Friday 25 March 2011

GE to defy F136 Stop order!

Not quite as dramatic as the headline being used might sound but, following recognition that it had received a stop order from the Pentagon for the development of the F136 (second engine option to the Joint Strike Fighter program), GE has stated its intention to self fund the work, through the 90 day stop work period, as it nears completion of the engine. 

The stop order comes on the back of the senate vote of the 17 Feb as referenced in an earlier post - BAE Results and R-R Update.


In justifying its intention the company states that:
"GE said its F136 engine was meeting or exceeding performance expectations and was nearly complete, while the primary F-35 engine built by Pratt & Whitney, a unit of United Technologies Corp UTX.N had amassed $3.4 billion in cost overruns and faces continued delays."

A response from United Technologies stated that $2.7bn of the overrun is due to Pentagon changes!

Likely to rumble on for some time (5 years so far!) and one that seems to have affected the share price of R-R significantly (off its lows but still down 54p from its 52 week high of 665p). Strangely, the affect on GE has been less significant.
Both companies are likely to have had impact from the "nuclear" fallout from Japan's woes also: GE having designed the reactors in question and R-R having a stake in the UK's potential nuclear future.

because of the uncertainty, I have thought for sometime now that it would seem right to discount the F136 from R-R prospects instead focussing on the large civil engine programs: Trent 900; Trent 1000 and Trent XWB.
The company retains a place on the JSF through its lift fan manufacture and, who knows, there may still be a bonus from the F136 in the future as, at 5 years and counting, the engine could well be completed before the program is ultimately cancelled.
Would the Pentagon, and the senate, then pass up the opportunity for the potential life cycle cost savings that competing engines could bring!


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