General Electric Calls It Quits
Dec 5th 2011 3:07PM
Updated Dec 5th 2011 3:14PM
It's all over but the crying... and the writedowns and recriminations.
Over the weekend, General Electric (NYS: GE) and its partner-in-engineering Rolls Royce announced that they are officially killing the F-136 jet engine. Fifteen years (and more pertinently, hundreds of millions of dollars) of work developing an "alternative engine" to equip the Lockheed Martin (NYS: LMT) F-35 have come to naught. Now, United Technologies (NYS: UTX) is left unopposed in the race to collect billions of dollars of revenue, building engines to equip the nation's new fifth-generation fighter jet.
Explaining the program's closure, GE blamed "continued uncertainty in the development and production schedules for the JSF Program." Don't believe it. The truth of the matter is that Congress has been trying to kill off the F-136 program for five years now, despite being stymied at every turn by legislators from the states in which GE was hoping to build the engine. Ultimately, the company had to offer to foot the bill for developing the engine itself, eating a potential $100 million a year in development costs in hopes of eventually twisting enough legislative arms to win itself a deadhead's chair on the F-35 program.
Now it's that hope that's dead -- and that's a shame.
Beggars can't be winners
It's a shame not because GE won't win a spot on the F-35 -- which already has a perfectly good engine, and one that doesn't need billions of dollars more to develop -- but because the F-136 was so close to completion that it could have worked on other planes. For all the talk that the F-35 is the nation's "last manned fighter jet," Northrop Grumman (NYS: NOC) is still building jetplanes. Boeing (NYS: BA) , too.
Heck, over in Japan, there's a $4 billion dogfight brewing right now over the right to replace that country's fleet of F-2 fighter jets with new offerings from Boeing, Lockheed, or Eurofighter. If GE had managed to get its F-136 done on time -- and if the engine would have been as good as its backers have argued it is -- then offering it as part of a Japanese defense package might have helped swing the competition in America's favor.
Instead, Lockheed must now try to sell Japan on the attractions of the F-35 with only one engine-offering to support its bid. And if Lockheed wins, the spoils will go to only one engine-making victor: United Technologies.
Can GE's Aviation division bounce back from this setback? Add the stock to your Watchlist, and we'll keep you up to date on events as they unfold.
At the time this article was published Fool contributor Rich Smith does not own (or short) shares of any company named above. The Motley Fool owns shares of Northrop Grumman and Lockheed Martin. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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