The F-35 jet cost controversy: now we're getting somewhere - Macleans.ca

The F-35 jet cost controversy: now we’re getting somewhere

Why will Canada’s jets cost less than Washington’s estimates?

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Dan Ross Deputy Minister of Defence holds news conference on the acquisition of the F-35 Joint Strike Fighter, in Ottawa (THE CANADIAN PRESS/Fred Chartrand)

The increasingly heated debate over what it will cost Canada to buy the new F-35 fighter jet has, from the outset, bogged down on one point—the unwavering contention of the federal government that Canada will pay way less per jet than the U.S.

This just seems, on the face of it, difficult to believe. The F-35 story features  many other variables, vagaries, arcane disputes—all accompanied by acronyms and jargon of the sort that military procurement always generates in such unwelcome plentitude.

But that cost-border price differential is the hard part to get past. The Canadian government insists that each jet it buys will cost about $75 million, while numerous stories in the American media about Lockheed Martin’s troubled development of the F-35 Lightning II provide estimates about $20 million higher.

For instance, “Each plane clocks in at around $90 million,” says this recent Atlantic blog posting. And here’s Bloomberg from late last year reporting that the F-35 program “has almost doubled in cost to $92 million a jet.”

No wonder many look so skeptically on that $75 million projection from the Canadian Department of National Defence. Even moreso following last week’s report from the Parliamentary Budget Officer, which projected the per jet cost at $128.8 million.

Today the Defence department offered reporters in Ottawa a detailed briefing on F-35 costs to refute the PBO’s eye-popping numbers. The department’s Dan Ross, assistant deputy minister for procurement, said the PBO’s key $128.8 million figure is based on an “unsubstantiated average unit cost.” (I have asked the PBO to elaborate on how it arrived at that number, and will post on their answer.)

As for Defence’s own price estimate, that $75 million per F-35 figure is apparently taken straight from what’s called a Selected Acquisition Report, or SAR—a quarterly Pentagon review of the costs, schedules and performance of a U.S. military procurement program. (The facts reported in the SAR seem to be widely relied on and trusted, including by Canada’s PBO.)

There are three main reasons Canada’s jets will cost less than the estimates being reported out of Washington, at least according to Ross at today’s Defence briefing:

—Canada is buying just 65 jets out of nearly 3,000 Lockheed Martin hopes to sell, and Canada has arranged to take delivery on them during the sweet spot in the production run, from 2016 to 2022, when manufacturing costs should be far lower than for the early sales. (The few F-35s made and sold so far have gone for about $140 million a pop.)

—Canada’s deal as part of the F-35 consortium shields it from paying for escalating research and development costs, which are being shouldered overwhelmingly by the U.S. It’s those R & D overruns that are the main reason overall F-35 costs have soared beyond early forecasts.

—Canada is purchasing only the “Conventional Take-off and Landing” version of the F-35, the cheapest of the three versions of the Joint Strike Fighter, and the model with by far the fewest design, development and testing problems. But U.S. reports on the F-35 generally cite the average cost per jet spread across all the three variations.

These explanations for why Ottawa’s purchase might well be less outlandishly expensive than the whole F-35 program, as viewed from Washington, are not unreasonable. So the ball is clearly in Parliamentary Budget Officer Kevin Page’s court.

Page and his crew of number-crunchers have done excellent work as an independent check on government claims about costs, and have earned respect. But their initial report on the jets was not definitive. Valid questions are in the air. It will be interesting to see their response to today’s Defence counter strike.

A final point on this. I have reported before on the Defence department’s explanation of how Canada is getting a deal (at least compared to the U.S.) on the F-35. Understanding the multibillion-dollar price tag is obviously an important element of this high-stakes debate.

Not, however, the most important part. Whether acquiring and maintaining these jets costs $14.7 billion, as Defence forecasts, or $29.3 billion, as the PBO projects, we still have to be reasonably sure that Canada needs them.

Is a fleet of advanced fighter jets really our top military procurement priority? At either price, the implicit answer is yes. I’ve asked what exactly the Joint Strike Fighter is for, and I’m not sure the case has been persuasively made. By all means, let’s probe the price. But let’s consider the purpose, too.