Canada to Spend $8.5 Billion to Buy 65 Lockheed Martin F-35 Fighter Jets
Peter MacKay
Jonathan Hayward/Bloomberg
Canada's Defence Minister Peter MacKay speaks with members of the media outside the House of Commons Ottawa, Ontario, Canada.
Canada's Defence Minister Peter MacKay speaks with members of the media outside the House of Commons Ottawa, Ontario, Canada. Photographer: Jonathan Hayward/Bloomberg
Canada’s Defence Minister Peter MacKay said the country will spend about C$9 billion ($8.5 billion) to buy 65 F-35 Joint Strike Fighter jets from Lockheed Martin Corp., giving a lift to a program that has faced delays and rising costs.
Delivery is expected to begin in 2016, according to a statement posted today on Canada’s National Defence website. The contract includes “associated weapons, infrastructure, initial spares, training simulators, contingency funds and project operating costs,” the document said.
The fighter program is four years behind schedule on key milestones, including completing the development phase, combat testing and beginning full-scale production. Its costs are also growing. Canada is the first foreign partner to announce purchase of production aircraft.
Canada’s decision is a “major plus for the program,” Richard Aboulafia, an aerospace analyst at Teal Group in Fairfax, Virginia, said in an e-mail. “It provides a respected endorsement and very useful production numbers.”
The fighter purchase is part of Canada’s efforts to replace its aging military equipment. Six of the military’s core fleets, including destroyers, frigates, maritime patrol aircraft, fixed- wing and rescue aircraft, fighter aircraft and land combat vehicles, will need to be replaced over the next 20 years.
‘The Best Aircraft’
“The F-35 Joint Strike Fighter is the best aircraft we can provide our men and women in uniform,” MacKay said in Ottawa today. The plane “will help the Canadian Forces defend the sovereignty of Canadian airspace, remain a strong and reliable partner in the defense of North America, and provide Canada with an effective and modern capability for international operations.”
The ruling Conservative Party says the contract will benefit the country’s C$17.5 billion aerospace industry, the world’s fifth biggest in 2007. Industry Minister Tony Clement told reporters the purchase will support the Canadian economy by giving Canadian companies a chance to bid on more than C$12 billion in F-35 related contracts.
“These Canadian companies will not only contribute to their bottom line in the short term, they set in motion opportunities indeed for decades to come,” he said.
The purchase comes over objections from Canada’s three opposition parties. The Conservatives hold a minority of seats in Parliament, meaning they must get support from at least one opposition party to pass budgets and avoid getting toppled.
Political Opposition
Marc Garneau of the Liberal Party said yesterday his party would stop the purchase should they come into power in the future. The New Democratic Party said in a statement that the decision to buy the planes lacked transparency and that the ruling Conservative Party didn’t consult with the opposition.
Claude Bachand, the Bloc Quebecois’ defense spokesman, said that while the government should have held a bidding process, his party will focus on ensuring that Quebec companies like CAE Inc., Pratt & Whitney Canada and Heroux-Devtek Inc. get their fair share of the contracts.
Quebec companies “are all pleased about the project, they already have contacts with Lockheed Martin, and so we say it’s important that the maintenance contract be given to those companies,” Bachand said, adding that he estimates that maintenance will add another C$7 billion to the cost of the plane.
Maintenance Costs
Public Works Minister Rona Ambrose said today that the maintenance contract will be negotiated “at the time we acquire” the planes.
Canada has invested C$168 million in the Joint Strike Fighter program, allowing it to buy aircraft and to have domestic firms win contracts. Canadian companies have received contracts valued at more than C$350 million from the program to date, according to Industry Canada.
The projected cost of the program is now $382.4 billion, 65 percent higher than the $232 billion estimated when the program started in 2002, according to U.S. Defense Department figures released last month, making it the most expensive U.S. weapons program. Lockheed Chief Executive Officer Robert Stevens said last month that the company is negotiating orders at a price 20 percent lower than the U.S. official estimate.
The delays and cost growth are the consequence of a major wing redesign, inefficient production, testing problems and slow deliveries from suppliers, according to findings by Bethesda, Maryland-based Lockheed Martin, congressional auditors and Pentagon officials.
Rising Price
The Pentagon’s cost-analysis office reports that the price per plane -- including research, development and construction costs -- is now $112.4 million, about 81 percent more than the original estimate of $62 million. The production cost alone of each plane is estimated at $92.3 million, almost 85 percent higher than the $50 million projected when the program began in 2002, the Pentagon told Congress. Lockheed has disputed the cost estimate.
Those estimates are higher than that of the program office or Lockheed Martin because it’s based heavily on historical data from other aircraft programs such as the Boeing F-18 and Lockheed Martin F-22.
Asked about the per-plane cost for Canada, which works out to about C$138 million, MacKay said that total also includes weapons and other systems. Ambrose said Canada is getting an 8 percent discount on the jets for being a partner in the project.
Lockheed Martin fell $1.73, or 2.3 percent, to $74.22 at 2:16 p.m. in New York Stock Exchange composite trading.
To contact the reporters on this story: Alexandre Deslongchamps in Ottawa at adeslongcham@bloomberg.net. Gopal Ratnam in Washington at gratnam1@bloomberg.net;
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