New and old math

by Aaron Wherry

The Defence Minister explains the difference between $25 billion and $15 billion.

“The $10-billion that he has described as not being disclosed was what you pay our current pilots, the gas that you put in the current fleet of CF-18s … if you went out and bought a new mini-van and it was going to cost you $20,000 you wouldn’t calculate the gas, the washer fluid, the oil and give yourself a salary to drive it for the next 15 to 20 years.”

“Now that’s part of the new calculation now,” he said.

The “new calculation” reflects an estimate that the Department of National Defence calculated two years ago. And a calculation that seems to match Treasury Board guidelines. But, again, the Auditor General’s concerns about costing for the F-35 extend beyond that to the “life-cycle costing.”

We have a number of observations regarding the life-cycle costing for the F-35. First, 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.

This, again, is what Alan Williams considers the “known distortion.”




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New and old math

  1. What are the up-front costs for each fly-away plane?
    What are the subsequent annual costs for maintenance/operation of the F35?

    These are separate issues that are being confused in the media, the government, and by the auditor’s report.

    • Ah – no – you’ve missed the entire issue.

      •  Really..do elaborate if you can

        • I’ll do him/her the favour:

          “Harper is evil and the Conservatives stole the election and probably poisoned Layton and mass crowds will start marching in the streets any second now enraged by the Tory’s cavalier attitude toward complicated cost accounting principles”

          • Low-hanging fruit.

            Do you have any rebuttal to my post to you from yesterday?

    • I agree.  The per-unit cost has been consistantly low-balled by both Ministers and DnD, partially in order to justify the lack of a proper procurement process.  While omitting the operating costs is foolish and represents a poor grasp of basic accounting, lying about the per-unit cost is the real story, IMO.

      • I suspect that the unit cost will not be known definitively until production ramps up. There is very little anyone can do about that, but most assumptions I’ve seen seem to be in the sub $100 million range for the F35A.

        Operating costs are only relevant when assessed on a yearly basis. Costing for 20 yr vs 36 yr is of no use whatsoever when the time-frame is not provided in media reports. Hence, some off the differences in total amounts between DND, PBO and the auditor. However, this is like complaining to your landlord that the advertised $1000/month apartment really costs $12000 per year.

        I’m not an accountant, but it makes even less sense to me to try to include fuel and salaries into that mix. If that’s proper accounting, then a $20 hammer should be priced a $3000 to account for its life-cycle use and mechanics pro-rated salary.

        The reason for specifying unit & training costs separately from maintenance and operating costs is that the former are budgeted as procurement charges, whereas the latter are paid out of the DND annual budget (and should be similar to existing F18 costs).

  2. Excerpts from prior Question Periods:

    “… professional public servants have looked at the Parliamentary Budget Officer’s numbers and they reject his methodology.”
    -Peter Mackay, March 25th, 2011

    “Mr. Speaker, the reality is that the professional, non-partisan bureaucrats who work in the Department of National Defence disagree with the Parliamentary Budget Officer. In fact, they said that the methodology was wrong. They said that the cost of an aircraft should not be calculated based on its weight, that one does not go on historical analysis that is 50 years old and that one does not push it out 30 years.

    DND officials would be pleased to meet with the Parliamentary Budget Officer to discuss his methodologies and correct some of his flawed findings.

    Why does the member from Montreal want to damage and hurt the air force and his aerospace industry?”
    -Peter Mackay, March 24th, 2011

    “DND procurement experts stand by their cost projections. We have committed $9 billion for the purchase of 65 aircraft, and $250 million to $300 million a year over 20 years for in-service support.”
    -Laurie Hawn, March 11th, 2011

    “We thank Mr. Page for his report. It was a ‘preliminary set of data for discussion’.”
    -Laurie Hawn, March 10th, 2011

    “Mr. Speaker, my loud colleague is simply wrong. We have consulted with Lockheed Martin and with other contractors. We consulted with experts from the other eight MOU partners for over a decade. It is a shame the Parliamentary Budget Officer did not consult with Lockheed Martin as well, or any of those other partners.”
    -Laurie Hawn, March 10th, 2011

    This is more than just a difference of opinion on accounting.  A year ago, the Conservatives believed the PBO to be flat out wrong and engaged in a smear campaign against him.

    One year later, the PBO is vindicated.  Given the quotes above, it is dishonest to explain this away as a difference in accounting methodology.

  3. I find it instructive to observe the comments on these boards that the CPC cheerleaders remain silent on…

    I would like to repost (just once) what I posted on a prior thread.

    The CF-104 Starfighter was the precursor to the current CF-18 Hornet.  The Starfighter was a single engined plane, the Hornet twin-engined.

    Of the 200 CF-104s built, 110 were lost due to accidents.  Its aviation history earned it the nickames “Widowmaker” and “Lawn Dart”. (http://en.wikipedia.org/wiki/C

    Of the 138 CF-18s built, 18 were lost due to accidents. (http://en.wikipedia.org/wiki/M

    That is a 55% loss rate on a single-engined vs 13% loss rate on a twin-engined craft.

    What people have forgotten is that when the CF-18 was chosen, it was specifically chosen due to the twin-engines since the Forces did not want to revisit the days of the “Widowmaker”.

    Single-engines are far more likely to fail than twin-engines.  That is my concern as to why the F-35 is not the right choice for the Canadian Forces.

    And so, to all those posters hyping the F-35, a question…

    The F-35 is a single-engine jet.  It is known that twin-engine jets are required/preferable for arctic flying (i.e. lose one engine, can still fly home).  With the F-35, fly it north, lose one engine… and
    we’re out $150 million.

    Why is this acceptable in your eyes?

    •   110 planes lost….and not one in combat.

      • You would think a little prudence would be in order, you would think…

    • Why limit your comparison to the CF-104?  I hear the Sopwith Camels had a high attrition rate as well.  I mean, if you’re going to compare a contemporary state of the art fighter jet to a 60 year old one, why not go back 80 or 100 years?

      Putting aside the current kerfuffle over cost accounting principles, do you really, truly, seriously think that the senior military personnel who started looking at what should replace the CF18s didn’t take into account the F35s were single engine in selecting them? 

      All other things being equal, I have no doubt multiple engine jets are preferable to single engine jets, but things never are equal.  It’s self-evident that a catastrophic engine failure on a single engine jet is going to cost you the jet (though, given advances in pilot safety, probably not the pilot).  On the other hand, if this only happens once or twice and the additional cost of maintaining and repairing 65 more complicated two engine jets over 20 years is $400M, what exactly have you gained? 

      • The problem is remains that the failure rate of this particular fighter will remain unknown for some time as it is still in developmen. So even if DND is OK with this single engine, they don’t have any means of assessing its real performance or attrition rates in the future.

        • Agreed – so what’s your point?  We shouldn’t pick any jet that we don’t know attrition rates for?

          • No I’d like to know why DND is so gung-ho for a single engine fighter the available twin engine Super Hornet. Or is the stealth capacity of paramount importance.

            I presume they’ve thought about this. Short of releasing classified information, it would be nice for Cdn taxpayers to know that this issue hasn’t been left unattended.

          • The Super Hornet has obvious shortcomings as a replacement for the CF-18, the primary one being its likely short-term future as a combat jet. The only operators of the Super Hornet currently are the US Navy and the RAAF, both of which intend to replace it with the F-35. If Canada were to fall for Boeing’s current sales push, it would leave us, within fifteen years, as the only remaining operator of the type.

            As for concerns about single-engine versus twin-engine reliability, the USAF operates both single-engine F-16s and twin-engine F15s. I am not aware of any discrepancy in loss rates between the two.  Comparing a 21st century aircraft and its engines with an aircraft designed more than 50 years ago, like the 104 is not a useful exercise.

          • @MikeRedmond:disqus 

            F-16 with F100-220 engine: 1.11 engine related class A mishaps/100k hours

            F-15 with F100-220 engine: 0.29 engine related class A mishaps/100k hours

            Sources:
            http://forum.keypublishing.com/attachment.php?s=df6c8c8686277ea54720f8d1fcd68bff&attachmentid=201441&d=1322018242

            http://forum.keypublishing.com/attachment.php?s=df6c8c8686277ea54720f8d1fcd68bff&attachmentid=201442&d=1322018242

            “The only operators of the Super Hornet currently are the US Navy and the RAAF, both of which intend to replace it with the F-35″

            That statement is very much in question given delays in F-35 development.

      • Um, I’m not comparing Chevy Corvairs to Volvos.  I’m comparing Canada’s current jet (built in 1978) vs Canada’s prior jet (built in 1961).  That’s a 17 year difference, not 60.

        “…do you really, truly, seriously think that the senior military personnel who started looking at what should replace the CF18s didn’t take into account the F35s were single engine in selecting them?”

        You mean the defence officials who have done such a good job of the procurement the whole thing’s been moved to PWGSC?  The Auditor General has found that not only was a statement of requirements not made public, it wasn’t even confidentially provided to PWGSC.  National Defence only asked for a “fifth-generation fighter” (a brand name, like Chevrolet, not an operating requirement) and said that the F-35 was the only one.  Given the A-G report, I don’t trust National Defence further than I can throw them.

        “On the other hand, if this only happens once or twice”

        The A-G report identifies National Defence expects to lose 14 of the 65 planes to attrition.  And the replacement costs?  Not included in the cost estimate.  That’s still an estimated 22% attrition rate vs the known 13% rate on the CF-18 (which the F-18 Super Hornet would presumably improve on)

        • “Um, I’m not comparing Chevy Corvairs to Volvos.  I’m comparing Canada’s current jet (built in 1978) vs Canada’s prior jet (built in 1961).  That’s a 17 year difference, not 60.”
          No, you’re using data from a 60 year old single engine jet to question the decision to replace the 35 year old jet with another single engine jet.  Doing so is akin to comparing a current state of the art automobile with a 60 year old one.

          “The Auditor General has found that not only was a statement of requirements not made public, it wasn’t even confidentially provided to PWGSC.”

          If by “statement of requirements” you mean all of the capabilities the next generation Canadian fighter jet needed to possess, given the DND best guess as to what sort of military scenarios Canada might face over the next 20 or 30 years, the reason “it wasn’t even confidentially provided to PWGSC” is well explained in the Iveson/Laurie Hawn piece.  I’ll paraphrase:  ”when trying to figure out who your enemies will be and what you’ll need to combat them, it’s best not to widely disseminate your conclusions”.

          “The A-G report identifies National Defence expects to lose 14 of the 65 planes to attrition.  And the replacement costs?  Not included in the cost estimate.  That’s still an estimated 22% attrition rate vs the known 13% rate on the CF-18 (which the F-18 Super Hornet would presumably improve on)”

          Do you expect the attrition rates of the CF-18 would remain 13% as they enter their fourth and fifty decades of service and as their missions increasingly involve facing off against the latest and greatest Chinese and Russian jets?

          And, ultimately, assuming attrition rates don’t vary much among the very few possible replacement jets, what relevance are those rates?  That is the biggest issue I have with this hand wringing over whether every last potential cost factor has to be quantified and present valued to ensure “transparency”.  It is a fools errand to begin with and ultimately the avalanche of flawed and largely useless information changes nothing anyway.
            

  4. This is more, typical Conservative modus operandi of “muddying the waters.”

    Just throw information and numbers out there.  The media will report it and the public will get lost and fed up.

    The Conservatives do it all the time: “We will never run a deficit.”  “We will eliminate the deficit in 2015.”  “We will eliminate the deficit in 2014.”  “We will eliminate the deficit in 2015.”  “We will eliminate the deficit in 2014.”

    They just hope the noise will turn people off so they won’t pay attention to the contradictions and the constantly changing narratives.

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