DefRep weekly recap: Canada’s failed F-35 procurement plan

Ottawa, CA – 1 February 2013

By Stewart Webb

Canada – a case study of ridiculously underestimated F-35 procurement costs

I’ve been banned from reporting on any aspect of the on-going F-35 Joint Strike Fighter development programme. Or Lockheed Martin’s role. Or committed buyers (UK, Japan, etc). Or even previously committed buyers that are now not so committed or even interested, really (Canada). What began as an honest assessment of the platform’s ill-suited role for Canadian strike air needs has – according to my editor – transcended a few boundaries. Conflict of interest, etc. But that has not stopped me from digging up relevant dirt on Lockheed Martin’s woes with the ‘Jack of all trades/Master of none’ JSF – or, as Lockheed describes it, “the pinnacle of more than 50 years of fighter development technology.” Lockheed has pressed on with the F-35 pipeline in Fort Worth, Texas, but from the client’s perspective, not much has really changed.

The F-35 is still not meeting planned flight testing benchmarks and the helmet is experiencing difficulties. Cracks have been discovered in the airframe and in the power plant and now the jet has been revealed to be imminently susceptible to some kind of catastrophic explosion in the presence of thunderstorms. What is even more fascinating is that none of these things had anything to do with Canada wavering on the F-35 deal in December. Prime Minister Stephen Harper’s government is now seeking market analysis from various competitors – and suggestions have been made pretty far up the chain that maybe another strike air replacement should be explored PDQ.

As an esteemed member of the exclusive JSF club, Canada has donated money to the programme, but has never made a firm commitment to purchasing the planned 65 aircraft. Former Assistant Deputy Minister of Materiel (ADM-MAT) Alan Williams has outlined the issues in the broader scheme of Canadian defence procurement and has been against Canada purchasing the F-35 as a replacement for her aging fleet of CF-18s. Now recently retired (ADM-MAT) Dan Ross is publicly entering the fray, and citing how the government handled the file (not very well, you might have gathered).

The KPMG Report

Harper’s Conservative government may have temporarily escaped criticism from the Opposition as the report was released a couple of days before the Winter Break. But the document appears to have caused the government some measure of embarrassment as it came to knowledge that Canada would have to rely on third party air-to-air refueling. Following two separate government reports – by the Parliamentary Budget Office and the Auditor General – the Canadian government commissioned KPMG to conduct an external audit of the numbers. Smart thinking, right? As previously mentioned, KPMG and the Canadian media have reported how Canada will rely on allies or contract third party re-fueling companies. This staff writer contacted one such air refuelling firm who said that all refuelling hops – even future ones for the F-35 – would be charged back to the Canadian government on a “per hour cost basis.” Wow. What did Canada’s Department of National Defence have to say about the whole refuelling quandary? This was their response:

It is the government’s intention to maintain a strategic aerial refuelling capability no matter which fighter is chosen. Officials are tasked to study various options to deliver uninterrupted air-to-air refuelling capabilities.

Cost estimates are not within the ‘magic nine billion’

And here’s where the confusion really begins. It seems no one agency used the same calculator in figuring F-35 procurement and lifecycle costs. The government originally quoted that the acquisition costs of the F-35 was going to be CAD 9.7 billion (GBP 6.2 billion) at CAD 75 million (GBP 46 million) per plane. The Parliamentary Budgetary Office estimated the price tag would be CAD 29.3 billion (GBP 18.6 billion) including the life cycle costs. The Auditor General’s report later estimated that the costs were going to be CAD 25.1 billion (GBP 15.9) over twenty years. The KPMG report’s estimation weighed in at a whopping CAD 45.8 billion (GBP 29 billion) over 42 years. Twenty year assessments were originally done, because apparently it is easier to project during half of the life cycle of the aircraft rather than the full life cycle duration.

DND has now rescinded its estimation and has since stated that it was only an acquisition estimate. The KPMG report seems to validate DND’s claims that to acquire 65 F-35s will cost approximately CAD 8.4 billion (GBP 5.3 billion) or CAD 87.4 million (GBP 55.5 million) per aircraft. Fine, done. Right? Well … Unfortunately, this acquisition estimate is misleading as it has a 50 percent level of confidence based on internal DND estimates, which is typical of a baseline estimate. KPMG states that in order to achieve a 55 percent level of confidence there should be a contingency of 13.5 percent or an additional CAD 1.13 billion (GBP 720 million). Other international estimates are much higher, so this seems to be a face-saving measure for DND, but Canadians should expect the KPMG estimate to rise if the F-35 is selected. Especially when the US Government Accountability Office is estimating the average procurement cost will be USD 137 million (GBP 87 million).

Mock ups and holy decrees

The replacement of Canada’s ageing CF-18s has been mired with controversy and political sidestepping. When the announcement to buy the proposed 65 F-35s was made so was a CAD 47 thousand (GBP 30 thousand) mock up of the F-35 for the photo shoot.  In 2011, the then Associate Minister of National Defence, Julian Fantino, assured a Texas audience that: “We will purchase the F-35. We’re on record. We’re part of the crusade. We’re not backing down.” This is not the only time that the Associate Minister invoked a holy decree about the F-35. When it comes to Canada’s F-35 morass, neither the platform’s underperformance, nor the manufacturer’s missed opportunities to fix them, are the problem.

The problem is Canada, like the UK, like Norway and Australia – is just overly keen to get this thing on board. And like in the UK, this has led to some serious misrepresentation to the tax paying public. Already in the UK, the F-35 project is turning out to be the biggest defence spend in God knows how long – or ever, actually. Its epic price tag has produced some strange effect whereby governments no longer continue to represent the interests of taxpayers or national defence. Rather, F-35 envy has produced a dangerous model of ‘acquisition at all costs’ mentality. And if that doesn’t dissuade one from blowing a chunk of change on Lockheed’s dream machine – did I mention the thing spontaneously explodes when struck by lightning?

It should be noted that Stewart Webb has been part of the opposition to Canada procuring the F-35. He has co-authored an influential report, approximately a dozen op-eds and been in front of the National Press Gallery in Ottawa on the matter.

Feature photo  “F-35 in Canada” – Lockheed Martin

DefenceReport’s weekly recap is a multi-format blog that features opinions and insights from DefRep editorial staff and writers. The opinions expressed here are the author’s own and are separate from DefRep reports, which are based on independent and objective reporting.