminate the need for Government funding for a component improvement program. If that were the case, it could also reduce the cost of competition, and tend to push the economic argument in favor of competition.
The battle is far from over, but GE, Rolls Royce, and Levin have some fancy new ammunition. As we move closer to an ultimate decision, expect to hear more about GAO’s report.
