June 03, 2013
Credit: Pratt & Whitney
Pratt & Whitney has agreed to assume 100% of the risk of any cost overrun for its latest F-35 engine contract, worth $1 billion. This agreement with the Pentagon aligns with the trend of recent deals with Lockheed Martin, the single-engine F-35 airframe manufacturer, in which the government is increasingly shifting the burden of cost overruns to industry.
The fifth low-rate, initial production (LRIP 5), contract—a fixed-price incentive-fee deal—covers 35 powerplants, including three spares, and comes as the company nears delivery of the 100th production-standard F135 engine. It comprises 29 conventional engines for 22 F-35As for the U.S. Air Force and seven F-35Cs for the Navy. The balance will be made up of three engines and related lift-system hardware for short-takeoff-and-vertical-landing F-35Bs for the U.S. Marine Corps.
Closure of the LRIP 5 talks comes as Pratt continues negotiations with the Defense Department over Lot 6. These are slated to wrap up this summer. LRIP 5 negotiations were protracted, and closure brings a welcome measure of production stability for the engine-maker as it struggles to meet earlier cost-reduction targets against a background of acquisition cutbacks.
Pratt's original plan, presented at the time of the 2009 Joint Assessment Team review, outlined a diminishing cost curve through Engine 250. However, that estimate anticipated a faster production rate, with delivery of Engine 250 in either the latter part of LRIP 6 or initial part of Lot 7. Subsequent purchasing delays shift the 250-engine milestone to Lot 8, so the cost curve will not level out until Lot 9 or later.
The company says it has managed to bring down costs by 40%, despite five successive cuts to the JSF program and a reduction of 400 engines from the original production plan. Pratt adds that it has “invested $60 million of our own money to help us claw our way down the cost curve, despite the Defense Department reprofiling the program of record.”
The engine maker, which recently shipped the 98th production unit, is facing significant challenges in its attempt to meet cost targets. The current production rate is steady at about 50 engines a year, roughly half of what was originally expected for 2013.
Projections now keep that volume flat until the ramp-up resumes, which is scheduled to occur in 2016. However, to safeguard the cost-reduction targets, Pratt will pay for any cost overrun in LRIP 5.