Defense Spending

GE, Pratt & Whitney, and a Big-Bucks Media War


For four years, General Electric (GE) has defied the Pentagon and persuaded Congress to fund a backup engine for the F-35 Joint Strike Fighter. The ongoing, $382 billion weapons program is the most expensive in U.S. history. Defense Secretary Robert M. Gates and Pratt & Whitney (UTX), the F-35's primary engine maker, are asking Congress not to set aside $485 million for the alternate GE engine in this year's defense budget. If that happens, GE fears it would effectively end the company's involvement in the fighter engine market, estimated at $100 billion.

What's a defense contractor to do? Answer: Borrow a page from the politicians' playbook by running millions of dollars of radio and newspaper ads. Toss in some YouTube (GOOG) videos, tweets, and Facebook pages. And mobilize workers and pensioners to conduct a letter-writing blitz. "It's absolutely a political campaign, there's a winner and loser here," says Evan Tracey, president of Campaign Media Analysis Group, a unit of New York-based Kantar Media.

The campaign seems to have had some effect. On May 27 the House voted to include funds for the GE backup engine in its bill authorizing defense spending. For that reason, President Obama threatened to veto the measure the next day. The Senate Armed Services Committee, on the same day as the House vote, sided with the Pentagon and left the money out. If the full Senate agrees, says Senator Carl Levin (D-Mich.), chairman of the committee, a joint House-Senate conference will resolve the matter. Last year, when there was a similar House-Senate disagreement, the Senate quietly acquiesced to the House's decision to authorize $465 million for the backup engine.

This year's Pentagon scrap began when Gates rejected funding for GE's engine, which he considers a wasteful program, in the annual budget he sent Congress in February. Gates wants to rely solely on Pratt & Whitney, whose contract lets it supply engines through 2016 to Lockheed Martin (LMT), the builder of the jet. Even before that date, GE hopes to persuade the Pentagon to open up competition for the fighter jet engine, ahead of hundreds of new plane orders by the U.S. and its allies.

GE says competition will force Pratt, a unit of United Technologies, to lower its costs and save the Pentagon money in the long run. Pratt doesn't like letting its rival get a share of the market and ran full-page newspaper ads saying that GE's engine would cost taxpayers an additional $2.9 billion, a figure GE disputes as too high. Instead, the company says it will need $1.8 billion more to complete development work, on top of the $2.9 billion it has already received from the Pentagon.

GE attacked Pratt's program in radio and newspaper ads, citing Government Accountability Office estimates that Pratt's engine is 50 percent over budget. On May 18, the Fairfield (Conn.) company also created a Facebook page for its engine. Its 10,078 fans helped generate 36,000 letters to lawmakers, says Rick Kennedy, a GE spokesman. That doesn't include the 435 notes sent by Chief Executive Officer Jeffrey R. Immelt to all members of the House. Pratt & Whitney already had a Facebook page set up from the previous year; its 1,451 supporters assisted in sending 10,000 letters to members of Congress, says Pratt spokeswoman Erin Dick.

GE, whose engine is made in partnership with London-based Rolls-Royce Group, outspent Pratt in traditional media outlets, according to Tracey, who estimates that GE spent about $450,000 on ads in The Washington Post, The New York Times, USA Today, and Congressional Quarterly targeting lawmakers. Pratt likely spent about $250,000 on newspaper ads, Tracey says. GE also ran radio spots across the country, including on Washington's WTOP news station and WBT, the Charlotte (N.C.) news talk station.

Overall, GE has spent "millions of dollars" on the campaign, including radio and print ads in Michigan, Ohio, Massachusetts, and Indiana, Kennedy says, declining to give a specific amount. The campaign was in part to alert employees and pensioners across the country in states where the company has large operations. Pratt spokeswoman Dick also declined to say how much it spent, except that it was likely less than General Electric.

GE is mobilizing its army of 134,000 U.S. employees and the 635,000 current and former workers covered by its pension plans. The aim is to drum up enough congressional support for the defense measure—and avert a Presidential veto.

The bottom line: GE has adopted a political-style campaign to persuade Congress to continue funding the F-35 backup engine—and it just may work.

Ratnam is a reporter for Bloomberg News.
Layne is a reporter for Bloomberg News.
Capaccio is a reporter for Bloomberg News.

Toyota's Hydrogen Man
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus