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Sticker shock, tenuous industrial benefits renew F-35 jitters

KPMG report suggests the jets bill would balloon to $40 billion instead of the $16 billion initially anticipated.


December 10, 2012
by The Canadian Press

OTTAWA—The sudden and severe jitters among Conservatives over their stealth fighter program are due to sticker shock as well as doubts that the country’s aerospace industry might not reap as many benefits as initially trumpeted, according to government sources.

Skepticism about the future of F-35 program spiked after an independent analysis by accounting firm KPMG and determined that the full life-cycle cost of the F-35 would be far above $40 billion rather than $16 billion originally set by the government.

The price tag ballooned after auditors determined a total in-service life of 42 years for the fighter-jet, which is at least a dozen more than both the auditor general and the parliamentary budget officer estimated in their costing.

The longer a plane is flying, the more expensive it becomes to maintain and sources say auditors at KPMG settled on a service life of four decades because that’s how long the Canadian military has been keeping aircraft on the flight line.

A companion study that is due to be released next week at the same time as the KPMG report assessing promised industrial benefits or economic spin-offs from F-35 production may provide further headaches for the government.

When the Harper government first signalled its intention to buy the Lockheed Martin-built F-35 Lightning II, it proclaimed that Canadian aerospace companies would benefit by receiving as much as $12 billion in manufacturing or spare parts contracts over the lifetime of the project.

Industry Canada quietly rowed those expectations back to US $9.85 billion last spring in the wake of Auditor General Michael Ferguson’s scathing assessment of how the program has been managed thus far. The report accused National Defence and Public Works of not doing their homework, low-balling the cost and to a lesser extent, exaggerating the benefits.

The benefits analysis will apparently show Canada struggling to reach the US $9 billion mark over the decades in the face of stiff competition from other nations whose participation in the development of the aircraft give them preferential access to the U.S. manufacturer’s supply chain.

To date, 70 Canadian companies have secured over US $435 million in contracts on the development and initial production of the fighter.

When the Tories first floated their lifetime estimate of $16 billion, it was based on 20 years of ownership, but did not include operating and maintenance figures.

The auditor general looked at figures over 30 years and came up with a $25 billion price tag. The parliamentary budget officer estimated costs of over $29 billion.

There was also speculation the government was prepared to scrap the F-35 deal and move to an open competition to replace the air force’s aging CF-18s, which are due to retire by 2020.

But government sources say that point has not been reached yet.

The secretariat would be the one making that call and it hasn’t begun its long-awaited options—or market—analysis of what the country’s air force might need and what aircraft are available.

That analysis is expected to get underway within 10 days with a help of an independent committee of up to five people who are charged with ensuring that all options are considered.

The committee will include retired Lt.-Gen Charles Bouchard, who led the NATO mission in Libya, Keith Coulter, the former head of the Communications Security Establishment, former federal comptroller-general Rod Monette, University of Ottawa professor Philippe Lagasse, and at least one other member.

The terms of reference for this options analysis say the government will “review and assess fighter aircraft currently in production and scheduled for production.”

That means the F-35 is still in the running.

©The Canadian Press