General Electric’s aviation unit yesterday offered taxpayers the kind of bargain they aren’t likely to get at WalMart. The company proposed to charge its government customer a mere $2 billion for the first lot of an item that the customer insists it doesn’t want at all. The item in question is GE’s “alternate engine” for the F-35 fighter, an engine that the Bush and Obama Administrations have both said is a waste of money. The primary engine for the F-35 is already being produced by the Pratt & Whitney unit of United Technologies, which won a series of competitions against GE for the right to build the system. Not satisfied with that outcome, GE convinced members of Congress whose states would be rewarded with jobs to include money for its engine in defense budgets. Now it is proposing a fixed price on the first 150 of its unneeded engines that is much higher than the cost for the same number of Pratt & Whitney engines would be.
This is a classic case of how big companies twist high-minded ideas to serve their business interests. GE claims that its alternate engine will enable the government to have cost-saving competitions across the lifetime of the F-35 program, saving taxpayers billions of dollars. What it leaves out of its talking points is that the government would first have to pay for two production lines, two supply chains and two workforces to build the competing engines, and then split the annual buys between two teams in a way that would eliminate any economies of scale. Once fielded, the two engines would require separate sets of spare parts, separate maintenance procedures, and other redundant items that would increase rather than decrease the cost of operating the plane.
GE’s announcement of its bogus bargain price yesterday cited a Government Accountability Office study projecting savings from competition, but it failed to mention two other government studies conducted at the same time that found no basis to expect savings. As Pentagon spokesman Geoff Morrell commented recently, “the department certainly is not convinced that the speculative benefits of competition will offset the very real upfront and ongoing costs of pursuing an extra engine.” GE’s engine is already providing empirical support for that concern, because after experiencing multiple failures in its first 50 hours of testing, parts of the engine are being redesigned. In contrast, the Pratt & Whitney engine has accomplished over 17,000 hours of testing, has met all government requirements for operational use, and is already being delivered to the military.
General Electric points out that the cost of the Pratt & Whitney engine has gone up since the program began, but somehow manages to omit the fact that most of the cost rise results from a government decision to increase the thrust of the engine. That’s not a problem, it’s a reflection of the fact that the Pratt engine has potential for further enhancements throughout its service life as new technologies and mission needs arise. But if the government is forced to buy two engines, it will be harder to introduce upgrades because the two engines must be interchangeable and deliver the same performance. So buying competing engines could actually slow the introduction of new performance and safety features, and it definitely will increase the cost of fielding them. But that’s a small price to pay for assuring that GE continues to get the government subsidies it needs so it can afford all those commercials explaining how it is saving the planet.
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