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Takeaway: First major defense competition of 2019 pits GE vs. UTX/HNY for 6,000+ Army helo engines worth more than $5B.

On 22 January, the Army will make the "Milestone B" decision for its Improved Turbine Engine Program (ITEP) program to enter Engineering and Manufacturing Development. 

Shortly thereafter, the Army will publicly announce either GE or Advanced Turbine Engine Company (ATEC) (a UTX/ HNY joint venture) as the winner of the program designed to re-engine the Army's existing 3000+ UH-60 and Apache helicopters and equip the Future Attack Reconnaissance Aircraft (FARA), the first of its Future Vertical Lift capabilities. Production will begin in 2024 and total program value should exceed $5B. 

In 2016, GE Aviation and ATEC each received design contracts for a 3,000 HP engine that will be 50 percent more powerful, 20 to 25 percent more fuel efficient, and provide a 20 percent longer design life than the 20,000 1975-design GE T700 engines now installed around the world.  T-700 engines currently go for ~$650K and the ITEP is to remain below that cost.

ASSESSMENT:

PROGRAM RISK:  Reengining 3000+ "legacy" helicopters is not without controversy given inevitable integration issues of putting new dynamics in old airframes but the Army's massive existing fleet has steadily lost power margins as weight requirements have grown.   ITEP has been Army Aviation's number one priority for some time.  In the bigger picture, the Army is known for having far more program appetite than it can afford and it seems to now be on a path to fund two brand new  Future Vertical Lift development programs (Capability Set 1 = FARA and Cap Set 3 = medium lift) as well as ITEP all at the same time A major signal was recently sent when the Army began including ITEP as one of the Army's three "signature" programs in support of its Future Vertical Lift vision.  When it all shakes out, we think Cap Set 3 (TXT, LMT/BA) will be slowed relative to FARA and ITEP.  Bottom line: ITEP funding should be assured in the near and mid term even in a budget downturn.

TECHNICAL APPROACH.  The two companies have taken two distinctly different technical approaches to the challenge. GE has gone with a greatly improved "single spool" turbine that is similar to current small engine designs which in theory means lower risk, easier/cheaper to maintain - both essential selection criteria.  ATEC has submitted a "dual spool" design similar to large aircraft engine designs that is probably heavier but said to have more growth potential, be more efficient and better at sand ingestion.  Field maintainability of the dual spool design has been questioned but ATEC claims some degree of modularity and less overall need for maintenance.  Advantage: ATEC. 

TECHNICAL RISK.  It should be noted that when the preliminary design contracts were issued in August 2016, each of the companies received wildly different levels of funding for essentially the same scope of work.  GE received $102M while ATEC received $154M.  Given that the intent of those design contracts was to ensure that the Army would have two viable competitors for its Milestone B decision this month, one inference may be that ATEC needed more money to catch up to GE and be competitive at downselect.   It should also be noted that GE invested significant company dollars (>$100M) to produce a production-similar prototype of its ITEP submission - normally an excellent confidence builder for source selection board members.  Advantage: GE

PRICE HUNGER. We believe that GE has more to lose than ATEC given that it is the incumbent T700 manufacturer and an award to ATEC would be a direct transfer of GE market share.  We also believe that the more conventional GE design probably lends itself to having a sharper pencil when costing the development portion of the bid.  Advantage: GE.