August 28, 2013
Credit: Lockheed Martin/Randy A. Crites
The Pentagon on Tuesday announced it had reached agreement with United Technologies Corp (UTX.N) to build 38 engines for a sixth batch of Lockheed Martin Corp (LMT.N) F-35 fighter jets, securing discounts of 2.5 percent to 9.6 percent on the engines.
Pratt & Whitney, the engine-making unit of United Technologies, said it is targeting further cost reductions on the next two batches of engines under contracts that will be negotiated with the Pentagon in coming months.
The Defense Department did not disclose the value of the deal, which was first reported by Reuters on Monday, but sources close to the matter said it would be worth over $1 billion.
Mandatory budget cuts have prompted U.S. military officials and weapons makers to focus increasingly on cutting costs so they can ensure the continuation of big programs like the $392 billion F-35 program, the Pentagon’s costliest weapons program.
Chris Flynn, vice president of Pratt & Whitney’s F135 and F119 engine programs, said the company is “laser-focused” on reducing costs, meeting its delivery schedule and reaching contracts quickly for the next two batches of engines.
Flynn told Reuters the company hoped to conclude agreements for the seventh and eighth sets of engine orders in the first quarter of 2014. The two orders will be negotiated together.
He said the company planned to submit its proposal for those engines by the end of September, including further cost reductions that reflect increasing economies of scale.
“We’re starting to see production increase, and you can see some of the benefits of that,” Flynn told Reuters in a telephone interview. He noted that Pratt had already reduced the cost of producing the engines by more than 40 percent since the first engines it built for the program.
“We anticipate continued price reductions, as long as we’re able to keep the volume in place,” Flynn said.