Michael Byers: The F-35 is now unaffordable thanks to the low Canadian dollar
The Royal Canadian Air Force’s (RCAF) hoped-for-purchase of F-35 fighter jets has hit another obstacle, in the form of a Canadian dollar that has dropped 25 per cent against its U.S. counterpart since 2013. Another, less expensive, non-developmental plane will now need to be chosen to replace the three decade-old CF-18s.
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DND also acknowledged that changes in the exchange rate were a “major, uncontrollable risk to the program cost estimate.” It went on to explain that an exchange rate of US$0.755 would raise the acquisition cost by approximately $1.7 billion and the sustainment cost by approximately $2.6 billion. Sustainment costs, incurred during major repairs and upgrades, are affected by the exchange rate because this work is conducted by the F-35’s manufacturer, Lockheed Martin, in the U.S.
By happenstance, the Canadian dollar has been hovering around US$0.755 for the last few weeks. This means that 65 F-35s would now cost $10.7 billion — well above the $9 billion acquisition cost limit set by the Harper government — and that the sustainment cost would now be $16.86 billion, up from $14.26 billion.
On the positive side, the operating cost for a fleet of F-35s has decreased by $1.15 billion (from $20.75 billion to $19.6 billion), due to a 30 percent drop in the cost of jet fuel since November 2014. According to DND, every 10 per cent reduction in the cost of fuel reduces the life-cycle operating cost by $382 million.
Here’s the bottom line: the total cost of the F-35 program is now $49 billion — an increase of $3.2 billion from the projections provided by KPMG in 2012 and DND in 2014. This includes all acquisition, sustainment and operating costs and assumes that development, disposal and attrition costs have not changed ....
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