With fighter jet costs, the sky's the limit - Macleans.ca

With fighter jet costs, the sky’s the limit

Documents suggest Ottawa sidestepped its own rules to buy aircraft

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With fighter jet costs, the sky's the limit

Paul Weatherman/Lockheed Martin

Night after night, Canadian CF-18 pilots took off from Trapani airbase in Italy for their targets in Libya, at least 575 km away. In an ink-black sky, in a cockpit lit by instruments reflected through their heads-up display, each pilot was aware that a single missile launched by Moammar Gadhafi’s troops could kill him. “You’re sitting in this contraption and all you want is to come back alive,” says Maj.-Gen. Yvan Blondin, second-in-command of the Royal Canadian Air Force, who lived through similar experiences in Kosovo in the late 1990s.

To minimize the risks to pilots, Blondin wants Canada to buy the F-35 aircraft, product of the Joint Strike Fighter (JSF) program. Versatile, technologically advanced and hard for enemy radar to detect, the F-35 “gives the guys that much better likelihood of coming back,” says this CF-18 pilot with piercing blue eyes. In Libya, anti-aircraft defences weren’t very powerful. “But who knows where Canada will need to intervene down the line?”

The first air strikes in Libya were carried out by American B-2 stealth bombers and Tomahawk cruise missiles fired from ships in the Mediterranean. “With the F-35, we could have been active from day one attacking their radar,” says Blondin. “It’s the difference between playing a front-line role and a secondary one.” The difference, he adds, between a used Volkswagen with a manual transmission and a brand-new Cadillac with all the options.

The RCAF is convinced that U.S. multinational company Lockheed Martin will keep its promises and that its F-35, presently in the test stage, will live up to its advance billing when it comes off its final assembly line in Fort Worth, Texas, in a few years.

But that hope isn’t shared by everyone in the grey corridors of National Defence Headquarters in Ottawa. The F-35 program is four years behind schedule in the U.S. and its total budget there has soared 64 per cent to $382 billion. In Canada, dozens of civilian bean-counters overseeing the project, along with many senior officers of the Canadian Army and the Royal Canadian Navy, are asking whether the largest military purchase in Canada’s history—between $15 billion and $29 billion—will force the government to cut vital spending in other areas. “We’re in a period of budget restraint and we’re buying a plane that isn’t yet in service for a bill we can’t guess at yet,” a senior military officer said on condition he not be named. “The risk is huge.”

In the eyes of Alan Williams, a former assistant deputy minister responsible for military procurement who supervised the F-35 file in Ottawa until his retirement in 2005, the purchasing process for the jet has become a public administration “fiasco.” He says the government is operating in the dark, noting a person wouldn’t buy a car without knowing its final price, performance or maintenance costs, let alone without even shopping around. “That’s exactly what the Canadian government is doing with the F-35 fighter,” he says. “It’s aberrant.”

The episode raises many questions, not the least of which is: did the feds get ahead of themselves when they announced, in July 2010, their intention to buy 65 F-35s with no tender? The U.K., Turkey, the Netherlands and Denmark were also considering buying the same jet. They are now delaying their final purchase decisions. Even Washington, facing a massive budget deficit, may reduce its order. Will Canada have to reconsider its own decision? And if it does, might it have to start from scratch with a competitive bidding process to replace its aging CF-18s?

An investigation by L’actualité, the sister publication to Maclean’s, over several months shows that Stephen Harper’s government and the RCAF did everything they could to ensure a deal to buy the JSF fighter, from rushing their analyses and sidestepping their normal decision-making process to exaggerating the industrial benefits for Canada.

The JSF program started in 1997. The U.S. was looking for a new plane to replace its aging F-16s and F-18s. To share the cost, Washington invited eight allies to participate in the design process. In return, firms in those countries could obtain contracts during the construction phase. Canada was the first to sign up in 1997, promising to pay $741 million to the U.S. government and to Lockheed Martin over 40 years. (To date it has paid $203.7 million.) Australia, the Netherlands, Italy, Turkey, Denmark, Britain and Norway followed. There was never any obligation to actually buy the resulting jets. “It was just an industrial agreement,” says Michael Slack, director of the F-35 program at National Defence. “The idea of replacing our F-18s wasn’t on the radar screen yet.”

In 2001, Lockheed Martin, one of the largest weapons manufacturers in the world, beat its rival Boeing to win the contract for 2,443 fighter aircraft for the U.S. Department of Defense. The Harper government says it relied on that U.S. bidding process to justify its decision not to consider any other fighter craft for Canada. “We do not need another costly bidding process,” says Associate Defence Minister Julian Fantino. But that way of thinking is “ridiculous,” says Williams. “The Americans picked a plane according to their criteria, their budget and their missions, which aren’t Canada’s.”

Internal Defence Department correspondence, written from 2001 to 2006 and obtained through the Access to Information Act, confirms Canada intended to launch a bidding process to replace its 79 CF-18s before 2020. But after the Conservatives came to power in 2006, the internal memos no longer make any reference to such a process.

That summer. several internal memos addressed to the chief of the Air Force and to then-defence minister Gordon O’Connor made it clear that the F-35 was the Canadian RCAF’s preferred choice to replace the CF-18. That September, the defence procurement office, directed by assistant deputy minister Dan Ross (Alan Williams’s replacement), recommended that O’Connor proceed with the purchase. “The JSF is the best option to fulfill Canada’s needs and will stay in service for a long time, all with the lowest cost per aircraft,” stated a memo signed Sept. 19, 2006.

But while officials were recommending Canada buy the F-35, a key part of the analysis that goes into all military purchases hadn’t even been written yet. Known as a statement of operational requirement, such a document is like a detailed order form for what the military needs a piece of hardware to accomplish. Yet the document was not completed until June 2010, just one month before the Conservative government announced its plan to buy the F-35. “Recommending a purchase before even writing a statement of operational requirement goes against the criteria of good management,” says Philippe Lagassé, a University of Ottawa professor who specializes in military procurement. “Clearly, the choice had been made long before and the statement was written to match the choice.”

Nor were any of Lockheed’s rivals, such as the U.S. firm Boeing, maker of the F-18 Super Hornet (the modern version of Canada’s CF-18s), or Europe’s Eurofighter consortium, which makes the Typhoon, ever contacted before the recommendation was made to go with the F-35 in 2006. Boeing vice-president Kory Mathews says meetings were held in 2008 and 2009, but he calls those discussions “preliminary” because Canada didn’t ask for any classified information about Boeing’s fighter, such as its radar and stealth capabilities. “So it’s impossible to know what we really have to offer,” says Mathews. “I respectfully suggest to Canada that it ask for all the information if it wants to make an informed decision.” Why didn’t Canada do that? “We didn’t feel the need,” says Col. Dave Burt, in charge of buying the new fighters for the RCAF. “We had all the necessary information, and there was too much of a technology gap between aircraft.”

To critics, such statements are evidence that Canada’s decision-making process around the F-35 is flawed. “It’s a cosmetic analysis,” says Yves Bélanger, director of the research group on the military industry and security at the Université du Québec à Montréal. He says the government should have asked tougher questions of RCAF brass as to whether the F-35 truly offered the best quality for the price. “The government obviously had a bias toward the F-35 because Canada had been part of the program since 1997,” he says. “But that’s no reason to let the soldiers pick their favourite piece of equipment.”

Maj.-Gen. Yvan Blondin doesn’t hide the fact that the wishes of the pilots, who enjoy a special status within the Canadian Forces—on missions they sleep in hotels instead of in tents—weighed heavily in the decision to recommend the Lockheed Martin jet. If some talk about the “arrogance of pilots,” Blondin prefers to talk about the “pride” of a “wolf pack” within which competition is fierce. “The experts, the guys who sit in the cockpit, are the pilots,” he says. “They talk to pilots from other countries. They know the F-35 will be good. The politicians listened to us and we appreciate it.” Associate Defence Minister Julian Fantino echoes that view. “It’s natural for [the pilots] to want the best plane. We supported them,” he says.

But it’s also true the U.S. has a lot at stake in seeing countries buy the fighter, which has three main versions with differing capabilities. (Canada is buying the F-35A model). In December 2010, WikiLeaks released memos showing that Washington weighed in strongly when Norway, an F-35 partner like Canada, started to hesitate between the American JSF and the Swedish Gripen fighter in 2008. We must be “cautious not to over-assert our position and thereby potentially affront Norwegian sensibilities on their selection,” stated one cable from the U.S. Embassy in Oslo. “A primary importance of this decision is the impact on the bilateral relationship,” another declared. Once the decision was made to go ahead with the F-35, diplomats congratulated themselves. The “persistent” U.S. pressure had “paid off.”

Did the Harper government face the same pressure? “No, never. We took a decision in the higher interest of the country,” Fantino says. Lockheed Martin’s 10 lobbyists in Ottawa had no influence, he says.

There remains a lot of uncertainty around the F-35—most importantly, the cost. Federal ministers keep saying the bill will be $75 million per plane (or $4.9 billion for 65). But that’s just an estimate, Burt acknowledges. “We have no guarantee,” he says. The real price will be known at the end of 2013, when Canada and the other partner countries will officially make their aircraft order.

Program delays hint at trouble though, says Winslow Wheeler of the Center for Defense Information, a Washington think tank. “Even our Air Force does not know the ultimate price. I fail to understand how Canada can rely on the figures testified to you,” he wrote last January to MPs on the Commons defence committee who asked for his advice. “Real costs, when your government negotiates an actual contract and as the program goes through its life cycle, are sure to be an unpleasant surprise. I can guarantee you that the unit price Canada will pay for a complete, operational F-35A fighter will be well in excess of $70 million.”

Last March, the Government Accountability Office (GAO), the independent investigative arm of Congress, estimated that an F-35A with conventional takeoff and landing capabilities will cost $115 million. Because U.S. law forbids the export of military equipment at a price below what Washington pays, Canada must expect to pay $2.6 billion more than the figure it has been quoting.

And that bill could keep growing, says parliamentary budget officer Kevin Page. Last March he estimated the average cost of Canadian F-35s at $128 million. “The capabilities of the aircraft remain uncertain given its current state of development, the [regional and industrial benefit] remains unclear and the acquisition and long-term sustainment costs have not been determined,” his report said.

And development delays have made it impossible to count on volume discounts: the first F-35s will be rolling off the assembly lines at the moment Canada makes its first purchases, in 2016. Production, once expected to peak in 2015, will now do so in 2018 or 2019, according to a Pentagon report released a year ago. That could make the unit cost of Canada’s first 12 F-35s rise to $148 million, Page says. What’s more, the Harper government’s price estimate is based on a minimum total production of 3,100 aircraft. So if participating countries—especially the U.S., the largest buyer—cut their orders, the unit cost will rise even further. Buying fewer than 65 planes to save money is not an option. “That’s the floor to fulfill our needs and maintain current capacity,” Blondin says.

Maintenance costs are also a major preoccupation. The official estimate for keeping Canada’s fleet of F-35s in the air is $5.7 billion over two decades. Defence sources call that number “much too low.” The GAO puts the actual maintenance cost at 2.5 times the purchase cost, which would work out to $18.7 billion for Canada. Page pegs it at $19.6 billion, but over 30 years instead of 20. It’s an area where the F-35’s advanced technology works against it. Maintenance costs for the fighter will be 33 per cent higher than with F-16s or CF-18s. “No fighter has ever carried as many lines of computer code as the F-35,” Williams says. “And its composite structure will be delicate to maintain.”

There are also questions about the project’s industrial benefits for Canada, too. In the House of Commons the government repeatedly argues Canadian companies can obtain up to $12 billion in manufacturing contracts for the F-35. However, this estimate, furnished by Lockheed Martin and one of its big subcontractors, Pratt & Whitney, has not been confirmed by any independent analysis.

In fact, the Pentagon contradicts it. In a 2003 report it estimated potential benefits for Canadian business at $3.9 billion. Ottawa wasn’t much more optimistic, putting the potential industrial benefit at between $4.4 billion and $6.3 billion.

Up to now, 65 Canadian companies have signed contracts for a total value of $370 million with Lockheed Martin. Fantino calls the $12-billion figure “a potential. We’re talking about a program that will last 30 years.”

Williams is convinced Canada could have got more from a proper bidding process. “Real competition forces suppliers to bring their A game to win. A country always gets more for its money,” he says. “The F-35 will fly in the end, but the real question is when and at what cost—and whether Canada needs a next-generation stealth fighter to meet its needs.” The only way to know the answer to those questions is with a bidding process that is open and transparent.

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