July 3, 2019 | International, Aerospace
United Technologies’ F-35 Engines Chronically Late, Pentagon Says
By Anthony Capaccio United Technologies Corp.'s Pratt & Whitney unit is chronically late delivering engines for the Pentagon's costliest program, the F-35, raising questions about whether the company is ready for a surge to full-rate production scheduled for next year. Pratt remains under a previously unreported “Corrective Action Request” from the Defense Contract Management Agency that cites “poor delivery performance” on its current batch of engines for the fighter jet, including for the most complicated version used by the Marine Corps and the U.K. for vertical takeoffs and landings. The agency's action is likely to be watched not only by the Pentagon and international buyers of the F-35 but also by shareholders and investors assessing United Technologies' planned merger with Raytheon Co., which would fortify the combined company's standing as one of the top U.S. defense contractors. The F-35 engines would be one of the new company's top revenue producers. United Technologies Corp.'s Pratt & Whitney unit is chronically late delivering engines for the Pentagon's costliest program, the F-35, raising questions about whether the company is ready for a surge to full-rate production scheduled for next year. Pratt remains under a previously unreported “Corrective Action Request” from the Defense Contract Management Agency that cites “poor delivery performance” on its current batch of engines for the fighter jet, including for the most complicated version used by the Marine Corps and the U.K. for vertical takeoffs and landings. The agency's action is likely to be watched not only by the Pentagon and international buyers of the F-35 but also by shareholders and investors assessing United Technologies' planned merger with Raytheon Co., which would fortify the combined company's standing as one of the top U.S. defense contractors. The F-35 engines would be one of the new company's top revenue producers. The company, which is the sole supplier of engines for the fighter built by Lockheed Martin Corp., must demonstrate by year-end that it has delivered on promised improvements to solve the problems that led to the agency's formal request in December, spokesman Mark Woodbury said in a statement outlining the issues. Full Production The $428 billion F-35 program is scheduled for approval next year to enter full-rate production, the most lucrative phase of a weapons program for contractors. The decision is contingent on an assessment during the aircraft's current round of intensive combat testing that it's effective and can be maintained. Of the $428 billion, as much as $66 billion is to be spent on at least 2,470 engines -- designated the F135 -- for U.S. jets, including $53.4 billion in procurement, according to the Defense Department's latest Selected Acquisition Report on the F-35. Pentagon budget documents indicate the engine program is valued at about $2 billion annually for Pratt, according to Bloomberg Intelligence analyst Douglas Rothacker. John Thomas, a spokesman for Pratt, said in an emailed statement that “we take seriously our responsibility to meet F135 production commitments. The corrective action plan submitted earlier this year lays out how we are doing that. Over the past year, we have invested more than $200 million for additional capacity, and currently have over 100 Pratt & Whitney employees deployed to our supplier facilities in support of production obligations.” Revenue Potential Pratt & Whitney President Bob Leduc underscored the engine's revenue potential to analysts June 17 at the Paris Air Show. United Technologies Corp.'s Pratt & Whitney unit is chronically late delivering engines for the Pentagon's costliest program, the F-35, raising questions about whether the company is ready for a surge to full-rate production scheduled for next year. Pratt remains under a previously unreported “Corrective Action Request” from the Defense Contract Management Agency that cites “poor delivery performance” on its current batch of engines for the fighter jet, including for the most complicated version used by the Marine Corps and the U.K. for vertical takeoffs and landings. The agency's action is likely to be watched not only by the Pentagon and international buyers of the F-35 but also by shareholders and investors assessing United Technologies' planned merger with Raytheon Co., which would fortify the combined company's standing as one of the top U.S. defense contractors. The F-35 engines would be one of the new company's top revenue producers. The company, which is the sole supplier of engines for the fighter built by Lockheed Martin Corp., must demonstrate by year-end that it has delivered on promised improvements to solve the problems that led to the agency's formal request in December, spokesman Mark Woodbury said in a statement outlining the issues. Full Production The $428 billion F-35 program is scheduled for approval next year to enter full-rate production, the most lucrative phase of a weapons program for contractors. The decision is contingent on an assessment during the aircraft's current round of intensive combat testing that it's effective and can be maintained. Of the $428 billion, as much as $66 billion is to be spent on at least 2,470 engines -- designated the F135 -- for U.S. jets, including $53.4 billion in procurement, according to the Defense Department's latest Selected Acquisition Report on the F-35. Pentagon budget documents indicate the engine program is valued at about $2 billion annually for Pratt, according to Bloomberg Intelligence analyst Douglas Rothacker. John Thomas, a spokesman for Pratt, said in an emailed statement that “we take seriously our responsibility to meet F135 production commitments. The corrective action plan submitted earlier this year lays out how we are doing that. Over the past year, we have invested more than $200 million for additional capacity, and currently have over 100 Pratt & Whitney employees deployed to our supplier facilities in support of production obligations.” Revenue Potential Pratt & Whitney President Bob Leduc underscored the engine's revenue potential to analysts June 17 at the Paris Air Show. “So another way to think about the F135 is a year ago we made about eight engines a month,” he said. “Right now we are between 13 and 14 engines a month. But when you think about the F135, it's 16 engines a month for the next 30 years. There will be over 4,000 of these airplanes when it's all said and done,” including foreign sales. The primary issues resulting in late engine deliveries “have been related to supply-chain capacity, material shortages” and production issues, according to the contract management agency. “Engine test failures due to high vibrations and foreign object debris continues to plague” production, the agency said in an internal quarterly assessment for January through March. Deliveries of the Marine Corps model engines “have been consistently late,” it said. As of early June, Pratt & Whitney was contractually required to deliver 108 engines in the latest production contract, the program's 11th. Of the 90 delivered, 88 were “late by an average of 40 days,” Woodbury said in his statement. The Pentagon is close to finalizing the award of the 12th and largest F-35 contract to date with Lockheed and Pratt. Spotty Record The current delays add to Pratt & Whitney's spotty track record. Even as deliveries increased to 81 in 2018 from 48 in 2012, 86% of those were delivered late, up from 48% in late 2017, according to an April report from the Government Accountability Office. Asked whether the contract management agency has confidence Pratt will be ready for a full-production decision, Woodbury said the agency is monitoring milestones in Pratt's corrective action plan and needs to see progress before making that judgment. The agency's assessment said that in light of Pratt & Whitney's track record it believes the company “will encounter issues keeping up with demand for any future low-rate and full-rate production contract” that increases quantities. — With assistance by Rick Clough https://www.bloomberg.com/news/articles/2019-07-02/united-technologies-pratt-slow-on-f-35-engines-pentagon-says