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Pratt sees 2.5 percent or more cost cut on next F-35 engines

By Andrea Shalal-Esa

NATIONAL HARBOR, Maryland (Reuters) - Pratt & Whitney, a unit of United Technologies Corp , on Monday said it expects to drive down the cost of the F135 engines it builds for the U.S. F-35 fighter jet at least 2.5 percent, and perhaps more, in its next two production contracts.

Bennett Croswell, president of Pratt's military engines business, told Reuters the company was continuing its "war on costs" by streamlining and improving production, signing more long-term agreements with suppliers, and making changes to drive down long-term operating and maintenance costs.

Croswell said Pratt expected to match or beat the 2.5 percent reduction that it achieved on 32 of the 38 engines in a sixth production contract agreed with the Pentagon last month. A Pratt spokesman said there were about 40 engines in each of the next two production lots.

Pratt is the sole supplier of F135 engines for all three variants of the F-35 fighter jet built by Lockheed Martin Corp .

Croswell said Pratt expected to submit a proposal to the Pentagon for the seventh and eighth batches of engines by the end of September with an eye to reaching agreement on a contract by the end of the first quarter of 2014.

Pratt reached an agreement valued at over $1 billion for 28 engines in a sixth batch last month.

Croswell, speaking to Reuters at the annual Air Force Association conference, said Pratt continued to invest heavily to lower the cost of the jet engines that power the radar-evading new fighter jet.

"We've got to continue to bring the price down lot after lot. That's absolutely the focus of the team," Croswell said. "We're attacking all aspects of cost on the program."

He said the company expected to lower the cost of the common configuration engines that power both the Air Force's conventional takeoff plane and the Navy's carrier variant by "2.5 percent ... if not better."

He said Navy acquisition chief Sean Stackley had visited Pratt's main military engine plant two weeks ago to see improvements in the manufacturing process, including greater automation, Croswell said.

For example, one operator could now run three machines that milled titanium or nickel into rotors and compressors at once, which helped lower labor costs. But he said it was critical to maintain volume orders to reap those gains.

Pratt also remains in discussions with the Pentagon's F-35 program office about a proposal to start a fixed-price agreement to service the engines in 2015 or 2016, several years sooner than the 2019 start date now planned.

Croswell said the two sides needed to agree on a common baseline for the cost of operating and maintaining the engines before such a deal could be reached.

Pratt remained convinced that it would be able to extend the current projected life of the F135 engines, just as it had added about 50 percent to the projected life of its 229 engines over time.

Experts that prepare cost estimates for the government were reluctant to include such projected gains in operating and maintenance costs estimates for the engines until those gains were actually demonstrated, Croswell said.

He said Pratt's engines should be integrated into the computer-based logistics system that Lockheed is operating to coordinate servicing and spare parts for the rest of the aircraft by late 2014 or early 2015. That move should result in additional savings on operating costs, Croswell said.

(Reporting by Andrea Shalal-Esa; Editing by Carol Bishopric)

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