A note posted to Facebook by Chris Alexander, the parliamentary secretary to the minister of defence. (It seems to have gone out from the PMO as an internal Conservative memo on Thursday evening.)
Replacing Canada’s CF-18s – Just the Facts
Media have incorrectly reported on some aspects of the replacement of Canada’s CF-18s. Here are the facts:
Myth 1: Costs have risen from $9 billion to $45 billion.
Fact 1: Our government has set a $9 billion budget for the purchase of new fighter aircraft. This amount is for the purchase of new aircraft and will not change. The remaining costs are the long-term costs associated with owning and flying these planes, such as maintenance, fuel and salaries. These costs are now presented over 42 years, as compared to 20 years previously. It goes without saying that the dollar figure for operating and sustainment costs for more years will be proportionately higher.
Myth 2: The Auditor General’s report increased the costs from $16 billion to $25 billion
Fact 2: The Auditor General recommended that operating costs be included in the total lifecycle cost estimates, resulting in the apparent “increase”. This is not new money as DND currently spends this money for our CF-18 fleet. These costs are currently being incurred by our fleet of CF-18s and will be incurred by whichever aircraft is chosen to replace the current fleet.
Myth 3: The review of options is a competition
Fact 3: We have a seven point plan that has reset the process to replace Canada’s aging CF-18s. As part of that plan, we have released the rules that will guide the review of alternative fighter aircraft. No decision on a replacement will be made until that work is complete.
Myth 4: Costs are rising, so $9 billion will not be enough to pay for these aircraft.
Fact 4: We have identified $9 billion for the purchase of replacement aircraft. We will not exceed that amount.
Myth 5: Canada is leaving the Joint Strike Fighter development program.
Fact 5: Canada will not end Canadian industrial access to F-35 contracts before the Seven Point Plan is complete and a decision on the replacement of Canada’s CF-18s has been made.
Myth 6: The government did not follow the rules when it released costs over 20 years.
Fact 6: Previously lifecycle costing was done over 20 years, consistent with long-held practices for this type of acquisition. The Auditor General recommended extending that time frame to cover the complete costs over the full life cycle; we complied by adopting the aircraft’s entire program life of 42 years.
Myth 7: The options analysis will find that the F-35 is the only viable option because it is the only plane that meets the Statement of Requirements.
Fact: 7: The original mandatory requirements for this purchase (known as the Statement of Requirements) have been set-aside. Once the options analysis is complete, a determination will be made as to whether a new statement is necessary.
Myth 8: Canadian companies have only received benefits equal to 1% of the total cost of the contract.
Fact 8: Over 70 Canadian companies have won nearly $450 million in contracts already. We believe our world leading aerospace industry will be able to continue to compete for and win contracts in the global marketplace.
Myth 1 seems to depend on the meaning of the word “risen”—the stated cost of the procurement has increased from $9 billion (for acquiring the planes) and a total of $16 billion (for acquisition, operation and sustainment) to $45.8 billion (for development, acquisition, operation and sustainment), owing to an acknowledgement and calculation of a full life-cycle costing. The timeline of 42 years is problematic though. For the sake of comparing the previous estimate for acquisition, operations and maintenance to the current estimate for acquisition, operations and maintenance, the price has gone from $16-billion over 20 years to $45.2 billion over 30 years.
As for Myth 6, the auditor general’s report in April states that “Treasury Board policies require consideration of all relevant costs over the useful life of equipment, not just the initial acquisition or basic contract cost.” And, as Andrew Coyne, has pointed out, National Defence agreed with the auditor general in 2010 that life-cycle costing was appropriate. Of the life-cycle costing for the F-35, the auditor general found in April that “costs have not been fully presented in relation to the life of the aircraft. The estimated life expectancy of the F-35 is about 8,000 flying hours, or about 36 years based on predicted usage. National Defence plans to operate the fleet for at least that long. It is able to estimate costs over 36 years. We recognize that long-term estimates are highly sensitive to assumptions about future costs as well as to currency exchange rates. However, in presenting costs to government decision makers and to Parliament, National Defence estimated life-cycle costs over 20 years. This practice understates operating, personnel, and sustainment costs, as well as some capital costs, because the time period is shorter than the aircraft’s estimated life expectancy. The JSF Program Office provided National Defence with projected sustainment costs over 36 years.”
In the defence of Myth 8, 450 million is one percent of 45 billion. There is the potential for more contracts for Canadian companies, but as Canadian Press reported this week, there are doubts about how much Canadian companies will get.