DND’S F-35 dream may be in danger

Stealth fighter cost could hit spending cap, report shows

The military’s dream of buying a fleet of F-35s appears to be in growing danger of bumping against a hard spending cap imposed by the Conservative government.

A new Defence Department report shows the anticipated cost per plane has increased since December, which combined with other factors has left very little room for error if Canada is to buy 65 of the stealth fighters for $9 billion.

That number is politically important because the government has stated it will not pay more than $9 billion to buy a replacement for Canada’s aging fleet of CF-18s.

(The full cost of the F-35s has been pegged at $45 billion, but only $9 billion of that is for actually buying the planes. The remaining $36 billion is for development, maintenance, operating costs and disposal when the aircraft reach the end of their usefulness, expected around 2052.)

Defence officials blame the most recent price hike on higher than expected production costs, foreign currency fluctuations and, in particular, changes some allies have made to their own F-35 purchase plans.

Because some allies have scaled back or delayed their plans to purchase the stealth fighter, Canada will be forced to buy them when they are in a more expensive period of production, the report indicates.

To compensate, defence officials have opted to shrink the contingency fund that has been set aside to offset any surprises when it comes time for Canada to purchase the stealth fighters.

The department had already faced criticism from accounting firm KPMG late last year when it found the government had set aside only $602 million as a contingency.

KPMG noted the contingency was far below National Defence’s own estimate of the need for $1.5 billion.

Now with the latest cost increase, the contingency has shrunk further, to $382 million.

National Defence acknowledges in its report that it reduced the contingency “to remain within the $9B ceiling” established by the government.

They go on to say that, should a larger contingency fund be required, “the shortfall could be met by buying fewer aircraft” — even though senior military leaders have said the air force needs a minimum of 65 F-35s to meet its needs.

Former military procurement chief Alan Williams says even though it appears National Defence is in danger of breaking the $9-billion ceiling with the F-35, “you can make it fit just by playing so many games.”

National Defence has previously been accused of juggling numbers to stay within the $9-billion target.

Defence officials have refused to include more than $1 billion in anticipated costs to replace any F-35s that are lost through attrition even though internal reports show the military expects to have lost several of the stealth fighters before the last one is even delivered.

National Defence also initially planned to spend $420 million of the $9 billion budgeted for purchasing the F-35s on Canadian-specific modifications, such as making the country’s refuelling aircraft compatible with the stealth fighters.

But it has since said it will contract out air-to-air refuelling instead, meaning the $420 million doesn’t need to be included in the price of purchasing F-35s, thus keeping the program within the $9 billion budget as the fighter’s price tag continued climbing.

Similarly, DND has slashed the amount of ammunition it plans to buy if it goes with the F-35, to $59 million from $270 million. Planned spending on infrastructure upgrades such as hangars has also been cut to $244 million, from $400 million.

Williams says the true issue is the overall cost of buying, maintaining and operating the stealth fighters over their life span.

The National Defence report indicates maintenance and operating costs have actually dropped significantly, though it acknowledged the most recent numbers have not been verified.

As a result, it kept the estimated overall cost of the F-35 program relatively unchanged at just over $45 billion.