F-35 Joint Strike Fighter (JSF)

[HB_Pencil]

I'm impressed by the quality of that National Post article. It's a very good summary of the AG report.

The only thing I doubt is this:
This is not what I understood from the MoU. I remember reading that contracts could be awarded only to partners purchasing the aircraft, but I have to admit it was not cristal clear.

No the MOU is fairly clear in this regard.

The Participants acknowledge that, subject to the submission of Best Value offers, industries that are in the nations of Participants procuring JSF Air Systems under this MOU and that were awarded SDD subcontracts will normally also be awarded subcontracts for low rate initial production and full rate production work, as well as for related sustainment and follow-on development work.

That point creates a reciprocal relationship where we must purchase the fighter in order to obtain contracts. Its almost certain that other states will intervene if we pull out (prodded by their own national industries), as they would want to bid on Canadian contracts.

On that point, I disagree with the contention that the 2006 MOU did not constitute an agreement where Canada committed to buying the fighter. Senior officials did not see it that way, but the the MOU basically committed Canada to the procurement or it would lose these contracts.

Finally the cancellation penalty I think is around $550 million dollars based on the formula in the MOU, but I would have to check to make sure.

 

[trampbike]

It's the "will normally" that makes it not that clear. It's not obvious that if Canada remains in the MoU without purchasing airframes he would not be allowed to bid on anything. I understood it like you did, yet I don't think we can say it is 100% clear.

I don't think there is any penalty if Canada gets out of the MoU. He would have to pay a part of the 551M$ proportional to contracts secured so far in Canada.

 

[HB_Pencil]

It's the "will normally" that makes it not that clear. It's not obvious that if Canada remains in the MoU without purchasing airframes he would not be allowed to bid on anything. I understood it like you did, yet I don't think we can say it is 100% clear.

I don't think there is any penalty if Canada gets out of the MoU. He would have to pay a part of the 551M$ proportional to contracts secured so far in Canada.

I understand that view, but I think among the individuals involved they believe exiting the program will eventually trigger a loss of contracts. Also I think that the wording refers more to contracts that might be specific to one phase of the program or another rather than wiggle room if a country quits the program.

Tellingly, there were some public griping about the UK's workshare after they made dramatic cuts of their order. I have little doubt that if Canada decided to chose another fighter, it would result in extreme pressure to have their contracts cut at the earliest feasible date and re-tendered.

 

[trampbike]

That was also my understanding. Thanks

 

[Kalatzi]

Reproduced under the fair dealing provision of the copyright act from the Globe and Mail

Tories try to stall auditor’s testimony on costly F-35 purchase
DANIEL LEBLANC

OTTAWA— Globe and Mail Update

Posted on Tuesday, April 24, 2012 11:17AM EDT

Trying to buck tradition, Conservative MPs on the House of Commons public accounts committee attempted Tuesday to delay testimony by the Auditor-General on the bungled process to purchase new fighter jets.

However, committee chair David Christopherson expressed his outrage at the tactic, threatening to quit his position if the Conservatives used their majority to avoid hearing from the federal spending watchdog at the launch of the hearings.

“This will not continue with me in the chair,” the NDP MP said. “This is wrong.”

The Conservatives on the committee relented and allowed their motion to be amended to include the testimony of Auditor-General Michael Ferguson on Thursday, and other witnesses next week.

The public accounts committee is tasked with studying reports by the Auditor-General and offering oversight of government spending by ensuring departments follow up on the watchdog’s findings. The committee is traditionally less partisan than other parliamentary bodies, with an opposition MP in the chair.

Clearly angry, Mr. Christopherson said the Auditor-General’s report is “the basis of everything” and that other witnesses cannot be expected to speak about a report if the Auditor-General has not yet detailed his findings.
After the Conservative retreat, Mr. Christopherson thanked the committee for acceding to his wishes.

“May I just say very sincerely my appreciation to the government for the respect that you’ve shown Parliament and the office of the Auditor-General,” Mr. Christopherson told Conservative MPs.
Andrew Saxton, the parliamentary secretary to the Treasury Board President, sparked the firestorm when he tabled a motion that only included invitations to top officials from Public Works, Defence, Industry and the Treasury Board, and any relevant subordinates.

Mr. Saxton added that the committee could eventually hear from Mr. Ferguson, but refused to be pinned down on the issue of timing or other witnesses.

Liberal MP Gerry Byrne expressed his outrage at the Conservative tactics on the committee.

“This is a cover-up in the making,” Mr. Byrne said. "

 

[The Bread Guy]

Funny how the F-35 isn't named in the Associate Minister's "Happy RCAF Appreciation Day!" statement - highlights mine:

.... Our government’s investments in the Canadian Forces have resulted in substantive improvements, but more work remains to be done. Some of the Government of Canada’s ongoing priorities for the Royal Canadian Air Force’s fleets include:

- Ongoing work with Canadian industry to advance our priority of delivering new Fixed-Wing Search and Rescue aircraft in a responsible fashion;
- Establishing a new Secretariat and implementing a seven step plan to coordinate a future decision to replace our aging CF-18 fleet in the early 2020s; and
- Continuing our work to acquire CH-148 Cyclone maritime helicopters announced in 2004.

 

[dapaterson]

News on the F-35 front:  Lockheed-Martin workers at the main assembly plant in Texas have gone out on strike.

http://www.wfaa.com/news/business/No-talks-scheduled-after-Lockheed-Martin-workers-strike-148588595.html

 

[drunknsubmrnr]

A couple of links from the SOMNIA website.

http://www.cbc.ca/news/politics/story/2012/04/24/pol-f-35-cp-training-costs.html

F-35 training budget underestimated, air force fears

Public accounts committee meeting Tuesday to plan probe of stealth fighter jet procurement

The Canadian Press

The air force has raised questions about whether enough has been budgeted to train pilots for the F-35 stealth fighters.

About $1.3 billion was set aside for training, simulators and other infrastructure under the Harper government's proposed $9-billion capital purchase of the radar-evading jets.

But documents obtained under the Access to Information Act show air force planners have been concerned about the dollar projection.

That's because it was calculated for the standard Defence Department estimate of 20 years' of flying, rather than the lifetime of the aircraft, which is estimated at 36 years.

The parliamentary budget officer has criticized the government and defence bureaucrats for using the two-decade yardstick to measure F-35 costs when the equipment would remain in service much longer.

The documents suggest taxpayers might have to shell out more training dollars after the 20-year window ends, and they indicate the investment plan comes up "approximately $2 billion short" of the requirement.

"No training option currently affordable," said a July 5, 2010, presentation to the chief of air staff.

"CF/Air Force Investment plan must be rebalanced in order to permit operations and sustainment of 65 (joint strike fighters)."

One of seven scenarios considered assumes all pilot training is conducted at bases in the U.S., with a basic cost of $1.7 billion.

Another possibility discussed involved using leased F-35s for training over and above the 65 the air force plans to purchase.

In the end, the military decided to train the initial cadre of pilots at a U.S. Air Force base in Florida, then move training back to Canada within six years, depending on available funding. But the documents noted "there is no (Government of Canada) direction/mandate to maintain a domestic, sovereign pilot conversion and operational training capability."

Commons committee investigating costs

The Conservatives, including Prime Minister Stephen Harper, have insisted no more than $9 billion will be spent on the acquisition.

The issue arose again in the aftermath of the auditor general's scathing April 3 report on the program, which suggested the government low-balled the estimated cost. The Tories responded by freezing project funding.

"The government has clearly communicated the budget that we have to replace Canada's aging CF-18s, and we will stay within that budget," Foreign Affairs Minister John Baird said in the House of Commons.

The government is currently recasting the stealth-fighter numbers in answer to some of Auditor General Michael Ferguson's criticisms, which set off a Parliamentary firestorm. Fallout has included hearings by the House of Commons public accounts committee, which meets Tuesday.

Oversight of the program has been handed to a new F-35 secretariat at Public Works, which could be in line for a name change even before its shingle is hung up.

Government sources said there is concern the name leaves the impression the fix is in for the multi-role fighter, even though the government continued to insist in the Commons on Monday that no contract has been signed.

NDP procurement critic Matthew Kellway said the training documents are another example of where the full life-cycle cost has not been fully disclosed.

"What we've had from DND is inaccurate and incomplete costing of these planes," said Kellway. "This is certainly a concern and speaks to the way this entire project has been managed. Pilots and ground crew need training" over the lifetime of the program.

In the Commons, Liberal MP Ralph Goodale demanded that Tuesday's meeting of the public accounts committee be open to the public as MPs draw up a witness list for hearings.

The internal documents, meanwhile, say the air force will need to set aside as many as 17 of its pricey F-35s for training whenever a program is established in Canada.

The air force had originally asked for 80 aircraft in order to meet its operational and training requirements and has repeatedly said 65 is the minimum number it can live with under the circumstances.

http://www.hilltimes.com/news/news/2012/04/23/conservative-government-wont-buy-14-additional-f-35s-anticipated-for-fleet/30548

Conservative government won't buy 14 additional F-35s anticipated for fleet attrition

'The government will not spend more than $9-billion on aircraft to replace Canada’s aging CF-18s,' says Associate Defence Minister Julian Fantino's communications director.

PARLIAMENT HILL—The government has ruled out an additional round of F-35 fighter jets that one expert says would have added a minimum of $1-billion to the $9-billion purchase price the government has been citing in the controversy over the plan to acquire the stealth warplanes.

Auditor General Michael Ferguson disclosed the Department of National Defence expected that because of aircraft attrition it would have to later acquire an additional 14 F-35s, on top of an initial purchase of 65 planes, in a scathing report to Parliament earlier this month.

Former National Defence procurement official Alan Williams, a vocal critic of the way the government has handled the acquisition, told The Hill Times last week National Defence was being “deceitful” by not including the cost of the 14 additional F-35s the department anticipated because of fleet attrition when it reported to Parliament on the program last year and insisting on treating the cost as part of a separate project.

Mr. Williams estimates the extra 14 jets would have added $1.1-billion to the purchase price alone for Canada, and at least $2-billion to $16.4-billion in lifetime cost for sustainment and operating costs Mr. Ferguson disclosed. Mr. Williams' cost estimates for Canada are based on a schedule of estimated costs the U.S. Department of Defense recently submitted to Congress. The Armed Services Committee of the U.S. House of Representatives provided The Hill Times with a copy of that report last week.

The Commons Public Accounts Committee is scheduled to hold a planning session on Tuesday to select witnesses for an inquiry into the Auditor General’s report, following a heated confrontation last week between Conservative MPs and the opposition over a witness list that Liberal MP Gerry Byrne (Humber-St. Barbe-Baie Verte, Nfld.) had proposed. The Conservatives voted down Mr. Byrne’s witness motion, and the committee agreed to begin from the start this week.

In Mr. Ferguson's report on F-35 costs—which was published and tabled in Parliament after exchanges between the Auditor General’s office and National Defence that gave the department the opportunity to correct facts and challenge findings—a section on costs National Defence did not account for says the department expects to lose F-35s through attrition over the fleet’s life and “Canada may need to purchase up to 14 additional aircraft over the next 36 years” as replacements.

The Auditor General's report also says that National Defence informed the government of the need to consider the requirement for attrition aircraft at a later date.

“The cost of replacement aircraft is not included in the life-cycle estimates for this project and will be treated as a separate project in the future,” the report says, even though all F-35s Canada acquires will be purchased under a memorandum of understanding that guarantees Canadian firms the opportunity to bid for maintenance and supply contracts, along with participating countries who also signed the memorandum of understanding.

A spokesperson for Associate Defence Minister Julian Fantino (Vaughan, Ont.) indicated to The Hill Times on Monday that the government has ruled out consideration of any additional F-35s in the future.

“There is no plan to purchase additional aircraft after an initial order,” said Chris McCluskey, Mr. Fantino’s communications director. “The government will not spend more than $9-billion on aircraft to replace Canada’s aging CF-18s.”

Mr. Fantino, a former Toronto Police chief, took over responsibility for procurement from Defence Minister Peter MacKay (Central Nova, N.S.) when Prime Minister Stephen Harper (Calgary Southwest, Alta.) named Mr. Fantino associate defence minister last May after the federal election. Up to that point, he had been a junior minister responsible for seniors following his first election to the Commons in a November, 2010, byelection.

Critics have challenged the 2011 $9-billion figure the government is using as a purchase price, particularly after a U.S. Department of Defense Selected Acquisition Report to Congress last month revealed significant increases in development and production costs for the F-35. Mr. Williams calculates that the report reveals that Canada’s purchase price, not counting subsequent sustainment and operating costs, will be a minimum of $10-billion. His calculation is based on an estimated cost of $88.7-million for each plane compared to the $75-million the government uses.

"Are they locked into their $9-billion figure?" Mr. Williams said to The Hill Times on Monday when told of Mr. McCluskey's statement. "The government will have to determine how much it will cost to buy the jet they decide on, including attrition. If the price of these aircraft exceeds $9-billion, the government has a number of options."

The government would have to either buy fewer aircraft, which Mr. Williams said could undermine the military's ability to perform it missions, or it could select a less expensive aircraft to fit in the budget or it could increase the funding for the project.

The other costs Mr. Ferguson said National Defence and the government failed to disclose to Parliament were for upgrades and weapons. His report said upgrade costs were not known in 2010, but have since been estimated at $1.2-billion over 20 years. Mr. Ferguson did not include a cost for new weapons that will eventually have to be acquired for the sophisticated aircraft, but said they would be addressed during the fleet’s lifetime and were not included in National Defence estimates.

Liberal MP Ralph Goodale (Wascana, Sask.) criticized the government on Monday for being uncooperative when it comes to releasing information to the media and Parliament about the F-35 project. Although a Liberal government in 1997 approved Canada’s participation in production and development, with the option of acquiring the planes at a later date, the Harper government announced in July, 2010, it had decided to acquire 65 of the aircraft, after earlier consideration of buying 80.

“They have obviously just tried at least to slam the lid on every source of information pertaining to the F-35s,” Mr. Goodale said. “This is a government in complete paranoid damage-control mode.”

The government has frozen the spending envelope for the project and promised to establish a secretariat of bureaucrats within the Public Works Department to oversee it in the future. Mr. Fantino has told defence industry officials the government will buy F-35s at the most opportune time as far as purchase price goes, when they are in peak production by the project's prime contractor, U.S, military supply giant Lockheed Martin.

So it's not really 65 aircraft, it's 65 minus 14 for attrition and 17 for training. Can an expeditionary force even be generated from 34 airframes when maintenance etc is taken into account?

 

[Good2Golf]

Mr. Williams cannot have it both ways. 

Government policy (from Treasury Board) restricts DND (or any other Department for that matter) from procuring 'attrition' (a.k.a. surplus) aircraft (or vehicles, or ships, etc...) since such procurement would result in greater capability than that needed to fulfil the operational requirement.  The Government is no longer in the business of buying more than it needs.

Mr. Williams appears to be making a case for the Government to also procure another C-17 and three more C-130Js and two more Chinooks, since the odds are the RCAF will lose that many in the years to come.


Drunksubmrnr, why did you subtract 14 "not-yet-crashed" F-35s from the available pool of aircraft to generate an expeditionary capability?  How will we know which 14 of the 65 aircraft will crash?  Should we not allow the pilots to fly them once we identify which 14 aircraft are the ones that will crash?


While DND may not have done as good a job explaining the rationale and details for the JSF as it did for $35 billion of ships for the RCN, it also seems that some folks are quite well-versed in "not understanding" the issue.

:2c:

Regards
G2G

 

[dapaterson]

It is not so much TB policy as DND's congenitally poor external communciations skills.  Saying "We're buying 20 because we need 17" doesn't make sense unless a proper context is provided; too often DND does not adequately explain that we are not procuring excess capacity, rather, we are self-insuring against loss of equipment which, if unmitigated, would leave us unable to accomplish our mission.


Thus, if our need is to always have 12 Mark V underwater basket-weavers operational, and we know that one in four will always be in maintenance, we therefore need to purchase 16 to always have 12 operational.  But since we also know that, on average, one will self-destruct every five years, and we intend to operate the Mark V for twenty years, we need to buy 20 of them to ensure we will have at least 12 available throughout their life.  Buying them all at once ensures a common platform and simplifies maintenace and training and reduces the long-term cost to the department.

 

[drunknsubmrnr]

Drunksubmrnr, why did you subtract 14 "not-yet-crashed" F-35s from the available pool of aircraft to generate an expeditionary capability?

Because at some point in the next 36 years they are expected to crash. That point may be before or after they're actually needed for expeditionary operations, assuming those operations occur. I don't think anyone can reasonably predict exactly when the crashes are going to occur, only that they're statistically likely.

 

[Good2Golf]

Dapaterson: for other fleets, the direction from Treasury Board was crystal clear - no attrition aircraft, full stop. 

The issue of suitable fleet size to include regular maintenance activity while maintaining operations capability is a separate issue from front-end procurement to buffer future losses.  As a tax payer, I actually acgree with the no attrition aircraft policy.  If/when aircraft are lost, asess whether the extant capability's continued operational viability either supports or refutes the requirement to procure additional aircraft.

Drunksubmrnr: Your exclusion of 14 from the available number is not valid since the aircraft ARE available upon initial procurement.  You don't buy an additional car, park it in your driveway, and don't drive it because you believe at some point in the future you may crash it and write it off.

:2c: more...

Regards
G2G

 

[drunknsubmrnr]

Drunksubmrnr: Your exclusion of 14 from the available number is not valid since the aircraft ARE available upon initial procurement.

The exclusion is at least partially valid, depending on the timing of the hypothetical expeditionary force. Their presence at initial procurement is nice, but will they still be around at the time of a hypothetical deployment? If the deployment is the day they're delivered, then yes. If it's 36 years in the future, then no (at least as far as the planning staff is concerned). If the deployment is 15 years in the future, then you'd have to look at whatever planning algorithm they used, but there will probably be some number less than 65 airframes available.

You don't buy an additional car, park it in your driveway, and don't drive it because you believe at some point in the future you may crash it and write it off.

Actually, a lot of businesses do buy extra vehicles because they know they're going to lose some to crashes theft etc. and they may not get a volume discount on buying replacement vehicles if they're even in production.

I understand that TB says that attrition aircraft can't be bought. It's short-sighted in my opinion, but those are the rules. The question at this point is if the capability is even worth it for that few airframes. I don't know, that's why I'm asking.

 

[Kirkhill]

This business of the life expectancy intrigues me.

I saw a reference recently that says that the government can amortise ships and planes on a 20 to 40 year horizon.

I assume that if a 40 ( or even 36 ) year horizon were picked then the accountants would be arguing that the annualized capital costs were being unrealistically low-balled.  If the 40 year line were used then I believe that the RCAF could then argue that they were using less of their annual budget on aircraft and would have more available for POM.

On the other hand, if they go short (20 years) they are castigated for under-representing the POM budget.

Dammed if you do and dammed if you don't.

 

[HB_Pencil]

Actually, a lot of businesses do buy extra vehicles because they know they're going to lose some to crashes theft etc. and they may not get a volume discount on buying replacement vehicles if they're even in production.

The difference with the F-35 program is that as a partner, we will always be entitled to a volume discount as part of a yearly lot, even if we purchase attrition frames in the 2023~2035 horizon. So lets say an CF-35 crashes in 2023 and we require a replacement: our 2025 buy would be calculated as just one of the 180 being produced in that year. That was one of the major advantages of the JSF partnership program compared to making purchases through the Foreign Military Sales program.


Frankly I believe the government will decide to purchase additional F-35s after 2025 in order to increase their capability.

 

[Good2Golf]

I understand that TB says that attrition aircraft can't be bought. It's short-sighted in my opinion, but those are the rules. The question at this point is if the capability is even worth it for that few airframes. I don't know, that's why I'm asking.

No, I don't necessarily agree with it either, it would depend greatly on many unknowns that, to paraphrase Donald Rumsfield, we just don't know.  However, when it's the Government policy, and the intention is to balance the potential need of having replacements against the potential savings by procuring such capability at the onset, then we click our heels, salute, and spend less of the taxpayers' (including me and you) money and carry on.  If it in fact turns out that it incrementally cost the taxpayer slightly more some 15 or 20 years down the road to buy replacements that are absolutely needed, then so be it...but my eyes see fleets that had attrition aircraft built into the procurement, and that we mothballed (or divested ourselves of) a portion of the fleet years later, as the reality of the situation was that attrition notwithstanding, the situation changed and we ended up not needing as many aircraft later as we thought we would have earlier.  In the end, we would do with what we have, which is what we have for the most part always done.  Perfect?  Well...who's to say what's perfect?  Perfect, or even optimal, is different to each person.

up to 3¢

Regards
G2G

 

[HB_Pencil]

This business of the life expectancy intrigues me.

I saw a reference recently that says that the government can amortise ships and planes on a 20 to 40 year horizon.

I assume that if a 40 ( or even 36 ) year horizon were picked then the accountants would be arguing that the annualized capital costs were being unrealistically low-balled.  If the 40 year line were used then I believe that the RCAF could then argue that they were using less of their annual budget on aircraft and would have more available for POM.

On the other hand, if they go short (20 years) they are castigated for under-representing the POM budget.

Dammed if you do and dammed if you don't.

This is my problem with 40 year projections: its tough to project how O&M will rise or decrease over that time. That's particularly true if you're talking about a PBL contract scheme, where a large proportion of costs are actually negotiated and can be tailored to suit different requirements (a small number of aircraft at high readiness for NORAD vs aircraft identified for foreign operations at a lower readiness.) Its also insensitive to how costs may fluctuate over contract length. The OEM has a direct incentive to drive down costs, which can be translated into lower O&M over time.


I also think that the longer one stretches out costs, the less useful those figures are and the more political they get. However in the F-35's favour, the longer cost horizon actually benefits it in a comparison with other aircraft, particularly the F/A-18.

 

[Kirkhill]

Edit: Funny you should say that HB.  This is what I was typing while you were posting......

Pearson bought 24 Hercs in 1968
Trudeau bought 5
Mulroney bought 9 (including 2 slightly used)
Chretien bought 2
Harper bought 17 by 2012

That is over a 44 year period.  How exactly do you account for life cycle costs, attrition, mission creep and changes in government policy over that period if you are Pearson?

Pearson bought 24 Hercs. Full Stop.
Harper will likely buy 9 BCAD worth of F35s or approximately 65. Full Stop.

I might expect him to take a line like the Norwegians have taken.  They plan to buy 52.  They have firmed up 46 but have said they would hold off on making the final decision on the last 6 until they see what the final delivery prices shake out at.

 

[Loachman]

As a tax payer, I actually acgree with the no attrition aircraft policy.

Which is why, in the Good Old Days past, we bought huge bags of spare parts and rebuilt helicopters around the builder's plate and ashtray at about three times the cost of buying new ones.

Capital Acquisition vice Operations and Maintenance money...

The fact that what we were operating was no longer being built was significant too.

 

[drunknsubmrnr]

The difference with the F-35 program is that as a partner, we will always be entitled to a volume discount as part of a yearly lot, even if we purchase attrition frames in the 2023~2035 horizon.

Thats with the assumption that the aircraft will be in production. The line may or may not last that long, and thats entirely out of Canada's hands.

Buying the attrition aircraft now is more expensive, but removes the risk that the line will be shut down early and the risk that the RCAF won't be able to offer that capability due to too few airframes. Will there still be enough aircraft to offer an expeditionary capability if that attrition does occur?