Canada stirs F-35 controversy after sole-source plans leak

The Toronto-based Globe and Mail headline today says “Harper bending to US on sole-source fighter purchase, documents reveal“.

If you’re familiar with the sensitivity of US-Canadian relations, especially when viewed from north of the border, you know that headline is aimed at striking an emotional bulls-eye in Ottawa.

According to the article, leaked documents apparently show Canadian cabinet ministers are being pressured to dispense with competition and award a sole-source contract to Lockheed Martin for 65 F-35s.

Boeing and Eurofighter have been angling to open the CF-18 replacement contract to competitive bidding, as I reported from Ottawa last June. At that time, these erstwhile competitors both expected the Canadian government to make a decision within the year. If the Globe and Mail’s sources are to be believed, the time is apparently coming to an immediate head.

The Globe and Mail’s leaked documents reportedly show the acquisition cost for 65 F-35s will be $8.9 billion, which averages $135 million per aircraft. That’s interesting because Canada is among the last three F-35 international partners expected to order jets, starting in 2014.

Below is a briefing presented in Canada in May 2009 by Keith Knotts, Lockheed Martin’s top salesman in Canada and the UK. Slides 10-18 describe Canada’s stake and potential future in the F-35 program.

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25 Responses to Canada stirs F-35 controversy after sole-source plans leak

  1. Mike 11 June, 2010 at 1:32 pm #

    $135 million per aircraft is Canadian dollar or USD, Stephen ? regards…

  2. M. KIM 11 June, 2010 at 1:36 pm #

    dear stephen, the cost based on Canadian $ or USD ? regards…

  3. Stephen Trimble 11 June, 2010 at 1:41 pm #

    It’s presumably Canadian, but the currencies are roughly equivalent. A three-cent difference between the “Loonie” and the greenback. So knock a few million off the price to convert into US dollars.

  4. Robert 11 June, 2010 at 3:51 pm #

    So much uncertainty ahead yet so much at [money?] stake that the JSF team has been bending the elbows of American’s closest ALLIES in order to secure potential sales.

    This is nothing like the NATO-F16 willing partnership program that the JSF tries to emulate. This is awful.

  5. Deaks2 11 June, 2010 at 4:25 pm #

    Actually, the $9 billion CAD includes the 30+ year service contract, the cost for procurement is $4.5 billion CAD, so roughly $70 million per aircraft.

  6. Stephen Trimble 11 June, 2010 at 4:30 pm #

    Globe and Mail article says differently. It says $9B for acquisition + nearly $7B for sustainment + $9B to operate for 20 years.

  7. RunningBear 11 June, 2010 at 4:38 pm #

    I applaud the common sense of Canada to seek the F-35, rhetoric aside, it will be sending up its airmen to defend and protect its country in the “best” a/c available. By the time the book keepers determine the actual cost versus the political cost, the penny pinchers will have been long dead and buried. As a taxpayer, I demand relevancy to cost and that the government determine that we get what we pay for.

  8. SMSgt Mac 11 June, 2010 at 5:41 pm #

    Steve, You may want to recheck your $ addition. Be careful not to double count items that can fall under sustainment and operations. O&S costs are usually listed as one number together.
    Interesting how the G&M refers to the JSF ‘competitors’ when the F-35 has no direct competitor – unless the buyer doesn’t need Low Observability, enhanced situational awareness or high interoperability with other systems and allied forces. Also interesting, is how the article noted bigger cost ‘offsets’ than in the the public brief you provided, and how no one seems to ever give the projected ‘net’ cost, i.e. the cost to buy and operate minus the workshare $ that comes back to you from all the work on all the delivered aircraft to all of the customers. It appears that Canada may get the best ROI of all the F-35 partners based upon their ‘best athlete’ suppliers.

  9. Stephen Trimble 11 June, 2010 at 5:45 pm #

    SMSgt Mac … I understand exactly what you’re saying. I’m just relaying what the article says. You can read what it says, too. And the article, quoting government documents, says there are three different cost categories, with the values as described. It’s possible the Globe and Mail reporter misunderstood it. But that’s what the article says.

  10. SMSgt Mac 11 June, 2010 at 5:45 pm #

    p.s. ‘RunningBear’ may be geting a ‘Reed Buisiness’…server error message. I get one and assume others are too. I advise to just ignore it and check later to see if your post took hold.

  11. Stephen Trimble 11 June, 2010 at 5:51 pm #

    Apologies, guys. Our servers are based in London, and the UK networks are apparently getting pummeled by World Cup coverage today.

  12. Deaks2 11 June, 2010 at 9:43 pm #

    Hmm, curious. The numbers I saw last fall were $9 billion total program cost… I’ll have to have a chat with the fellow who is doing the costing.

  13. Atomic Walrus 11 June, 2010 at 11:40 pm #

    This game has been played out several times in Canada over the past few years. Each time, the Armed Forces picks a piece of gear that they think best suits their requirements, and each time the aerospace industry raises a stink about the lack of a competition. Unfortunately, the Canadian aerospace industry hasn’t got a lot of pull with the current government, and the Armed Forces have finally realized that they don’t do themselves any favours by insisting on special Canadian versions of everything. Ask EADS how their lobbying worked for the C-17 & C-130 purchase…

  14. Uwe 13 June, 2010 at 4:42 pm #

    diffuse errors in comment submission is a long standing issue. I tend to get most of the permutations:
    Submit, no error and have the comment appear,
    submit, with error and have the comment appear,
    submit, with error and have the comment not appear ;-)
    submit, no error and have the comment vanish without a trace.

    other issues are database related: when clicking “home” instead of the “home” page with the most recent news
    I get a page not found error.

    Then writing to the editor too seems to vanish without a trace.

    IT performance does not really complement the journalistic
    quality and effort :-(

  15. Phil 16 June, 2010 at 3:42 pm #

    I’m afraid it’s US dollars.

    It puts individual cost at higher than both the Typhoon & Rafale, by a margin of about 20%.
    Both of these aircraft carry triple F-35s payload.

  16. Aussie Digger 16 June, 2010 at 10:18 pm #

    Hi Phil,

    I think I warned you earlier about sticker shock. Well here comes the bad news. $135m is quite a bargain, especially in relation to Rafale. Wanna guess how much a Rafale costs the French Government to acquire? Try a cool 101m Euro a piece, or according to a French audit report, 142m Euro a piece…

    The difference being that the French Ministry of Defence is doing a little figure fudging and not including the cost of Government Furnished Equipment in it’s “acquisition” price. GFE are those minor little objects like engines, radar, avionics etc, that are apparently necessary for an aircraft to fly and which the MoD buys from separate suppliers, not Dassault, so what they say is true sort of. For 101m Euro you can buy a Rafale. You just can’t buy one that flies or fights. That costs an extra 42m Euro.

    So at the current exchange rate, you are looking at USD $172m to buy a Rafale capable of flying and fighting. Of course you need fuel, a pilot and airbase etc on top of that, but just a Rafale capable of flying and fighting at it’s current capability rate, costs US$174m. Even the worst estimates for JSF haven’t reached that level quite yet…

    Don’t believe me? The French admitted it themselves…

    http://www.defense-aerospace.com/article-view/feature/112431/**french-auditor-reveals-weapon-prices%2C-a400m-details-%3Ci%3E%28updated%29%3C%C2%A7i%3E.html

  17. Robert 17 June, 2010 at 1:02 am #

    Re: Aussie Digger

    The point is to invest your defense budget WISELY. It’s going to be a multi-billion-USD/Euro investment either way.

    The allies need to have clear and specific reasons to stay in JSF. Industrial participation and the vague notion of interoperability alone just won’t justify it, imo.

    Note: It is almost indisputable these days that F35 will end up costing much more than its contemporaries. What on Earth you think that’s making JSF-partners (from Canadian to UK to Dutch to the Israeli) nervous these days? Rising cost.

  18. Aussie Digger 17 June, 2010 at 11:16 am #

    Hi Robert,

    I could not agree more. Scarce defence funds should be used very wisely. Unfortunately they are not, all too often.

    However I think the JSF is done many a disservice in the media reporting of it.

    The extremely high prices reported in the media for the aircraft cannot be reconciled with the ACTUAL contracts being signed for LRIP production aircraft. The contracts have ALL been below these estimates.

    Nor can they be reconciled with public statements from persons such as Tom Burbage who insist, for example that Australia’s first 14x aircraft which are to come from the LRIP 7 production run WILL cost $60m in 2010 dollars. He also states that LRIP 4, the next production contract to be signed, will cost 25% less than CAPE/JETII estimates for these aircraft.

    Now either he is telling lies or he’s telling the truth. This means that either L-M is taking a massive hit on the cost of these aircraft OR the Estimates are incorrect, because the contracts ARE less than the estimates and the aircraft price of LRIP aircraft IS decreasing as new contracts are signed, not increasing.

    So how does one explain this apparent contradiction?

    L-M maintains the estimators are wrong and using flawed methodologies to generate these estimates. On their side, they have the signed contracts and charges for their customers to support them.

    Personally, I don’t see a lot of nerves from customers. I see quite a bit of hype in the media about this, but to date, not one contract for purchase has been cancelled and not one customer has withdrawn from the project.

    Even the massively over-hyped Dutch withdrawal several weeks ago, turned out to be a complete furphy. The “decision” to cancel the F-35 test aircraft on order by the Netherlands could not be lawfully enforced and the acting Dutch Defence Minister has already refused to do so.

    There are plenty of examples like this I could use, but why bother? People are going to believe what they want and I can wait to see how it pans out. Eventually all will be revealed, when contracts are signed and aircraft are delivered…

    Cheers,

    AD

  19. Robert 17 June, 2010 at 1:30 pm #

    @ AD

    Behind layers of commercial and accounting jargons (if not outright coercion and manipulation), three simple questions are to be answered:

    * Is JSF on schedule?
    * Is JSF on budget?
    * Is JSF justifiable beyond commercial interest?

    On the contrary, rather than simply accepting LMT’s numbers just as they are, the program NEEDS TO BE constantly and independently assessed (and aforementioned questions answered) by customers and third parties without conflict of interest alike. GAO and RAND reports come to mind.

    Of course people are going to believe what they want to believe. The hard question is whether such belief is shaped by known facts or blind faith. Cheers.

  20. Aussie Digger 17 June, 2010 at 10:21 pm #

    Robert,

    Those are interesting questions. The question of schedule is of course known. The JSF has been delayed. L-M do not make a secret of this. They have their reasons and have stated such publicly. They’ve also stated late in 2009, that the reasons for the delays have been overcome and that the testing schedule is now proceeding well. In the first 6 months of 2010, they have demonstrated this and lived up to their word. Time will tell if this is truly the case.

    Is JSF on budget? Depends what you mean exactly. Is JSF exceeding it’s yearly budget authorisation within the US? No. Do the estimates state that it will? Yes. So far the estimators have been proven wrong. We will see if this continues. I do note however that Canada, like Australia is a level 3 partner in the program and invested in SDD.

    The beauty of this decision, is that we are both insulated significantly against cost increases. We don’t have to pay our share of development costs, even if they increase, as our respective SDD investments exempted us from this. Nor do we have to pay FMS fees for this aircraft. Costs have been significantly reduced by this.

    Now Tom Burbage as I’ve stated, insisted this week that Australia will pay no more than USD$60m per airframe in 2010 dollars for it’s initial LRIP 7 aircraft. Again, time will tell who is correct, but it’s a pretty bold and public statement to make, if it turns out they instead cost $135m a piece as some suggest they will.

    Finally, is JSF justifiable beyond commercial interests? Now we’re getting difficult to judge. Again, you have to accept that perhaps the operators involved in selecting an air combat capability know what they are doing. Former ones might suggest otherwise, but then you denigrate into a ridiculous “appeal to authority” type argument that cannot provide any degree of legitimacy, based on open sourced data. Like every other manufacturer, L-M stands confidently behind the capability of it’s product. Once again, it’s bold to assume they are being deliberately misleading about F-35 capability…

    Cheers,

    AD

  21. Robert 18 June, 2010 at 7:07 pm #

    @ AD

    JSF breached the 25% cap/limit set by Nunn-McCurdy amendment.

    Hence the mandatory Congressional review a few months ago.

    Accounting and PR manipulations aside [to LMT's credit], cost overrun is still cost overrun.

    A healthy dose of skepticism is important for a defense program of this magnitude, don’t you think?

  22. Aussie Digger 19 June, 2010 at 8:43 am #

    Robert,

    Development costs did over run I agree. Canada and Australia however are both insulated against these because we chose to invest in SDD…

    However development costs are important only to those who have to pay them, surely? For purchasers of a product, as Australia and Canada will be, how important are they exactly, when we DON’T have to pay them?

    As long as someone does and the product is available when WE want it and provides the capability WE want, why is it a problem for US?

    For the USA, it might very well be problem, but JSF is not going anywhere. It has overwhelming political support…

  23. pozycjonowanie stron 28 June, 2010 at 9:16 pm #

    Super site, and niec text.

  24. Darrell 20 July, 2010 at 7:13 pm #

    wow this is great! Canada will finally have a fighter jet that can go up against that new Russian bomber, the TU-95…

  25. AUSI TAX PAYER 31 October, 2010 at 7:06 am #

    The f35 is designed primarily for the needs of the us military ,an airforce that is well endowed with arial fuel tankers and other support infrastructure ,it is not practical for the Australian airforce for many reasons and among other its ridiculous short range ,its pathetic payload ,lack of competitive manoeuvrability and insufficient top speed ,if Australian politicians had the guts they would ,instead order the stovl variant and operate them as an addition on navel ships and instead order the Pf mig 50 while at the same time upgrading their f111 with improved fuel tanks and newer engines ,but alas as has always been the case ,Australia’s politicians do not have the guts and foresight to do what is really needed for a nation that has completely different parameters to the us

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