The Government of Canada has selected the F-35 Lightning II as the replacement for Canada’s aging CF-18 jet fighters. Barring material adverse events, a contract will be signed in 2013-14, for delivery of aircraft in 2016.
The choice has provoked criticism. But it makes sense, on both defence and industrial policy grounds.
Twenty years ago, it was recognized that designing and building two next generation jet fighters was no longer affordable. Instead, a competitive process was commenced by the U.S. in the mid-1990s that pitted Lockheed Martin’s “X-35” prototype against Boeing’s “X-32.” The U.K. joined this “Joint Strike Fighter” program in 1995, Canada in ’97, and seven other nations thereafter. Lockheed Martin was declared the winner in 2001. And the result one decade later is the F-35 – the sole export-available “Generation 5” jet fighter in existence.
The F-35 is a plane capable of performing multiple roles – ground attack, reconnaissance and air defence missions – with the benefit of stealth. Described by those who should know as the “best kit” available for the Canadian Forces, it promises superior performance, while ensuring interoperability with our NORAD partner. And because it is a new aircraft that will be the subject of continuous R&D support, it should continue to be the best kit available for decades to come – a significant point of differentiation with “mature” fourth generation aircraft.
The military considerations underpinning the F-35 selection are buttressed by sound industrial policy. F-35 nations have sought to exploit the efficiencies of scale in two key ways. One is through the production of three F-35 variants on one assembly line, with 80 percent commonality of parts. A second is through the avoidance of preferential procurement policies leading to closed and fragmented domestic markets. A large and long production run will create a market of substantial scale for suppliers from F-35 member states that could benefit not only the approximately 60 Canadian-based companies that have participated to date in the program, but also those companies that can combine simulation expertise, training experience and Canada’s copious empty airspace into a unique pilot training offering for F-35 nations.
Notwithstanding the above, the 2010 commitment of the government has provoked a predictable round of (wide-ranging) criticism. Some say the F-35’s are “Cadillacs” that are too costly and too sophisticated for Canada’s defence needs. Others say new jetfighters are not necessary, claiming there is no real threat to Canadian airspace requiring such a response, while implying that, if such threats were to materialize in the future, the Americans would defend Canadian airspace in any event. Most critics focus on the process, alleging the F-35 selection should have been validated through a “transparent” competitive process.
Of course, as some participants in prior Canadian procurements will attest, the reality is that a competitive process does not necessarily produce the best result. Neither are the results of a sole source contract necessarily bad – witness the timely procurement of Boeing Chinook medium-lift helicopters.
A second reality is that the government was in a “no win” situation when choosing a way forward toward the eventual replacement of the CF-18. For conducting a competitive “solicitation of interest and qualification” process that resulted in the F-35 being the only compliant aircraft would have led to accusations of “rigged operational requirements,” while commencing a lengthy “value-for-money” competition between Gen 5 and Gen 4.5 aircraft would have provoked criticism that the government was conducting a faux competition for the sake of appearances and wasting Canada’s prior investments in the JSF program.
Criticism of the government’s decision in 2010 was therefore a certainty, regardless of the actual decision. Far less certain is whether the criticism can be sustained into 2011.
The newly signed Low Rate Initial Production contract for the fourth lot of 32 aircraft (LRIP-4) essentially sets a price ceiling on future F-35’s, while pricing aircraft produced early in the production process at a unit price reflecting a long and large production run will lower the average unit cost. The substantial ISS costs incurred regardless of the aircraft being supported, plus the use of accrual accounting, will shrink the annual cost difference between purchasing Gen 5 and Gen 4.5 aircraft.
The logical alternative to the F-35 is the upgraded “Super Hornet.” But Boeing will be busy until 2015 building aircraft for the US navy (to fill their fighter gap pending delivery of the F-35’s).
Add a vocal Canadian aerospace industry that supports the government’s F-35 decision, some high profile contract awards, plus the lure of a lucrative long-term maintenance contract, and the result? Opposition parties may discover that, unlike the EH-101 gambit of nearly 20 years ago, criticizing the F-35 decision simply won’t fly in 2011.
Peter Burn is a partner in the Ottawa office of Gowling Lafleur Henderson LLP. A former counsel to Minister of Finance, the Hon Michael Wilson, he counsel on international trade, technology development, government procurement, controlled goods and industrial security.
