Lockheed Martin says $10.5 billion of Canadian work on F-35 at risk without order

MONTREAL – Canada’s aerospace industry could lose about $10.5 billion worth of contracts over several decades if the federal government ultimately decides not to purchase the controversial F-35 Stealth Fighter, says a senior executive at Lockheed Martin.

Orlando Carvalho, executive vice-president of the U.S. defence giant, says Lockheed will honour $500 million worth of business already awarded to Canadian partners but that other work would be in jeopardy without a Canadian jet order.

“If in fact the Canadian government were to decide not to select the F-35 we will certainly honour the contracts that we have here with the Canadian industry but our approach in the future would be to try to do business with the industries that are in the countries that are buying the airplane,” he said in an interview after officially opening its new engine overhaul facility in Montreal.

Carvalho said Lockheed estimates that Canadian industry could potentially receive $11 billion of contracts over 25 to 40 years as its builds 3,000 planes for air forces around the world.

About 72 Canadian companies have secured work on the F-35 project. Industry Canada has estimated that the potential value could be US$9.8 billion, including the amount of contracts already awarded.

Gilles Labbe, the former head of aerospace cluster Aero Montreal and CEO of F-35 supplier Heroux-Devtek (TSX:HRX), last year warned that thousands of jobs would be at risk if lead manufacturers Lockheed Martin and Northrop Grumman remove work destined to be completed in Canada by members of the global supply chain.

Ottawa is evaluating potential alternatives to its original plan to purchase 65 F-35 aircraft. A KPMG report late last year warned that the total bill, including service and support, could be as much as $45.8 billion over 42 years to replace the current stable of CF-18s, which are due to be retired in 2020.

Carvalho said Lockheed continues to reduce the F-35’s cost. He said each plane will cost Canada around $75 million in today’s dollars, or about $85 million including inflation once they are expected to be delivered to Canada in 2018.

He said the contractor has removed 50 per cent of costs from when it started production and is looking at how to remove another 50 per cent as it gets into full production, making it “an affordable airplane” to the U.S. government.

“As we continue to gain the efficiency on the production line, the learning, as we continue to build more and more airplanes, as the production ramps up, the cost of this airplane will only come down.”

Carvalho added that the plane’s features, including stealth technology and surveillance capabilities, make it the right choice for Canada.

The head of rival defence contractor Boeing said last week that he’s confident that his company’s F-18 Super Hornet could fill Canada’s military needs at a lower cost.

James McNerney said it was only a matter of time before the Canadian government reopens the contract to new bidding and that the next generation of aircraft in use by Canada since the 1980s will be able to compete.

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