February 6, 2006

Bush scraps F-35 engine over British protests

By Andrea Shalal-Esa and Jim Wolf

WASHINGTON (Reuters) - Despite British objections President
George W. Bush's 2007 budget request scraps a $2.4 billion deal
with General Electric Co. and Britain's Rolls-Royce to develop
a second engine for the F-35 Joint Strike Fighter, a top
program official said on Monday.

The new radar-evading fighter, the Pentagon's costliest
warplane project at $256 billion, is being developed by the
United States, Britain and seven other international partners
to replace a wide range of U.S. and foreign fighter jets.

The Pentagon had planned to offer a choice of engines for
the first F-35s, but mounting budget pressures and high war
costs led it to opt for a single engine supplier.

The move prompted personal appeals from British Prime
Minister Tony Blair, who unsuccessfully pressed Bush to reverse
the decision in two videoconferences and a letter.

"The GE motor is not in the president's budget," Brig. Gen.
C.R. Davis, deputy program executive officer for the JSF
program, told Reuters in a telephone interview. "That's the
only major change to our budget," he added.

British embassy spokesman Jonathan Hoyle said Britain would
back efforts by GE and Rolls-Royce to restore funding when
Congress considers Bush's budget request later this year.

"Clearly, we're disappointed," he said. "We just think that
seven years ahead of the in-service date, it's too early to be
putting all of your eggs in one basket."

CBI, an industry group for British companies, on Monday
said, "Short-term cost-cutting puts this important program at
risk in the longer-term."

"That's not a great message to send to your most loyal
international business partner and best friend in an uncertain
world," said CBI director Digby Jones.

Britain plans to buy up to 150 of the JSF's short-takeoff,
vertical-landing variant to replace Harrier jump jets on two
new aircraft carriers it is building.

The president sent Congress a federal budget proposal for
fiscal 2007, which begins on October 1. Lawmakers will spend
coming months debating and finalizing a budget for all federal
departments, including the Pentagon.

Pratt & Whitney, a unit of United Technologies Corp, is
building the engine that is due to go into the first new
radar-evading F-35 fighter jet being developed by Lockheed
Martin Corp..

GE and Rolls-Royce won the contract to develop the second
engine in July. It was due to run through September 2013.

Davis said the JSF program still faced "developmental
challenges," but was on track to fly its first aircraft
sometime after August.

He noted that the Pentagon's decision to scrap the second
engine reflected an increasingly difficult budgetary situation,
but some U.S. lawmakers argue that an alternate engine could
boost competitiveness and save money in the longer run.

Defense analyst Richard Aboulafia of the Virginia-based
Teal Group said the Pentagon may have targeted JSF in the hope
that Congress would reverse the cut.

"I'm going to bet that this thing has some political
traction, and a very good chance of being reinserted in the
long-term," said Aboulafia.

General Electric shares traded 15 cents lower at $32.70 on
the New York Stock Exchange on Monday. Rolls-Royce shares
closed 1-1/2p lower at 443-1/2 in London trading on Monday
after hitting a record high close of 444-3/4p on Friday.