ROME and WASHINGTON\u00a0\u2013\u00a0The collapse of the deal between Raytheon and Italy’s Leonardo to offer the T-100 jet trainer in the US T-X competition followed Leonardo’s inability to cut the price of the aircraft by nearly a third, Italian sources have told Defense News.
The second source added that Raytheon wanted to reduce the price by\u00a025-30 percent.<\/p>\n\n\n\n
The first source sympathized with Leonardo over the price wrangle, stating, “Raytheon saw price as key to competing, but perhaps didn\u2019t fully understand the cost of the plane, not being an aircraft manufacturer.”<\/p>\n\n\n\n
“Leonardo really worked on pricing,” he added.<\/p>\n\n\n\n
A US source with knowledge of the discussions confirmed that the final price per plane was the sticking point, saying Raytheon\u2019s target figure was “several million” less than Leonardo was willing to accept. The issue remained one of contention for several months, the source added.<\/p>\n\n\n\n
Raytheon declined to comment on its split from Leonardo beyond a company statement released yesterday, which attributed the breakup to the fact that the\u00a0“companies were unable to reach a business agreement that is in the best interest of the U.S. Air Force.”<\/p>\n\n\n\n
Richard Aboulafia, an analyst at the Teal Group, said it was no secret that cost was crucial in the T-X bid.<\/p>\n\n\n\n
“And it\u2019s no secret the M-346, with a fly away cost of about $25 million, is an expensive plane \u2014 about the same price as the T-50,” he said.\u00a0“For the M-346, which lags on some specifications including Gs, price was doubly important and they needed to hit the $15-18 million zone.”<\/p>\n\n\n\n\n\n
Aboulafia said Leonardo may have been partly to blame for the high price: “Italy has a fundamentally high cost structure, with high labor costs and rigid labor terms. Dependence on a home market can make you less entrepreneurial.”\u00a0But he also suggested Raytheon\u2019s lack of recent experience in aircraft building may have limited the efficiency of its planned US line, making Leonardo shoulder more of the burden on cost.<\/p>\n\n\n\n
“Lockheed Martin has the ability to set up a production line, Raytheon less so since it has not built an aircraft in 15 years. It was not clear what they would be doing and this will have put more pressure on the Italians.”<\/p>\n\n\n\n
Leonardo may also have been wary of the deal it would get from a win, the first Italian source noted. Future export sales of the aircraft would have been via the US FMS program, which brings a sacrifice in revenue through the whole life of the program; volumes go up but margins go down.<\/p>\n\n\n\n
“The flipside however is that Leonardo might have sold up to 600 aircraft combining US and FMS sales,” the first Italian source added. “How many will they sell now?”<\/p>\n\n\n\n
Leonardo said on Wednesday it was looking at competing in the T-X competition despite the break-up with Raytheon. Unless it can find another major US prime to team with, its prospects, however, will be weaker.<\/p>\n\n\n\n\n\n
The break-up follows over a decade of mishaps for Leonardo, formerly Finmeccanica, in the US. Sales of its C-27J were cancelled while it teamed with Lockheed Martin to sell its AW101 helicopter as the new White House helicopter, only for the contract to be scrapped.<\/p>\n\n\n\n
“The US101 disaster was due to requirements creep on steroids,”<\/p>\n\n\n\n
said Aboulafia. “The C-27J debacle was due to an Army-Air Force aviation turf war. Still, this series of otherwise unrelated setbacks must be quite demoralizing for Leonardo.”<\/p>\n\n\n\n
A former Italian government minister took aim at Raytheon on Thursday, blaming it for the divorce.<\/p>\n\n\n\n
“Raytheon knew how much the aircraft cost a year ago \u2014 they could have avoided making this decision so close to the US decision,” said Guido Crosetto, a former Italian junior defense minister and now the head of \u00a0the\u00a0\u00a0Italian Industries Federation for Aerospace, Defence and\u00a0Security.<\/p>\n\n\n\n
“Raytheon has not behaved correctly. Leonardo must participate in the competition, but how? Moreover, after the C-27J and the US101, this becomes a political problem with the US,” he said.<\/p>\n\n\n\n
Aaron Mehta and Valerie Insinna contributed to this report.<\/i><\/p>\n","protected":false},"excerpt":{"rendered":"
The collapse of the deal between Raytheon and Italy\u2019s Leonardo to offer the T-100 jet trainer in the US T-X competition followed Leonardo\u2019s refusal to cut the price of the aircraft by as much as a third, Italian sources have told Defense News.<\/p>\n","protected":false},"author":7,"featured_media":35484,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_yoast_wpseo_meta-robots-noindex":"","_yoast_wpseo_meta-robots-nofollow":"","_yoast_wpseo_canonical":"","_acf":"","_yoast_wpseo_primary_category":37,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","_smg_distribution_targets":[]},"categories":[7,37,46,11,26],"tags":[],"coauthors":[3345],"class_list":["post-38156","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-air","category-breaking-news","category-europe","category-global","category-training-sim"],"acf":{"subheadline":"","legacy_arc_id":"LSA4CE64H5AT5ODGNEYFIVTPRE","arc_canonical_url":"\/breaking-news\/2017\/01\/26\/trainer-price-wars-raytheon-wanted-millions-less-per-plane-than-leonardo\/","remove_feature_photo":false,"is_sponsored":false,"subtype":"","redirect_url":"","disable_inline_ads":false,"native_logo_pretext":"Presented By:"},"yoast_head":"\n