Cost of new fighter jets could soar by billions
F-35 Lightning II is seen in this image courtesy the Lockheed Martin Corporation.
Published Wednesday, June 9, 2010 6:50AM EDT
OTTAWA - The federal cabinet is expected to debate the multibillion-dollar purchase of new jetfighters Wednesday, but the long-term cost of the Joint Strike Fighter will be a moving target.
U.S. defence giant Lockheed-Martin is eager to sign a sole-source contract with Ottawa to sell as many as 65 of the advanced stealth fighters, but a deal on long-term service would be extra -- and could cost billions more.
Traditionally, when the federal government buys a big-ticket piece of equipment for the military, it calculates the purchase price and has the cost of the long-term support package nailed down up front. It is one of the few western countries to handle military procurement that way.
But Defence bureaucrats are only able to ballpark the overall project costs, with estimates varying between $9 billion and $10 billion, depending upon who you talk with in government and the defence industry. And whenever the Conservatives decide to announce the deal for the F-35 Lightning II, they'll only be able to guess at what the maintenance portion of the bill will be.
Lockheed officials said Tuesday that the anticipated delivery date of 2017 for the first aircraft -- replacements for the nearly 30-year-old CF-18s -- means there is plenty of time to work out support arrangements.
"Those discussions are ongoing," said Steve O'Brien, Lockheed's vice-president of F-35 business development. "We don't expect this to be painful or take a lot of time."
There are 18 of the advanced stealth fighter in various stages of testing and qualification in the U.S., while the first 63 production models are being assembled for customers who've already signed deals. It's unclear how much maintenance the aircraft will need, but O'Brien said as data and costs are assembled they will be shared with Canada as the program moves forward.
The Defence Department got into a similar situation with Lockheed Martin when it agreed two years ago to the sole-source purchase of 17 C-130J Super Hercules cargo planes. The deal was inked without a firm in-service support contract and federal officials reportedly went through the roof when the aircraft-maker presented a proposal much higher than budgeted.
In the end, Ottawa settled for an $723-million maintenance package that covers the first seven years of the cargo plane's life -- the period of time critics say is the least expensive for repairs and spare parts.
There has been a lot of heated debate in Washington about the F-35, particularly after the Pentagon last week released an estimate that suggested the each aircraft would cost about US$94 million, a figure that rolls in both the purchase price, long-term maintenance and adjustments for inflation. That's a 64 per cent increase from the initial estimate.
Despite the staggering increase, the U.S. military stand behind the project, which is intended to deliver 2,457 jetfighters to the Americans. Other countries, such as the Netherlands have also winced at the cost and there have been motions put before the caretaker government calling for Dutch participation to be either scrapped or drastically curtailed.
The Australians also balked at the price as far back as 2006, when their projected cost jumped from $10.5 billion to $15 billion for 100 aircraft. An Australian parliamentary report warned the government of the day that it was making a mistake signing on so early in the project development when "the eventual cost of the aircraft and whether it represented value for money" were still unknown.
Defence Minister Peter MacKay insisted in the House of Commons on Tuesday that no decision had been made, a statement that was echoed in just about every quarter of National Defence headquarters.
"What this government will commit to is to get the best possible equipment at the best possible price," he said.
Despite the denials, it's clear the air force has had its heart set on the F-35. An options analysis completed for the chief of air staff in 2006 said that the Joint Strike Fighter "family of aircraft provides the best available operational capabilities to meet Canadian operational requirements, while providing the longest service life and the lowest cost per aircraft."
Ottawa has already invested $160 million in the development of the stealth fighter and Canadian aircraft parts makers are already in the queue to provide components to Lockheed's entire fleet of 3,100. O'Brien estimated Canadian companies have already secured $275 million in work in the building phase and more would follow "on a competitive basis" for maintenance.