Exclusive: United Tech, Pentagon in $1 billion-plus deal for F-35 engines

Third Marine Aircraft Wing's first F-35B arrives on the Marine Corps Air Station Yuma flightline, in Yuma, Arizona, in this U.S. Marine Corps handout photo taken November 16, 2012.

Credit: Reuters/U.S. Marine Corps/DVIDS/Lance Cpl. William Waterstreet/Handout

By Andrea Shalal-Esa

WASHINGTON | Mon Aug 26, 2013 1:42pm EDT

WASHINGTON (Reuters) - Pratt & Whitney, a unit of United Technologies Corp, has reached an agreement in principle with the Pentagon on a contract to build 39 engines for a sixth batch of F-35 Joint Strike Fighters, three sources familiar with the deal said on Monday.

The agreement - which Pratt had expected to reach over a month ago - is valued at more than $1 billion, said the sources, who were not authorized to speak publicly.

The Pentagon agreed on the terms of a contract for the sixth and seventh orders of F-35s with Lockheed Martin Corp, which builds the jets, in late July. The government buys the engines separately from Pratt & Whitney, which is the sole producer of engines for the radar-evading warplane.

The negotiations between Pratt and the Pentagon's F-35 program office had focused only on engines for the sixth batch, with separate discussions planned for a seventh batch of F135 engines.

Pratt President Dave Hess had told Reuters in June that he expected to reach a deal with the Pentagon within 30 days on the next engine contract, reflecting a cost reduction of less than 10 percent.

No further details were immediately available about the new agreement in principle, which the sources said was reached by Pratt and government officials last week but which has yet to be announced.

Officials at Pratt and the Pentagon's F-35 program office had no immediate comment on the deal, whose terms will now be finalized in coming weeks and months.

Pratt has said the cost of the F135 engine it builds for the F-35 fighters is down about 40 percent from 2001, when the program began. The company finalized a $1 billion deal for a fifth batch of 35 engines with the Pentagon in May.

The sixth engine contract includes 39 engines - 36 for F-35 planes and three spares, according to Pratt & Whitney.

Hess told Reuters in June that F-35 engine sales would account for more than 50 percent of the company's military engine revenue in coming years, when production ramps up, reaching $2 billion by around 2018.

Hess said that last year, military engine revenue accounted for about $4 billion of Pratt's total revenue of $14 billion.

Shares of United Technologies were up 0.6 percent at $103.41 on Monday morning on the New York Stock Exchange.

(Editing by Gerald E. McCormick and Matthew Lewis)

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Exclusive - Former Air Force secretary to lead Pentagon efficiency review

U.S. Air Force Secretary Michael Donley answers questions during the Reuters Aerospace and Defense Summit in Washington, in this December 14, 2009 file photo.

Credit: Reuters/Stelios Varias/Files

WASHINGTON | Tue Aug 27, 2013 6:41pm BST

WASHINGTON (Reuters) - Former Air Force Secretary Michael Donley will lead a major review of the Pentagon's organizational structure aimed at cutting headquarters costs by almost $40 billion (25 billion pounds) through fiscal year 2023, according to a document signed by Deputy Defense Secretary Ashton Carter.

Carter told key Pentagon officials in a memo dated Monday that he had asked Donley to submit his findings and recommendations for Defense Secretary Chuck Hagel's consideration by the end of September, said the official, who was not authorized to speak publicly.

Carter announced plans to bring in an outside expert last month when he unveiled the results of a four-month strategic review and announced plans to cut Pentagon headquarters costs by 20 percent.

At the time, he said implementing such cuts could be very challenging and the Pentagon needed an outside expert who was "deeply knowledgeable about the defense enterprise and eminently qualified to direct implementation of the ... reductions."

The U.S. military is grappling with massive mandatory spending cuts that could reduce the Pentagon's overall budget by $500 billion in the next decade, on top of $487 billion in cuts already planned.

Donley retired as the top civilian leading the Air Force at the end of June. He worked closely with Carter, who served as the Pentagon's acquisition chief before moving into his current job, when they managed a controversial competition to buy new refuelling planes for the Air Force.

(Reporting by Andrea Shalal-Esa; Editing by Bill Trott)

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Exclusive: United Tech, Pentagon in $1 billion-plus deal for F-35 engines

Third Marine Aircraft Wing's first F-35B arrives on the Marine Corps Air Station Yuma flightline, in Yuma, Arizona, in this U.S. Marine Corps handout photo taken November 16, 2012.

Credit: Reuters/U.S. Marine Corps/DVIDS/Lance Cpl. William Waterstreet/Handout

By Andrea Shalal-Esa

WASHINGTON | Mon Aug 26, 2013 1:42pm EDT

WASHINGTON (Reuters) - Pratt & Whitney, a unit of United Technologies Corp, has reached an agreement in principle with the Pentagon on a contract to build 39 engines for a sixth batch of F-35 Joint Strike Fighters, three sources familiar with the deal said on Monday.

The agreement - which Pratt had expected to reach over a month ago - is valued at more than $1 billion, said the sources, who were not authorized to speak publicly.

The Pentagon agreed on the terms of a contract for the sixth and seventh orders of F-35s with Lockheed Martin Corp, which builds the jets, in late July. The government buys the engines separately from Pratt & Whitney, which is the sole producer of engines for the radar-evading warplane.

The negotiations between Pratt and the Pentagon's F-35 program office had focused only on engines for the sixth batch, with separate discussions planned for a seventh batch of F135 engines.

Pratt President Dave Hess had told Reuters in June that he expected to reach a deal with the Pentagon within 30 days on the next engine contract, reflecting a cost reduction of less than 10 percent.

No further details were immediately available about the new agreement in principle, which the sources said was reached by Pratt and government officials last week but which has yet to be announced.

Officials at Pratt and the Pentagon's F-35 program office had no immediate comment on the deal, whose terms will now be finalized in coming weeks and months.

Pratt has said the cost of the F135 engine it builds for the F-35 fighters is down about 40 percent from 2001, when the program began. The company finalized a $1 billion deal for a fifth batch of 35 engines with the Pentagon in May.

The sixth engine contract includes 39 engines - 36 for F-35 planes and three spares, according to Pratt & Whitney.

Hess told Reuters in June that F-35 engine sales would account for more than 50 percent of the company's military engine revenue in coming years, when production ramps up, reaching $2 billion by around 2018.

Hess said that last year, military engine revenue accounted for about $4 billion of Pratt's total revenue of $14 billion.

Shares of United Technologies were up 0.6 percent at $103.41 on Monday morning on the New York Stock Exchange.

(Editing by Gerald E. McCormick and Matthew Lewis)

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