The official inquiry is in today, the costs are now projected to be $45.8 Billion over 42 years for the 65 F-35's.
Fighter jet plan 're-set' as F-35 costs soar
F-35 isn't dead yet, but on life-support with costs set at $45.8B over 42 years
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 after 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 or whether the aging CF-18 Hornet jets in service now will hold up if there is a significant delay in finding replacements.
The original delivery date for the F-35s was supposed to be between 2017 and 2023. 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 their life.
More details were given Wednesday about the evaluation of other options to replace the older planes. A panel of independent reviewers to oversee the process was announced. Members will include Keith Coulter, Philippe LaGasse 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.
One of the most anticipated reports was from accounting firm KPMG, which concludes that the total cost of owning and operating the F-35 jets would be $45.8 billion, including attrition costs, over a period of 42 years.
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.
Process 'reset' with longer life cycle
At a press conference following the release of the documents, Minister of Public Works Rona Ambrose said the government had agreed to "refine" its fighter jet acquisition process as recommended by the auditor general.
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 only 20 years, which, he said, was in line with Treasury Board guidelines.
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.
MacKay said the "reset" process underway now is because the auditor general suggested more due diligence be applied to the cost estimates.
He did not directly answer questions about why the Defence Department did not use a longer life cycle than 20 years.
The KPMG report notes that Norway, Australia and the Netherlands all use 30-year life cycles for their cost estimates, but KPMG recommended that a full life cycle be the measure, which also happens to be what the auditor general stipulated in his spring report on the fighter planes.
At 42 years, beginning in 2010, that life cycle would mean the new planes wouldn't be mothballed until 2052.
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. And 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.
Officials also said that even though Canada is evaluating all other options for aircraft, it still signed an F-35 memo of understanding in 2010.
Costs have steadily risen
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.
As a result, 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. 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.
The KPMG audit was generally muted in its criticism of the government's numbers.
But one area where it had significant disagreement was on the size of the contingency fund built into the government's $9 billion cap for simple acquisition. Those costs include just the planes and the parts and equipment needed to fly them, along with a built-in contingency spread of several hundred million dollars.
But KPMG worries the cost of the F-35 could climb far beyond the new $92 million figure. KPMG says that kind of increase would affect the number of planes the military could buy, bringing it down from 65 aircraft, to just 55.
Of course, that discussion is hypothetical, as the government now says its now looking at buying other planes.
It promises now to set aside the statement of operational requirements that the Defence Department wrote to justify its planned purchase of the F-35.
The government said Wednesday that statement of requirements no longer has any effect, though officials say it could also still be resurrected.
The government announced its decision to buy the F-35 fighter jets in July 2010, without following a competitive process, to replace Canada's fleet of aging CF-18 Hornets. The government stuck to its line that acquisition costs for the F-35s would be $9 billion for a 20-year lifespan, and it insisted that the sticker price for each individual plane would be $75 million.
The government dismissed a report by Kevin Page, the parliamentary budget officer, who calculated that the F-35s would in fact cost $30 billion. Page used a life cycle estimate of 30 years.
But last April the government backed down when Ferguson issued a scathing report about the F-35 project. "There were significant weaknesses in the decision-making process used by National Defence in acquiring the F-35 to replace the CF-18," Ferguson wrote.
The government created the National Fighter Jet Procurement Secretariat under Public Works in response, and touted a seven-point plan to put the process back on the rails.
Long-term cost of F-35 jet fighter almost $45 billion, new report confirms
OTTAWA - The Defence Department has pegged the full cost of Canada buying, owning, replacing and disposing of 65 F-35 stealth fighters at $44.8 billion over 42 years, according to a report tabled in the House of Commons Tuesday. It's the first time Canadians have been presented the full price Canada can expect to bear all the way from the aircraft's development through to disposal, and it far surpasses any previous figure made public.The report comes after years of criticism over what has been seen as the Harper government's refusal to fully disclose how much the F-35s will cost.
The costs have also been made public as the government has been trying to prove to Canadians that it has truly pushed the "reset" button on its plans to purchase F-35s.
Yet even the numbers included in the report aren't the full story, as the Department of National Defence warned that "these estimates will change as more information becomes available."
Among the unknowns are inflation, exchange rate changes and a variety of other unknown costs and variables that could affect the cost estimates by billions of dollars.
There are also a number of built-in assumptions that, if proven false, would also raise the price tag.
This includes a prediction the F-35s will be flown 20-per-cent less than Canada's current fleet of CF-18s and that a total of 3,100 F-35s will be bought by Canada and its allies.
A reduction of 400 aircraft, the report states, would increase Canada's costs by $500 million.
The report also doesn't include the cost of acquiring between seven and 11 replacement aircraft that are predicted to be needed as some of Canada's F-35s crash or are otherwise lost over the course of the program.
This alone is expected to cost $1 billion - which would bring the $44.8-billion cost to $45.8 billion.
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 in the actual cost of purchasing the stealth fighters.
But that number has since shrunk by 25 per cent to $602 million as the estimated cost of each F-35 has increased from about $75 million to $87.4 million.
That could be significant as the report says there could be a cost fluctuation of as much as 28 per cent - or $1. 7 billion - if things don't go as planned.
"Based on the capability of modern aircraft and simulator technology, it is expected that a fleet of up to 65 aircraft will provide sufficient capacity and flexibility to maintain Canada's defence commitments at home and abroad," the report concludes.
Yet the report also says that the loss of an aircraft - or, by inference, the decision to buy fewer than 65 F-35s - "would result in a diminished capacity to undertake and sustain discretionary operations.
"Therefore, operational risk will need to be managed, partly through the assignment of additional flying hours to the remaining aircraft, if lost aircraft is not replaced."
Industry Canada has also downsized its estimate for how much Canadian business can expect to benefit if Canada does go ahead with its plans to purchase the F-35, from $10.5 billion U.S. to less than $9.8 billion U.S.
Exactly why Canadian companies are expected to have $700 million less in opportunities associated with the F-35 is not clear.
While the cost estimates are based on the idea of Canada replacing its CF-18s with the stealth fighter, which remains an option, the government has also directed the Canadian Forces to consider all other possible options.
Defence is currently re-assessing 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.
This will also include reaching 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.
It's not clear whether those companies will co-operate or not unless an open competition is held, something the government has so far refused to discuss.
Canada's contentious F-35 figures in danger of falling off U.S. fiscal cliff
OTTAWA -- A detailed report crunching all of the numbers, contingencies and eye-popping price points of the Harper government's cherished stealth fighter program is due to be officially made public Wednesday, but experts say it may have a short shelf life as the U.S. heads for its so-called fiscal cliff.
The federal scene has been whipped into a frenzy since a series of leaks last week suggested an independent analysis of the cost of the Lockheed Martin-manufactured F-35 could reach past $45 billion over the lifetime of the aircraft.
An analysis done by the accounting firm KPMG will present a range of cost options for the multi-role fighter, depending upon how long the air force intends to fly the plane, and is expected to peg the cost of each individual aircraft at around $88 million.
But the formula for determining the price tag is more complex and depends on the total number of orders the U.S. aircraft giant receives in any given production year.
If one of the nine nations committed to the oft-maligned program reduces or cancels its orders, the price goes up for everyone else.
With Washington poised to slash defence spending, either voluntarily or by the force of a congressional deadline, there is the real possibility the U.S. could dramatically reduce the number of F-35s it intends to buy from the current 2,243.
For American budget hawks "this is a target shining like a bonfire in the dark," said Paul Malliet, a former air force colonel who worked on Canada's acquisition of the current CF-18 fleet.
"It has gotten so expensive, and I wouldn't be at all surprised that this program isn't recognizable in six months."
The program was reset by former Pentagon chief Robert Gates a few years ago because of soaring costs and development delays. At that point, the U.S. Marine Corps version of the jet was put on hiatus until glitches were worked out.
The volatility in the program is one of the reasons the Harper government chose to conduct a market analysis of possible options to replace the CF-18s.
Other experts are also convinced the report being presented Wednesday will have a short shelf life.
"The KPMG assumptions on unit costs were relevant to last year's acquisition plan, not next year," said Winslow Wheeler, a U.S. aviation analyst, and outspoken critic of the stealth fighter program.
"I fully expect that the F-35 in this country will take a significant hit when the fiscal cliff negotiations are finished, whenever that is, and that will have impact on the F-35 unit costs for everybody."
The problem of what to use to replace Canada's current crop of 77 CF-18s should the stealth fighter program become too expensive -- or fall apart entirely -- is the cause for some hand-wringing in defence circles.
The government and the air force invested a lot of their public relations efforts in casting the offerings of potential rivals as technologically inferior.
The notion of "what if" has crossed the minds of senior officials in Washington, where there has been renewed speculation that the U.S. might be prepared to offer up an export version of its other stealth fighter -- the F-22 Raptor.
Allowing allies to buy the advanced interceptor has been prohibited by legislation.
Yet, a recent U.S. Congressional Research Service report, released on Oct. 25, 2012, noted that the F-22 is seen as a possible "hedge against difficulties in the F-35 program."
The notion, however far-fetched, might solve U.S. defence needs, but allies could be left high and dry, Wheeler noted.
"As unaffordable as the F-35 is, the F-22 is almost comical," he said.
Lockheed Martin's production line for the Raptor has been shut down since the Pentagon cancelled further orders after taking delivery of its 195th aircraft. Even if it could be restarted, the unit cost could exceed $200 million per plane, Wheeler said.
Another aspect is the amount of money each partner nation has poured into the research and development of the F-35, a sum that currently totals $335 million for Canada.
Through a memorandum of understanding, Ottawa is committed to dishing out an additional $550 million over the lifetime of the project, not including what it gives separately to Canadian industry.
According to public accounts records, $43 million is earmarked over the next couple of years for Mississauga, Ont.-based Magellan Aerospace's participation in the F-35.
The Harper government underscores it has not put any money towards the purchase of new planes.
Edited by key2thecup, 12 December 2012 - 03:54 PM.