The F-35: The Conservatives were ‘dead right’

by Aaron Wherry

You might have thought that the auditor general’s report and the KPMG audit amounted to a repudiation of the Harper government’s accounting for the F-35. Gary Goodyear would like to assure you otherwise.

“I can tell you the F-35 is another file – now we see KPMG come out with a report that couldn’t be more plain and simple – that Conservatives were dead right and that those planes would cost $9 billion and that the service contract for 20 years would be $16 billion.”

Setting aside everything the Conservatives said about the F-35 beyond the cost estimate, Mr. Goodyear seems to have chosen a particular set of terms on which to define the government’s correctness.

Granted, this is all a bit confusing, but let’s go over this one more time. The stated acquisition cost does, indeed, remain at $9 billion: that’s the budget the government says it will adhere to in purchasing new fighter jets. But $16 billion was once thought to be the total cost for acquisition and maintenance—in March 2011, the government tabled an estimate of $14.7 billion. The KPMG audit, meanwhile, identified $15.2 billion in “sustainment” costs, in addition to that $9 billion for acquisition.

But the “life-cycle” cost estimate was a particular concern of the auditor general and here, so far as the math is concerned, is the real trouble.

Treasury Board policies require consideration of all relevant costs over the useful life of equipment, not just the initial acquisition or basic contract cost. Careful planning and full costing are needed to ensure that all of the elements required to provide the needed capability come together in a timely and predictable way and that adequate funds are available to support the equipment over the long term. We examined whether National Defence conducted full life-cycle costing related to its Next Generation Fighter Capability project and whether cost estimates were complete, supported, and validated, using the best information available at the time. Estimating future full life-cycle costs for military equipment, especially the F-35, is challenging…

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…

We also have significant concerns about the completeness of cost information provided to parliamentarians. In March 2011, National Defence responded publicly to the Parliamentary Budget Officer’s report. This response did not include estimated operating, personnel, or ongoing training costs (Exhibit 2.6). Also, we observed that National Defence told parliamentarians that cost data provided by US authorities had been validated by US experts and partner countries, which was not accurate at the time. At the time of its response, National Defence knew the costs were likely to increase but did not so inform parliamentarians.

As Andrew Coyne has pointed out, National Defence agreed with the auditor general in 2010, on a separate file, that life-cycle costing was appropriate.

As noted above, in responding to the parliamentary budget officer, the government tabled an estimate of $14.7 billion over 20 years for capital, acquisition and sustainment costs.

According to the auditor general, National Defence had an internal estimate in June 2010 that covered capital, acquisition, maintenance, personnel and operating costs over 20 years. That estimate came to $25.1 billion. (Andrew has noted that a $25 billion estimate was briefly, and fleetingly, acknowledged in June 2010, only to disappear from the debate soon thereafter.)

According to KPMG, an estimate that covers capital, acquisition, maintenance, personnel, operating and development costs comes to $45.8 billion over 42 years.

So we have three sets of numbers: $15 to $16 billion over 20 years (the publicly debated cost), $25.1 billion over 20 years (National Defence’s internal estimate) and $45.8 billion over 42 years (the KPMG estimate).

But as Andrew has argued, it is difficult to compare the KPMG estimate to the previously acknowledged estimate because the KPMG audit includes money and time for development. If you remove the development figures from the KPMG audit, you get an estimate of $45.2 billion over 30 years.

For the sake of comparison, it is probably most accurate to say that the stated cost has gone from $15 to $16 billion over 20 years to $45.2 billion over 30 years. (Peter MacKay’s office has waded into this debate and Colin Horgan has parsed it here.)




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The F-35: The Conservatives were ‘dead right’

  1. Everyone is pulling numbers out of their arses and claiming they know something. Read American reports about F-35 and realize that Canadian officials have no idea how much F-35 is going to cost because the people producing the plane have no idea.
    ———-

    National Review ~ Jan 18 2013

    Development of the F-35 has become the costliest procurement program in the Pentagon’s history, at $400 billion and growing.

    The program has been hobbled by numerous delays. Last week, the Pentagon’s chief test and evaluation officer, David Gilmore, sent his annual report to Congress. In it, he underscored the program’s “lack of maturity” and noted numerous problems with the plane’s development. Among them were failures of its stealthy coating (which peels off during high-speed, high-altitude flights), problems with the weapons-bay doors, continuing difficulties with the lift fan on the Marines’ version, cracks in the Marines’ version, problems with radar-tracking for weapons use, issues with the refueling system, and ongoing delays in development of the flight helmet (which is supposed to integrate much of the data and avionics in a revolutionary manner). In addition, software development and testing is running behind schedule — for a plane that will have over 8 million lines of computer code.

    This isn’t the first time the Pentagon’s top tester has warned about the program’s weaknesses.

  2. ‘(the) Conservatives were dead right and that those planes would cost $9 billion and that the service contract for 20 years would be $16 billion.’

    They were so right, in fact, they pressed the reset button and started from scratch.

  3. The only thing that is truly transparent about the Cons is their pathetic efforts to lie and spin the facts.

  4. Creationist chiropractors tend to forget whatever math they ever learned.
    They have so many other things to think about.

  5. willful ignorance = Gary Goodyear

  6. For the sake of comparison, it is probably most accurate to say that the stated cost has gone from $15 to $16 billion over 20 years to $45.2 billion over 30 years.

    Another way to put that is that the government used to claim that the F35 would cost about $800 million a year for 20 years, and the new number is $1.5 billion a year over 30 years.

  7. The Harper govt.’s Canada First Defence Strategy calls for “65 next-generation fighters”, but that was before the Cons. cut defence spending by a reported $2.5B.
    Three days ago, CBC News reported that “a 22 per cent cut in the army’s budget” will, according to former senior commander Lt.-Gen. (Ret.) Andrew Leslie, have “a direct impact on our troops. It’s going to result in lower levels of readiness, it’s going to mean our troops are not as well trained … It’s going to have an impact on part-time reserves, the lifeblood of the army.”
    Also, reported during the past two years is the inability of the F-35A (air force variant chosen by the Con. govt.) to mid-air refuel w/ the RCAF’s CC-130 & CC-150 tanker planes.
    The Joint Strike Fighter has mediocre range, per the Dec. 2011 report by the American Federation of Scientists. But Canada is the 2nd largest country, with sparsely situated airfields, and much of our territory (e.g,. the Arctic) inhospitable.

    The Harper govt.’s calculation of a fleet of 65 F-35s was based on wishful thinking, namely, that the United States, the largest JSF customer, by far (on paper), would buy 2,443 of the fighter jets between this decade & the mid-2030s. That isn’t going to happen. Why? The U.S. govt. is technically bankrupt & is sinking ever-deeper into its debt abyss. At what rate? According to U.S. Treasury online info., nearly $25B per week, enough to buy 190 F-35A’s.

    When does the U.S. govt. intend to balance its books? Never, according to online U.S. Congressional Budget Office documents. In fact, the lowest projected deficit over the next 10 years will be a whopping $480B (in FY2018).

    A Wall Street Journal piece in late November said: “The actual liabilities of the federal government — including Social Security, Medicare, and federal employees’ future retirement benefits — already exceed $86.8 trillion, or 550% of GDP.”

    America is broke – period. Between future debt ceiling crises, $987B in funding cuts affecting the U.S. Dept. of National Defense between 2012 & 2022 (incl. $500B in “sequestration” cuts coming into effect on Mar. 1/13, per current U.S. law), soaring fed. entitlement program spending (due to 78M greying American Baby Boomers, significantly), an estimated $400B-plus in costs to take care of 1,000′s of wounded Iraq & Afghanistan War vets, and $2T in unfunded pension liabilities for U.S. states & municipalities, the truth about the USA as an F-35 buyer, for starters, is indeed “inconvenient.”

  8. Would you really expect more from a minister who believes Jesus rode a dinosaur?

  9. Sure, Canada might still maintain a $9bn cap on acquisition, but exactly how many F-35 units actually procured for that $9bn will be the moving goal post part of the future equation. And also relevant will be in regards to which definition of ‘acquisition’ is ultimately used by DND/Govt. An Unit recurring Flyaway? Total unit Flyaway? Unit Weapon system cost? Staying the course, RCAF could end up operating only 45 CF-35 aircraft and still remain within the $9bn acquisition cap, sure. Total sustainment budget estimates would thus only be relative as well too, to the actual number eventually procured.

  10. I thought the F-35 wasn’t supposed to fly near storms like these……

  11. What? The conservatives are fiscally incompetent corrupt micromanagers. They are incapable of getting anything “dead right”

  12. $9 billion may be the “final purchase price” for a f-35 purchase, but that actual amount of F-35s that is going to buy keeps going down. Japan and Isreal recently signed deals buying F-35s for almost a 1/4 billion a piece. Canada hasn’t got got a bill of sale yet as we (thankfully) haven’t signed on the dotted line yet.

    The F-35 project as a whole has been plagued with technical problems and cost overruns. The chances of these jets being ready for combat by 2020 is slim. The chances of those jets being affordable at that time are minuscule. The only reason the US has kept the project going this far is because the project is simply “to big to fail”.

    If Canada does go ahead with the F-35 purchase, flight hours, training time, and even ammunition budgets will have to be cut. We won’t be able to refuel it in mid-air. Maintenance costs will likely be higher than the current CF-18. Basically, we will have fancy new planes that we can’t afford to actually use.

    The Canadian government needs to consider a cheaper, more versatile, and proven aircraft. The Saab Gripen E/F offers a lot more for the money, and its based on a proven airframe.

    Gripen4canada.blogspot.com

  13. What terrible reporting. They may have allocated a maximum of 9 billion for initial procurement but as the price rises they will simply buy fewer aircraft.

    Quite frankly I could care less anymore. Canada should even bother with fighter planes. We have sold our country out to the US, now China, and have basically given the Russians control of the Arctic so why defend resources we sell off or give away?

    We are nothing but a colony and our population seems quite comfortable living in ignorance of this fact. We will continue to support the US military if not through the F-35 then the even less capable F-18 SH because our politicians do what is in the interest of the US corporations who hire the most lobbyists in Ottawa.

    Our media is owned by a handful of corporations who manage our opinions and ‘manufacture consent’. This explains the lack of journalistic integrity.

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