ME: Is there anyway to calculate - and have you calculated - how those competitive benefits - you know, how it can improve that margin, and how many tails are you talking about, plus or minus?
HEINZ: There is no specific way. What happens is you have to make some number of assumptions. And the aussmptions are tha tcomep wil have some benefit. Now I think I will have some historic precedence, if you go back to the engines wars for the F-16. I think I can see from the timeframe of when there was no competition to the timeframe of the early years when it started there was almost a 20% price reduction. And so can I then translate that to what was the potential for f135 vs f136? I don't know but at least we should some other assumptions. ... I do believe there will be a difference in benefits from competition. I can't tell you what that will be today.
I actually believe it's okay to go forward with the premise that at some point in the future we make an assumption that says it's cost neutral and take the cost part out of the equation and weight the rest of the benefit.
REUTERS: So [reducing] operational risk is one benefit?
HEINZ: I think operational risk is one benefit. I also truly believe that you'll see much more technology push from 2 manufactures because they are always going to be competing with each other to try to win back more quantity. And part of the way you do that is you either produce more efficient blades, introduce fuel savings, you introduce thrust growth --a whole bunch of other benefits that result. Lower operating cost. More technology insertion sooner because the companies are willing to make the investment to try to get market share.
ME: To play a little devil's advocate with that -
ME: -- in the original engine war you had a single company that started out and then another company that was called on to enter the market and was funded, and then the price came down. In this case you already have two manufacturers already competing. So how would you get that - presumably, the competitive benefit has already been built in to their program since they are already in competition. And if one goes out, could the price of the one that's not in competition anymore rise 20%? Wouldn't the competitive benefit already be built into the program?
HEINZ: I think because of the difference in the development timeline that it has not yet benefited. Pratt is not truly competing with GE yet for the market share because I only have Pratt engines up through LRIP 4. or through LRIP 3. We're going to introduce, if Congress fully funds in the FY10 budget, 4 GE motors but that's four out of over 30 motors I am buying next year. So they are just beginning to have competition. My point is that I do not believe yet that Pratt feels compelled to act as though they are in competition, which they would say differently - I'm sure they would. But I think the real competition occurs when no kidding you're both making the engine, and you're both getting a chance to bid on that price in a particular lot and that's when you see the real benefit. And that's what has not yet occurred.