Fighter jet plan 'reset' as F-35 costs soar

The federal government says it won't make a final decision on which fighter jet to buy until it completes every step of the complex process it laid out last spring following a blistering report from the auditor general about the escalating costs attached to the F-35.

Those costs have now been set at $45.8 billion over the jets' full 42-year life cycle, in an independent audit released Wednesday.

But officials didn't say Wednesday how long its evaluation process will take to find new planes, or whether the aging CF-18 Hornet jets in service now will hold up if there is a significant delay in finding replacements.

Officials said Wednesday that National Defence is conducting a thorough examination of the current fleet, including any costs of upgrades that might be needed to extend its life.

At a press conference Wednesday, Minister of Public Works Rona Ambrose said, "The next step is a full review of options.  We have hit the reset button and are taking the time to do a complete assessment of all available options."

A panel of independent reviewers to oversee the evaluation process to replace the older planes was announced Wednesday. Members will include Keith Coulter, Philippe LaGassé of the University of Ottawa, public policy expert James Mitchell and Rod Monette, a former comptroller general of Canada.

Officials also said that all fighter jets currently in production or scheduled to be in production will be considered to replace the CF-18s. That includes the Eurofighter Typhoon, the Boeing Super Hornet and others.

Costs have steadily risen

The government announced its decision to buy the F-35 fighter jets in July 2010, without following a competitive process, and it stuck to its line that acquisition costs for the F-35s would be $9 billion for a 20-year lifespan.

It dismissed a report from parliamentary budget officer Kevin Page who estimated the costs would be $30 billion over a life cycle of 30 years.

However, the government back down when,in his report last spring, Auditor General Michael Ferguson concluded the F-35 program would cost as much as $25 billion over 20 years. But Ferguson also said that was too short a period of time to consider.

In response to the auditor general, the government created the National Fighter Jet Procurement Secretariat under Public Works, and touted a seven-point plan to put the process back on the rails.

The government extended the jets' life cycle to the more realistic 42 years.

Wednesday, a Department of National Defence report assessed the new longer costs at about $44 billion.

The independent auditor KPMG essentially certified those costs — and the methodology used to determine them — in its own report also released on Wednesday. It also tacked on another billion dollars in costs to account for aircraft losses over the years, setting the final cost for 65 aircraft, maintenance, operating costs and sustainment at $45.8 billon.

This is a huge increase from the government's original estimate of about $16 billion over 20 years, but there is no doubt that the lengthening of the life cycle is a big contributor to the inflated cost.

NDP defence critic Jack Harris said Wednesday, "Why we're doing this, this charade, is because they've been caught out, they've been misleading Canadians about the cost, they've never revealed the true cost."

Process 'reset' with longer life cycle

Speaking to reporters Wednesday, Defence Minister Peter MacKay said that in 2010 he announced that the acquisition costs of the F-35 would be $9 billion. He stated that today's estimates were close to that figure, although he acknowledged that the $9 billion was spread over a life cycle of only 20 years.

MacKay also admitted that operating costs were not taken into account when coming up with the $9-billion calculation.

In the past few days the government has seized on that phrase, "life cycle," as a way to explain the inflated costs revealed by the KPMG report. Ambrose said that using the "full life cycle" of 42 years explains the difference in the costs. 

A flushed and at times angry looking MacKay replied to a question a question about why all this "reset" is happening at all, saying, "Obviously the result of the AG recommendation that due diligence occur in the examination of the numbers, that's exactly why we're here."

MacKay was asked if he'd perhaps been hiding the true numbers, given that the previous auditor general Sheila Fraser, in a report on costing helicopters, had recommended that full life cycles should be used in calculating costs. He replied, "You'll recall that I just said this was a working model that was used by the Department of Defence, as long as I've known, as well, it's the Treasury Board guidelines that we followed."

MacKay did not directly answer questions about whether he had any regrets about how he attacked opposition members when they questioned the costs of the F-35s.

Interim Liberal Leader Bob Rae, speaking to reporters later, said, " I didn't hear a moment, not a nanosecond of contrition from this government, either from Mr. MacKay. We can provide you with quotes from now until the cows come home where they said this was the only plane, this was the only plane, and anyone who attacked this plane was against the military."

F-35 benefits to Canada set at $9.8B

Another report released today found that, as has been reported, the industrial benefits that would flow from the F-35 program are estimated to be $9.8 billion. However, those opportunities will disappear if Canada drops out of the F-35 program. Even if the F-35 is the chosen plane, there are no guarantees that Canadian industry will win all of the potential contracts.

Documents released Wednesday also revealed that the sticker price for each F-35 jet, based on information from the Joint Strike Fighter Program office, is now $92 million. This is a jump from the government's original promise of $75 million per plane.

Officials said that the plan is still for 65 planes if the winning jet turns out to be the F-35, but that figure could change if another plane is chosen.