Critics denounce fighter plan
that ‘reset’ button has been pushed on F-35 ‘a charade,’ NDP’s Harris complains
“This is not an admission of failure or wrongdoing. I didn’t hear a nanosecond of contrition from this government.” INTERIM LIBERAL LEADER BOB RAE
OTTAWA — Key questions remained Wednesday over the federal government’s promise to consider all available options to replace Canada’s aging jet fighters after an explosive new report put the full cost of buying, owning, replacing and disposing of 65 F-35 stealth aircraft at almost $46 billion.
But it’s not known whether the government is really prepared to walk away from the F-35 if a better alternative is found.
Conservative ministers noted the new Department of National Defence report still put the actual purchase price for the F-35s within its $9-billion budget. The remaining $37 billion is for development, maintenance, operating costs and disposal when the aircraft reach the end of their usefulness, expected around 2052.
The government also said it is too early to determine whether an open competition between the F-35 and its rivals is a viable way to determine the best fighter for Canada at the best price.
Rather, the government says it has restarted the entire procurement process by ordering the defence department to reassess what missions Canada’s next aircraft will be required to fly, what threats it will face and what technology and capabilities are available to Canada.
The government is also planning to reach out to other aircraft manufacturers such as Boeing and Eurofighter to determine what their aircraft are able to do and how much they will cost compared to the F-35.
This work will be reviewed by a panel of independent experts comprised of former fighter pilot and senior bureaucrat Keith Coulter, University of Ottawa defence expert Philippe Lagasse, former bureaucrat-turned-consultant James Mitchell, and former federal comptroller general Rod Monette.
“We are pressing ‘reset’ on this acquisition in order to ensure a balance between military needs and taxpayer interests,” Defence Minister Peter MacKay said. “And to do so, we need to have all viable options on the table for the replacement of the CF18.”
But other fighter aircraft manufacturers have indicated they will not co-operate unless there is an open competition.
And opposition parties say unless the government holds a competition, its claims to have pushed the “reset” button on the F-35 are empty.
“This is a charade,” said NDP MP Jack Harris. “This is not a new process. The reset button does not create anything more than another version of a sole-source contract.
“They’re not going to put it out to a fair and transparent public tendering process.”
Harris said the government has merely promised to do a “market analysis” of jets other than the F-35 — which he equated to a “shopping expedition.”
By comparison, said Harris, a true tendering process would ultimately deliver Canadians what they need.
“You get the lowest price, you get the product that you need, at the right price with the industrial benefits that are required.”
The opposition also accused the government of showing no remorse after it originally told Canadians the F-35 would cost tens of billions of dollars less than the $45 billion over 42 years outlined in the National Defence report released Wednesday. When it announced its plan to buy the aircraft in 2010, it cited a figure of $16 billion over 20 years, and later ad- mitted that the figure would be around $25 billion.
Public Works Minister Rona Ambrose warned that “there’s no doubt that applying a full life-cycle costing is clear that any aircraft the government chooses will come with a significant price tag.”
Interim Liberal leader Bob Rae said the government is making no moves to correct its past mistakes.
“This is not an admission of failure or of wrongdoing,” said Rae. “I didn’t hear a nanosecond of contrition from this government.”
Rae said the government has not begun a “genuine competitive process” and that the people looking at other options are the same as those who chose the F-35 without looking at alternatives.
Wednesday was the first time Canadians have got a clear look at the full estimated cost of buying and operating a fleet of F-35s as the government tabled the Defence Department’s most recent projections with several other reports.
At $45.8 billion, the figure far surpasses all previous estimates.
But the numbers also aren’t set in stone and there is a very real chance they could increase — or possibly decrease — by billions of dollars.
MacKay acknowledged the cost estimates are not firm.
“I must stress that what has been presented to Canadians today is simply estimates based on cost assumptions,” he said. “These estimates will continue to be refined in the years to come no matter what aircraft Canada purchases.”
The report does vindicate some of the cost predictions presented by National Defence in the past, including its estimate that the aircraft will cost about $25 billion over 20 years.
It also shows that as things stand, the cost of simply buying the aircraft would be within the $9 billion set aside by the Harper government to replace Canada’s aging fleet of CF-18s — for now.
The government had initially set aside an $800-million contingency to offset any variables.
So, just to be clear, they’re still spinning us. Even now. Even after all that has gone before, even with the release of its own specially commissioned independent review by the accounting firm of KPMG, the Conservative government still can’t bring itself to tell us the whole truth about the costs of the F-35.
I’ll leave others to try to figure out the rest: whether there will be a truly open competition now that the original sole-source contract is dead, whether Canadian firms will still be able to bid on F-35 work if we don’t buy it, and so on. I’d just like to focus on the comparatively simple question of how much these planes really cost, and why it matters.
You will be familiar with how the government’s official estimate of the cost of the planes has, ahem, evolved over the years: from $9 billion originally (just the acquisition cost), to $16 billion (including acquisition and “sustainment,” but not operating costs), to the $25 billion (including all costs, but only over 20 years) it grudgingly owned up to after the auditor general’s report last spring.
As you’ll recall, the auditor general said even that figure severely underestimated the true cost of the project, as the actual service life of the planes was not 20 years, but 36 years. Others, including the Parliamentary Budget Officer, put it at 30 years: that’s the number KPMG used. And the figure that popped out of its calculators was $45.8 billion.
Now, this increase in the reported price does not mean the cost of the planes has “skyrocketed” or “ballooned” or whatever other word you might have read. I mean, it has — from $75 million per plane to $88 million, with further increases likely to follow. But acquisition costs are only a fraction of the total: just $9 billion, a figure that has not changed even after this 20 per cent increase in unit price. The rest, almost all of it, is for sustainment and operations.
The increase in the reported price, then, does not so much reflect movements in the actual costs of the plane, as it does the government’s willingness to fess up to them. But, as I say, they have not really done so even now.
The new line, as expressed in government documents and repeated by the defence minister, Peter MacKay, is that the planes will cost $45.8 billion “over 42 years.” Not 20 years, or 30 years, but 42 years. And then the spin: it was a billion dollars a year before, it’s pretty much a billion dollars a years now. So you see? Nothing’s changed.
Except it isn’t 42 years. Not in any comparable sense. The 20 years used in previous cost estimates was the (supposed) service life of the planes: that is, how long they’re expected to be in use. KMPG’s report, as I said, assumed a service life of 30 years. So to compare apples to apples, you would have to say the planes are now projected to cost $45 billion over 30 years.
How does the government get 42 years? By adding in 12 years for “development and acquisition,” from the decision to acquire the planes in 2010 to the delivery of the last plane in 2022. No previous es- timate included development costs. And indeed they add next to nothing to the total: just $565 million. But by tacking on another 12 years, the government gets to spread the cost over a much longer time frame, and make the annual cost of the planes seem much lower than it is.
Does any of this matter? Yes it does. It matters for two important reasons. First, because we need to know how much of a commitment we are taking on when we make a capital purchase. It’s useful to know the annual figure. But we also need to know the total — both the annual cost, and how many years we’ll be paying it — because we need to set aside those funds for planning purposes.
If we don’t — if we only pencil in the costs over 20 years for planes that will in fact be flying for 30, or if we include the acquisition costs, but leave out the operating costs — then we will find ourselves, some years hence, having to do one of two things. Either we will have to allocate less funds to other programs to make room for the planes. Or we will have to stop flying the planes.
This is why Treasury Board guidelines on capital purchases stipulate that all costs over the full life cycle of the equipment should be included, including operating costs. That’s why defence departments across NATO follow the same principle. It’s why the previous auditor general, Sheila Fraser, in her 2010 report, criticized defence for failing to include all costs in its accounting — again, she specifically mentioned operating costs — and it is presumably why the Defence Department agreed, in writing, to do so.
Yet, even now, MacKay and his officials are trying to claim that operating costs should not really be included, because “we’d have to spend that money anyway,” i.e., regardless of which plane was purchased, or even if we somehow hung onto the old CF-18s. Interesting, but irrelevant. It’s useful to know how much more one plane would cost than another. But we also need to know the cost, period.
We don’t just need to compare the cost of one fighter jet with another. We also need to compare the benefits of spending a given sum on fighter jets, as a budget item, versus the other purposes to which the same money could be put: tanks, or health care, or cutting taxes.
And this brings us to the second reason this matters: because whatever the rules are, the government is obliged to follow them; because it knew what the rules are, and didn’t. I can understand why, in a way. There’s no doubt life-cycle costs can be misunderstood, or misrepresented, as if that $45.8 billion were just the acquisition cost, or as if it all came out of one year’s budget. But just because a rule is inconvenient does not entitle you to ignore it.
And even if one were inclined to excuse the initial deception, what is really inexcusable is the government’s subsequent refusal to back down, even when it was called on it, but rather to carry on spinning — as it did after the Parliamentary Budget Officer’s report, as it did after the (current) auditor general’s report, as it is doing even today.