Tuesday, April 27, 2010

Déjà Vu All Over Again

During a Senate Armed Services Committee hearing earlier this month, U.S. Air Force Lt. Gen. Mark Shackelford, Military Deputy, Office of the Assistant Secretary of the Air Force for Acquisition, was questioned by Sen. Joe Lieberman about the notion of a fixed price for the F-35 powerplants. As his colleagues have done in the past, Gen. Shackelford confirmed that no such arrangement has been agreed upon or accepted by the DoD. He confirmed that no firm fixed price offer would be accepted until such time “As we have confidence in the design baseline and the ‘producibility’ of the engines.”

The reason is simple: at this stage of a new and complex program, a traditional “cost-plus” contract provides the federal government with complete transparency and oversight into the program including cost, schedule, performance and more. If any issues arise, the customer is made aware of them and can clearly see the price and process of amelioration.

A firm, fixed price arrangement, whether offered for single or multiple lots, might sound attractive in an uncertain economic environment. But when applied prematurely, it incentivizes the contractor to estimate and then add the cost of potential test failures, production changes and just about any other variable to ensure an eventual profit. So, either the government pays an inflated bill if development goes better than expected, or it can’t see how and to what extent any problems are being addressed. Either way, the taxpayer stands to lose rather than win, especially when the engine in question is the still developmental F136, which like any new engine, has faced, and will continue to face, numerous development challenges that will result in design changes.

Yet, those of you who have followed this discussion will remember that we’ve been here before. Last September and again more recently, the alternate engine team presented the government with an unsolicited firm, fixed price “concept” for their first four deliveries, ironically minus an actual price. The September offer was not deemed by the government to be worthy of evaluation and therefore no negotiations took place. Another recent offer was for the same four engines, now delayed from Low-Rate Initial Production (LRIP) Lot 5 to LRIP-6 due to well-known problems encountered throughout their protracted System Development and Demonstration phase.

Based on past government actions and Gen. Shakelford’s recent testimony, it’s hard to believe that the outcome of this latest offer by the makers of the back-up engine for the F-35 will be any different than those that have been announced before, simply because far too much about a production F136 is still unknown and unproven, not to mention strongly opposed by the White House and Pentagon on the grounds of cost, logistics and shear wasteful duplicity.

By contrast, Pratt & Whitney has transitioned confidently from development to production. Every F135 ground and flight test engine has been delivered to the customer, as have the first three production engines. And, in the interest of full disclosure, Pratt & Whitney also offered a fixed price arrangement. In fact, we originally did so prior to the F136 team and it would have applied to LRIP-4 engines at the current capped “cost-plus” price point. But even this offer, which was based on a far more mature engine, was declined by the customer.

Therefore, one can conclude that for the short term, the most pressing issue is not about pricing, but performance and accountability.


-- Eagleblogger

Friday, April 23, 2010

Three Wrongs Don’t Make a Right

Part 3 of 3: The Industrial Base

Some in the F136 camp argue that continued funding of their engine is vital to their survival in the aircraft engine business. Yet General Electric, one of the world’s most diversified conglomerates, continues to dominate the development, production, and aftermarket aerospace engine market, manufacturing six times more commercial engines than Pratt & Whitney every year. Their status includes sole source positions with the GEnx (747-8), GE90 (long range Boeing 777s), CF34 (CRJ700/900, E170/190), CF6 (C-5 re-engining), not to mention the ubiquitous CFM56 (all B737s and more than half of Airbus A320 family deliveries in recent years).

Moreover, GE currently produces nearly 90% of U.S. made military engines, including helicopter engines. Their dominance of this market includes sole source positioning with the T700 on more than 4,900 twin-engine Blackhawk/Seahawk and Apache helicopters. Including spares, this equates to nearly 12,000 powerplants delivered through 2009 with at least 2,300 more forecast between now and 2019 for a total expected to exceed 14,000 T700s.

Another sole source position GE enjoys is through their F404 and F414 powerplants for the twin-engine F/A-18. The F/A-18 continues to be purchased in significant quantities by the U.S. Navy, has landed a new export order (from Australia), and may win other fighter procurement contests around the world. More than 1,900 airframes later, GE has delivered 4200 F404/414 engines with the possibility of another 400 engines before the end of this decade.

GE’s dominance of the installed base and backlog of jet engines positions them well for decades to come with a strong aftermarket business. Furthermore, consider that since the design tools, development processes, advanced technology and materials have become closely aligned between military and commercial products, it is the same people who design these engines for civil or military applications. And one more very important point, GE is heavily involved in two important DoD programs called ADVENT and HEETE. These two research and development efforts are investigating advanced military engine technologies, and will keep GE engineers working for years to come. 

Regardless of whose name is on a commercial or military engine, the reality is that roughly 80% of the content is procured from suppliers. Given the highly specialized nature of building jet engines, many of these suppliers are common to GE, Pratt & Whitney and other manufacturers. Castings, forgings, composites, electronics, controls and accessories all come from the same overall industrial supply base, not from one engine manufacturer’s military business segment. For most suppliers, the difference between one or two F-35 engines simply fails to constitute a “make or break” moment.

In considering America’s aerospace industrial base, you cannot overlook the fact that the F136 engine is the fruit of the General Electric / Rolls-Royce Fighter Engine Team Partnership. 40% of the F136 is under the control of UK based Rolls-Royce, and a large number of those RR parts will be manufactured abroad. This fact further undermines the positive impact GE imagines the F136 would have on American industry.

Despite a global recession, the American jet engine industrial base remains strong, thanks to diversification across civil and military platforms, a continuing emphasis on research and development, and a significant military and commercial aftermarket requirement. GE’s viability as a continuing source of military jet engines simply is not threatened by a single military program Most suppliers wouldn’t be adversely impacted should Congress cease funding for the F136, as repeatedly requested by President Obama, Defense Secretary Gates and others. Add in the current operational needs of our military along with other pressing budgetary matters and the choice becomes more apparent than ever.

-- EagleBlogger

Wednesday, April 21, 2010

Three Wrongs Don’t Make a Right

Part 2 of 3: Risk

Following competition, the next most commonly heard refrain from the F136 camp constitutes myth number two: that a single engine supplier for the F-35 presents too much risk to the warfighter.

Supporters of the duplicative alternate engine argue that a second engine is necessary to mitigate the threat of a fleet-wide grounding. This is nothing but a scare tactic, and quite frankly, counter to GE’s own military engine business. There are more than 4,000 GE F404s powering the entire F/A-18 fleet and 14,000 GE T700s powering all the current and future Apache and Blackhawk/Seahawk fleets. These are massive fleets of aircraft, powered by a sole source engine provider, and neither has ever experienced a fleet-wide grounding. Nor has the F-22 powered solely by the Pratt & Whitney F119. The bottom line is that no military aircraft developed in the past three decades has been procured with multiple engine suppliers because it is unnecessary.

Why? Because advances in computer-based design and simulation applications, rigorous testing regimes, highly accurate, capable, and repeatable manufacturing processes, new durable materials and powerful digital electronics have dramatically improved the safety and reliability of modern jet engines.

Furthermore, technological advancements in risk management and mitigation processes have mitigated fleet-wide groundings resulting from propulsion system design, material or logistics failures. Improved inspection capabilities, as well as the increasing use of prognostic health and condition-monitoring systems, detect problems early and thus mitigate their potential impact on flight operations. In other words, this is fifth generation technology, not first, second or third generation.

This constant march of technological progress has yielded benefits across the aviation sector. For instance, in the commercial aviation sector, the Federal Aviation Administration and similar organizations abroad have lengthened the Extended-Range Twin-Engine Operation Performance Standards (ETOPS) to allow a 180-minute diversion period for twin-engine airliners.

As U.S. Air Force Chief of Staff Gen. Norton A. Schwartz said in March 2010, “We are not in the 1980s any longer, where high-performance engines had suspect reliability.”

Besides, consider that a fighter aircraft is a system of systems. It is critical that each of the subsystems perform flawlessly to keep the jet flying safely. There is no reason to believe the engine is any more likely to ground the fleet than the airframe, flight controls, radar, landing gear, etc., none of which are competed. In fact, when you look at the data, it has been these other systems that have been responsible for fleet groundings in the past. But, these systems aren’t procured from dual sources, and neither are engines…usually. Why? Because we’re not in the 80’s anymore.

Finally, as we’ve pointed out in the past, fielding two engines can actually have a negative impact on reliability since the chances of having issues that need to be addressed are now doubled. You will have two engines, two training and support systems, two supply chains, two of everything…doubling the likelihood that there will be issues in the field.

Past experience has proven that the best way to introduce a new engine into service is to first mature it on a two-engine fighter, then put it on a single engine aircraft. P&W has done it with the F119 on the F-22 which has more than 280,000 hours, is the safest most reliable fighter engine ever fielded, and serves as the basis for the F135 on the single engine F-35.

Safety of flight should be a “spin free” zone, because nothing is more serious in the life-or-death world of supersonic fighter aircraft. Funding the F136 may have made sense early in the F-35 program, before the F135 had proven itself. But with 10 years of development, more than 17,000 test hours, Initial Service Release, initial production deliveries, and full up STOVL operations in the rear view mirror, it is clear the F135 is fulfilling its assigned mission flawlessly. Having an insurance policy is fine when you’re unsure of the future. But the future of the F135 is now, and it’s demonstrating day in and day out that it’s ready for the mission to power the F-35. It’s time to cancel that costly, unnecessary insurance policy

-- EagleBlogger

Monday, April 12, 2010

Three Wrongs Don’t Make a Right

Part 1 of 3: Competition

Backers of the unnecessary and unwanted alternate engine for the F-35 Joint Strike Fighter have put forth three main messages to justify the billions of dollars spent to date on the development of the F136, and the $2.9 billion necessary to actually ready this redundant, back-up engine for competition with the lead Pratt & Whitney F135 engine.. And though all three claims sound compelling and make good sound bites, they simply don’t withstand much scrutiny when measured against actual facts.

Today, we’ll address myth number one: that competition lowers cost, while also increasing reliability and contractor responsiveness.

Let’s start with the facts: every fighter, bomber, cargo, attack, surveillance, tanker, trainer aircraft and military helicopter developed during the last 30 years has been procured with a single engine supplier. The illustrious roster of aircraft includes the B-1, B-2, B-52, C-5, C-17, C130, F-117, F/A-18, F-14, F-15, F-22, A-10, T-38, U-2, E-6, KC-135, UH-60, AH-64 and Global Hawk. In each case, one supplier was entrusted to power a vital platform in the defense of freedom. We’ve delivered on those promises, and so has the competition.

Next, I would remind readers that multiple competitions have already taken place. Going head to head against the GE F120, the Pratt & Whitney F119, who shares it’s heritage with the F135, won the competition to power the F-22 in the early 1990s. Then, the F135 was chosen over the F136 as the preferred powerplant of both Joint Strike Fighter finalists, Boeing’s X-32 and Lockheed Martin’s X-35. When the latter won the final down-select, the F135 went forward as the chosen propulsion system as well.

As we’ve noted in the past, numerous government and independent studies have failed to substantiate opposition claims that competition yielded real savings on the split F-16 buy. A 1989 assessment titled “Competition in Defense Procurement” by Donald Pilling from the Studies in Defense Policy, concluded that savings can only be found if you don’t include the initial development costs of the competing engine. For that reason, splitting the F-16 engine buy never produced cost savings.

Why don’t the rules of consumerism apply? Because military aircraft engines are not commodities; their complex development cannot operate in a “bargain basement” free market when lives are at stake. The U.S. has learned this lesson several times. Following the cold war, Congress drove the price of submarines sky high by legislating competition in the submarine market. In order to avoid those costly mistakes again, the US Government generally does not compete major weapon systems programs after a winning design is selected. It’s even worse for the lead and alternate engine for the F-35 since by design, the engines are identical. Splitting that buy might drive overall costs up, as all parties strive to ensure profitability in light of lower unit sales that impact the entire supply chain.

However, one important lesson we can learn from the free market about competition is that it is usually customer-driven. Yet, none of the F-35’s primary customers want an alternative engine: not President Bush, President Obama, Secretary of Defense Gates, or the leadership of the U.S. Navy, U.S. Marine Corps, U.S. Air Force or the international partner countries.

Concerned about unnecessary costs associated with duplication in manufacturing and test facilities, training and logistics systems, and knowing this is a “buy to budget” world stressed with urgent fiscal needs to support two ongoing wars, the Joint Program Office has stated that 50 F-35 jets might have to be sacrificed to continue funding the alternative engine. Even worse, any future Component Improvement Program dollars and future performance upgrade program dollars will either be split between two engines, lessening their impact, or have to be doubled at the expense of something else in the DoD budget. To return the $2.9B of additional investment in the alternate engine, each and every F136 would have to be produced for $1-2 million less than the F135, in order for the government to even have a hope of breaking even in 30 years or so. These assumptions, as both Ash Carter and Secretary Gates have pointed out, are unrealistic.

Supporters of the backup engine also argue that competition yields non-monetary benefits such as increased safety, reliability and contractor responsiveness. These points can, once again, be entirely refuted in the F119/F-22 story. Before the dust had even settled on the “Great Engine War,” the U.S. Government awarded Pratt & Whitney the sole-source contract to power the F-22, after a head to head competition with GE. Not only is the F119 engine the safest, most reliable fighter engine ever fielded, the Performance Based Logistics contract under which the program is executed incentivizes the contractor to perform. The F119 has met its cost targets, safety and reliability targets, readiness targets, and the customer is very satisfied. This success story has been ongoing for the last 19 years. To get to the “Great Engine War,” you have to skip over these 19 years of exceptional engine safety and reliability, as well as very responsive and customer-focused program execution on behalf of Pratt & Whitney.

Gen Schwartz said it best when he said, “we’re not in the 1980s any longer, where high performance engines had suspect reliability.” His case in point was that DoD decided to develop only one engine for the F/A-18 and F-22 aircraft. Today’s jet engines are safe and reliable right out of the box. Improvements in safety and reliability come from continued investment in trouble shooting and fixing field problems. Also, contractor responsiveness can be ensured through the use of any of a number of proven, effective contracting tools to incentivize excellent contractor performance which is billions cheaper then funding a duplicative alternate engine.
On the tails of the college basketball playoffs, it should be easy to appreciate that a losing team doesn’t get an endless series of do-overs. That’s especially true when they will cost the taxpayer nearly $3 billion on top of what’s already been wasted at the expense of our warfighters with precious little to show when all is said and done.

-- EagleBlogger