WASHINGTON (Reuters) â€" A new government report boosts the case for completion of General Electric Co's alternate engine for the multinational F-35 Joint Strike Fighter jet, the head of the Senate Armed Services Committee said.
The issue has become a political hot potato for President Barack Obama, who has vowed to veto any legislation that would fund the second engine over Pentagon protests.
The radar-evading warplane is the U.S. military's biggest acquisition program, projected to cost up to $382 billion for 2,457 aircraft through 2036.
Pratt & Whitney, a United Technologies Corp unit, builds the engine powering early-production F-35s. GE's interchangeable unit would vie for the market, valued at $100 billion over coming decades.
Lawmakers for years have rejected Pentagon efforts to end the alternate program, touting the benefits of competition and aiming to preserve manufacturing jobs in their districts.
A September 15 report by the nonpartisan Government Accountability Office, the audit and investigative arm of Congress, found that the engine being built by GE and minority partner Rolls Royce Group Plc of Britain may cost less than $2.9 billion, the Pentagon's estimate.
GE contends it needs about $1.8 billion in additional funding.
Anything tending to cut the near-term costs of the competitive engine "would tend to tip the economics in favor of competition," Armed Services Committee Chairman Carl Levin said in a statement on Thursday.
More than 3,000 F-35s are projected to be bought by the United States and partner nations. Lockheed Martin Corp is building three F-35 versions. It says the fighter will replace at least 13 types of warplanes, initially for 11 nations.
Obama, in a May 28 statement, said he stood squarely behind Defense Secretary Robert Gates' repeated efforts to kill the alternate engine on the grounds it was unnecessary and unaffordable. Gates is campaigning to shift roughly $100 billion over five years from what he views as wasteful and duplicative spending. He would use the savings to update the U.S. arsenal.
Obama's veto threat came just after the Democratic-led House of Representatives adopted its version of a fiscal 2011 defense spending bill that included $485 million for the second engine so that it may ultimately compete for orders.
Proponents say it will save money in the long run by forcing rival suppliers to pare prices as they compete for sales. A second engine is also a kind of insurance policy in case of a snafu that might otherwise ground the entire F-35 fleet.
On Thursday, the Senate Appropriations Committee, in its version of a 2011 Defense Department spending bill, included no money for the alternate engine, siding with the White House and Pentagon. The matter still faces a vote in the full Senate.
House-Senate differences on the matter will have to be resolved before a final bill may be sent to Obama.
The Government Accountability Office, in its new report, cast doubt on the Pentagon's projection that GE's engine would require $2.9 billion more in taxpayer funding over the next six years to get to the point where it could compete in 2017.
This does not entail "the same level of fidelity and precision normally associated with a detailed, comprehensive estimate," the report said.
Levin, a Michigan Democrat who is a second-engine advocate, said he considered the GAO's observations as adding to "economic arguments in favor of competition."
The Defense Department noted in response that the GAO had provided examples of ways in which the Pentagon's $2.9 billion estimate could be too high, and suggested it had unduly played down a 50-50 chance that this could just as well be too low.
"... it is generally silent with respect to a number of plausible scenarios in which the estimate of the cost would be higher than the $2.9 billion figure," Geoff Morrell, the Pentagon press secretary, said by email.
More than $4 billion has been invested in the F-35's development by eight U.S. partners: Britain, Italy, the Netherlands, Australia, Turkey, Canada, Norway and Denmark.
Credit Suisse, in a note to investors Thursday, said the GE/Rolls Royce engine probably would lose its funding given the Pentagon's budget belt-tightening "and Gates' extreme opposition" to it.
(Reporting by Jim Wolf; editing by Matthew Lewis, Gary Hill and Bernard Orr)
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