Canada will consider purchasing fighter aircraft other than Lockheed Martin Corp. (LMT)’s F-35 jet, after a report showed the planes would cost C$45 billion ($45.7 billion) over 42 years, Public Works Minister Rona Ambrose said.
The report prepared for the government by KPMG LLP follows concerns expressed by lawmakers about the escalating cost of the F-35. In the U.S., the program to buy a planned inventory of 2,443 fighters is now estimated to cost $395.7 billion, 70 percent more than when Lockheed Martin won the contract in late 2001. It’s the Pentagon’s costliest weapons system.
“The next step is a full review of options,” Ambrose told reporters yesterday, saying the government has frozen funding for acquisition of the F-35. “We have hit the reset button and are taking the time to do a complete assessment of all available aircraft,” which she said still includes the F-35.
Lockheed Martin fell 2 percent to $89.96 in New York trading at 1:15 p.m. after gaining 13 percent this year.
The Canadian government had said in July 2010 that it would buy 65 F-35s to replace the country’s aging fleet of CF-18 Hornet jets. The decision yesterday means the Canadian government may consider alternatives including Boeing Co. (BA)’s F-18 Super Hornet and Eurofighter GmbH’s Typhoon.
Lockheed Martin, the world’s biggest defense contractor, has said developing international markets for the F-35 was among the company’s priorities for growth. The Canadian aircraft are important because they were to be built early in the program, a schedule that would help reduce unit costs and stabilize production, according to Robert Levinson, an analyst for Bloomberg Government.
“While Canada’s order isn’t a big share of the 3,173 F-35s planned, it could prompt others to second-guess their commitments,” Levinson said. “It also could have some impact on Canadian companies participating in the program, as this was sort of a quid pro quo for buying the jet.”
Lockheed Martin “has been a partner with the Canadian Forces for more than 50 years,” Laura Siebert, a spokeswoman for the Bethesda, Maryland-based company, said in an e-mailed statement. “We continue to look forward to supporting the Canadian government as they work to provide their Air Force 5th Generation capability for their future security needs.”
Prime Minister Stephen Harper’s government was criticized in April by the country’s auditor general for mismanaging the F-35 purchase, prompting it to set up a secretariat within the public works department to coordinate the acquisition of new fighter jets.
The Department of National Defence was “too involved” with the development of the F-35 program to run a fair competition for new fighter jets, Auditor General Michael Ferguson said in an April 3 report. Defense officials didn’t provide complete cost information to members of the nation’s parliament or fully inform decision makers about the risks of buying the jets, the report found.
The project’s budget had been set at C$25 billion over 20 years in 2008, including C$9 billion to buy the jets and C$16 billion to operate and maintain them.
Canada has been involved with Lockheed’s “Joint Strike Fighter” program since 1997. Canada signed memorandums of understanding to participate in the program in 1997, 2002 and 2006.
The government said it will assess available aircraft in production or scheduled for production based on Canada’s military needs, according to documents released yesterday. The nation also will evaluate the ability of its fleet of CF-18 jets to be used beyond their current life expectancy.
Canada wants “to ensure a balance between military needs and taxpayer interests,” Defence Minister Peter MacKay said. “To do so, we need to have all viable options on the table.”
The government didn’t provide a time frame to complete the work. Matthew Kellway, a spokesman for the opposition New Democratic Party on military procurement issues, told reporters the process is still not open.
“They’ve quickly retreated back behind closed doors to do this process once again in secrecy,” Kellway said.
Canada’s decision follows cutbacks in F-35 plans by other nations. The Italian government announced in February it would buy 90 F-35s instead of the 131 previously planned, according to the U.S. Congressional Research Service.
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