General Electric Calls It Quits

It's all over but the crying... and the writedowns and recriminations.

Over the weekend, General Electric (NYSE: 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 (NYSE: LMT  ) F-35 have come to naught. Now, United Technologies (NYSE: 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 (NYSE: NOC  ) is still building jetplanes. Boeing (NYSE: 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.

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.


Read/Post Comments (3) | Recommend This Article (5)

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  • Report this Comment On December 05, 2011, at 4:12 PM, kishkoshi wrote:

    The real problem with GE today is that it is managed (really mismanaged) by a self-acclaimed strategic planner! His strategy for growth has mired GE into Mediocrity. His overall performance record speaks for itself. Since he took over from the mercurial Welch, acclaimed as the entrepreneur of the previous century, Immelt has emerged as Dummy of this century. Name one top corporate US executive who has as dismal a record of achievement (lack of) and is still in charge of a former premier company in America. GE Stockholder value has plunged from $60 to $16! and he got promoted to the position of Chairman and CEO. Throw the Bum out, along with the lackey Board of Directors.

  • Report this Comment On December 05, 2011, at 5:13 PM, havvey wrote:

    The world does not need this f- whatever plane anyway, put the money to better use

  • Report this Comment On December 06, 2011, at 3:05 PM, akakroke wrote:

    Having owned Standard Tool & Die Co, Inc., a primary supplier of precision parts for jet fuel controls (among other things) to the Hamilton Standard division of United Aircraft which became United Technologies, I vouch for the quality and expertise of these systems. I remember when GE/Rolls-Royce entered the scene as well. UA/UT was a well run corporation producing safe, cost effective solutions to the aerospace industry. All the more power to them!

    Akakroke

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