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GE and Rolls-Royce Propose Fixed Price Offer for F-35 Joint Strike Fighter Engine to Significantly Drive Down Costs
Offer to create and accelerate engine competition & change procurement process

April 27, 2010 -- EVENDALE, Ohio -- General Electric Co. and Rolls-Royce today announced that they have offered to the Pentagon a fixed price offer on their F136 engine for the Joint Strike Fighter (JSF).

The offer intends to create and accelerate competition between the JSF program's two engine suppliers, and to shift the risk of cost overruns from the government to defense contractors.

The offer could change the Government's acquisition model for procuring approximately 150 F136 engines in the early years of the fighter program, allowing the Government to know immediately its costs over this period. Also, the approach is intended to drive lower pricing between the two competing engine suppliers.

With more than 70 percent of its development complete, the GE/Rolls-Royce F136 engine program is poised for flight-testing next year.

"Today, we are announcing a fixed-price offer for F136 engines purchased in 2012, followed by further price reductions for engines procured in each 2013 and 2014," said David Joyce, president and CEO of GE Aviation. "We can create a competitive environment that will save the government $1 billion over the next five years, and $20 billion over the life of the JSF program."

"Funding the F136 engine means buying what's best for the U.S. armed forces and the U.S. taxpayer," said Dan Korte, President - Defence, Rolls-Royce. "It means a vote for choice and a vote against a sole-source monopoly, which will raise prices and choke competition across the sector for generations to come. Competition works, and we are already seeing that in action."

With this offer, GE and Rolls-Royce assume the risk of meeting or beating price targets for early production engines while creating a competitive behaviour to drive lower costs as the learning curve phase of production must be achieved earlier.

In response to cost overruns and schedule delays in major weapon programs, The Weapon Systems Acquisition Reform Act of 2009 was signed into law to mandate competition through the entire life of major defense programs -- including funding competing sources.

The F-35 Joint Strike Fighter (JSF) program creates the perfect opportunity -- a multi-role aircraft replacing numerous tactical fighter aircraft, with potential production for the U.S. Air Force, Navy, Marines and international customers to reach 5,000 to 6,000 aircraft over 30 years. Without competing engines for the fighter, a $100 billion monopoly will be handed to a single supplier.

The JSF engine program will ultimately reach $100 billion. Recently, the Government Accountability Office (GAO) anticipated a 20 percent benefit from a JSF engine competition, using the F-16 engine competition as a comparison. There are also vast benefits beyond sheer cost - related to operational readiness and contractor responsiveness.

The P&W F135 development is estimated to grow 50 percent beyond its original contract, from $4.8 billion to $7.3 billion, according to a recent report from the GAO, adding, "F135 engine development cost increases primarily resulted from higher costs for labor and materials, supplier problems, and the rework needed to correct deficiencies with an engine blade during re-design."

The F136 engine is a product of the best technology from two world-leading propulsion companies. The GE Rolls-Royce Fighter Engine Team has designed the only engine specifically developed for the F-35 aircraft, offering extra temperature margin and affordable growth. F136 engine development is being led at GE Aviation in Evendale, Ohio (Cincinnati suburb), Ohio; and at Rolls-Royce in Indianapolis, Indiana.

The F-35 is a 5th-generation, multi-role aircraft designed to replace the AV-8B Harrier, A-10, F-16, F/A-18 Hornet and the United Kingdom's Harrier GR.7 and Sea Harrier, all of which are currently powered by GE or Rolls-Royce. Potential F-35 production for the U.S. Air Force, Navy, Marines and international customers may reach as many as 5000 to 6000 aircraft over the next 30 years.

GE Aviation, an operating unit of General Electric Company (NYSE: GE), is a world-leading provider of commercial and military jet engines and components as well as integrated digital, electric power, and mechanical systems for aircraft. GE Aviation also has a global service network to support these offerings.

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