In this week’s Industry Snapshot, Avascent Analytics examines Canada’s decision to forego Lockheed Martin’s Joint Strike Fighter (JSF) program. Avascent Analytics notes that it does not align itself with neither the Liberal nor Conservative political agenda; but rather, strives to calculate the various cost ramifications of Canada’s choice to exit the world’s most expensive military acquisition program to date. Stay tuned for additional snapshots of other defense markets from the Weekly Wire, coming soon.
Prime Minister-Designate Justin Trudeau Plans to Abandon Lockheed Martin’s F-35A in order to Save Canada Millions of Dollars
by Senior Market Analyst, Caitlin Kennedy
Although Prime Minister-Designate Justin Trudeau was struggling to stay afloat in political polls just a few short months ago, he managed to gather enough voter support to win Canada’s 2015 Parliamentary election; snagging 54% of the seats in the House of Commons for his Liberal followers. The Liberal Prime Minister-designate has very different strategic priorities for the Canadian Ministry of Defense than does caretaker Prime Minister Stephen Harper.
Incoming Prime Minister Justin Trudeau and his Liberal Party affirmed their intentions to cancel the Royal Canadian Air Force’s plan to acquire 65 F-35A stealth fighter jets yesterday. Conservatives believe that abandoning the procurement agreement 14 years after it was signed will end up being a costly move that should not have been made by Canada’s soon-to-be Prime Minister.
Liberals Believe Foregoing the F-35 Deal will be Best for the RCAF
A report commissioned by the Canadian government last December on the F-35A and its competion (i.e. the Eurofighter Typhoon, Dassault Rafale, and Boeing’s Super Hornet) unveiled that the RCAF’s future tactical aircraft missions could be successfully completed by older, cheaper fighter jet aircraft models. These missions include defense of Canadian airspace, bombing missions in the Middle East region, responding to a terrorist attack, and aiding in humanitarian emergencies and/or natural disasters.
Canadian government officials confirmed last year that all four aircraft would be just as effective protecting Canadian airspace and performing other required operations as the United States’ F-35A. Some JSF program supporters are quick to point out that this is because the majority of RCAF missions involve a relatively low level of threat and are less strenuous than missions carried out by other militaries around the world. In order to save some money, Prime Minister-designate Trudeau and his Liberal supporters believe it is wise to exit the F-35 program, and instead replace the RCAF’s aging CF-18s with one of the F-35A’s four competitors.
Liberals Support Ditching the F-35A for a Cheaper Alternative
Since the Canadian government reported last year that three other models aside from the F-35A would be good replacements for the RCAF’s CF-18 fighters, Justin Trudeau has decided to drop the F-35 program and plans to re-start the CF-18 replacement competition to select a more affordable fighter aircraft model for his RCAF. He calls to attention the fact that doing so will provide savings that he could then use to further bolster the Royal Canadian Navy’s (RCN) National Shipbuilding Procurement Strategy.
According to Avascent Analytics, procuring just one F-35A fighter jet over the next few years would have cost Canada, on average, up to $190 million*. The RCAF was, as of yesterday, committed to purchasing 65 F-35A fighter jets, and therefore, would have theorectically owed $12.4B for the 65 jets it needs to procure in order to replace its aging CF-18 fighters–which are due to be retired over the course of the next ten years.
If Canada’s Prime Minister-elect decides to buy Boeing’s Super Hornet instead, for example, which is estimated by Avascent Analytics to cost approximately $120 million, the RCAF would only have to pay $7.8B for 65 CF-18 replacement fighters. This would save the RCAF roughly $4.6 billion that could then be used to purchase additional surface vessels for the RCN.
*Per-unit costs for the F-35A calculated by Avascent Analytics represent the total value of the entire aircraft; including its frame, engine, electronic systems, as well as inital spares equipment and services
Conservatives Believe Dropping the F-35A Program to be Risky
Bloomberg estimates that the aircraft’s price will increase yet again by up to 1% due to Canada’s decision to leave. Some JSF program experts believe that this additional price increase could pressure other international Joint Strike Fighter partnering nations to follow Canada’s lead and drop out of the program; causing the price of the JSF to rise even more.
According to U.S. Air Force Lieutenant General Chris Bogdan, Australia could now end up paying $100 million extra for its F-35As since Canada has decided to bail. Some defense market analysts believe that this could trigger Australia to re-evaluate its participation in the multi-national, Pentagon-led program.
Additionally, the Conservative Party believes that Prime Minister-to-be, Justin Trudeau, risks damaging Canada’s domestic economy, rather than boosting it. The former majority Party feels that the new Prime Minister-designate will consequently create a crater in the local Canadian Aerospace and Defense industry by backing out of the JSF program this late in the game.
Industrial participation measured by Industry Canada states that 33 Canadian companies had won a total of $637 million in contracts for various F-35 production and sustainment activities as of December 2014. Industry Canada also estimates that local Canadian Aerospace and Defense firms would have received over $10 billion during the F-35’s 40-year lifespan. According to Conservative opinion, terminating the multi-billion dollar program now will prove to be fatal to local Canadian defense system suppliers since their contracts are now negligible.
The severity of the long-term consequences the Canadian Aerospace & Defense industry will face since it has decided to leave the F-35 program is a sensitive subject among Liberals and Conservatives. Prime Minister-designate Trudeau and his Liberal Party members have stated optimistically that financial losses among local Canadian equipment suppliers can and will be mitigated or eradicated. However, Stephen Harper and his Conservative Party continue to stand firm in their belief that doing so will prove to be very difficult.