Mr. Dan Ross (Assistant Deputy Minister (Materiel), Department of National Defence):
Thank you, Mr. Chair. I'm delighted to be back.
First I'd like to talk about the operational requirements for a moment or two. Let’s remember we are acquiring a fighter for the next 30 or 40 years. I would ask whether you would want your son or daughter or future granddaughter in yesterday’s technology or in the most effective and secure aircraft in the future. That's essentially what we're talking about with the fifth-generation fighter. We are talking about new technologies that change the game. It's about stealth, the ability to prevent the bad guy from seeing you and thereby potentially reaching out and killing you.
Would you want the enemy to see your son or daughter pilot 100 miles out, or would you rather they fly unseen into a mission, accomplish the mission, and be back out before anyone even knows they've been there? That's assuming, of course, they haven't dropped a bomb or something and then everyone would know they'd been there.
Stealth means protection and survivability. It's also important to note that this degree of stealth needs to be built in, and it can't be added to an existing platform.
Fifth-generation technology is also about sensor fusion and interoperability, the ability of the aircraft to see and sense all around it and be in constant secure communication with its friends. The system then presents all that information in a simplified logical manner to the pilots, so they can immediately focus on the important elements and not be swamped and distracted by millions and millions of bits of non-essential information.
Secondly, let me address some of the recent statements made about the joint strike fighter program. While no one can deny that the cost of the design and development phase of the JSF program has grown significantly, not unlike most complex military equipment, nowhere is it acknowledged that these costs have been paid for by the United States government at no additional cost to Canada. That’s important because it did not increase our costs in any way.
If I could turn now to some of the issues circulating regarding the competitive process and the costs of Canada’s participation in the joint strike fighter program, claims have been made that Canada could achieve a 20% savings on the purchase of a new fighter. That's quite extraordinary, as there is absolutely no basis for such claims.
Let’s state the obvious: you must have more than one viable supplier to have a competition, and there is only one fifth-generation fighter available. The F-22 Raptor is not a multi-mission aircraft, it is very expensive, and it is not for sale or export by the U.S. government. Nor is it practical for Canada to acquire and operate the new Russian stealth fighter. Even if it met our technical requirements, clearly we would have no interoperability with our key allies.
Thus there are no other fifth-generation fighter programs under way in the western countries. Our CF-18s will largely be retired due to structural fatigue over the next 10 to 15 years. That leaves us with the F-35 as the only operationally viable fifth-generation fighter solution.
The issue, therefore, is if we are getting the best possible price without being able to conduct the more traditional competitive request for proposal process. The answer is clearly yes, as there is no possible way you could obtain a cheaper price. There are only two ways to buy a joint strike fighter: by exercising your option as a partner under the memorandum of understanding or through the United States foreign military sales program on a government-to-government basis. The U.S. government does not participate in RFP competitions; it will simply give you a sale price to foreign military sales.
Acquiring these jets under the MOU would result in an $850 million to $900 million cost avoidance from foreign military sales fees. A competitive process with the F-35 being selected--far from resulting in a 20% cost savings, as some have suggested--would, at a very minimum, result in an 8% to 10% cost increase because we'd have to pay that $850 million to $900 million.
In terms of the joint strike fighter MOU, we have to be clear that in order to run a competition, Canada would be forced to withdraw from the MOU. I would point out that that is because the MOU precludes that countries have agreed not to apply the normal IRB process. A Canadian competition would have to entail the normal IRB process, and you cannot do that within the MOU.
If we withdrew from the MOU, we would lose key benefits. We would be subject to penalties, the industrial guarantees we already have would be negated as those contracts run out, and Canada’s industrial plans with our partners would be suspended.
Let me make a couple more observations about the costs of the aircraft. First of all, Canada is buying the conventional take off and landing variant--the least costly variant--for which the current estimate is in the low to mid $70 million per aircraft. And we are buying at the cheapest price point on the production curve.
Second, this program affords Canada access to incredible economies of scale. Upwards of 3,000 to 5,000 aircraft will be produced.
Third, while it is possible that some partners could reduce the number of aircraft they are purchasing, we expect that any reduction in partner buys will be offset by sales to non-partners, such as already witnessed in Israel. I just note that a few minutes ago the U.K. confirmed that it will continue to buy 138 joint strike fighters.
Fourth, while the government has announced up to $9 billion for the capital program, the $9 billion covers much more than the cost of $5 billion to $5.5 billion for 65 aircraft. It also includes logistics, simulators, spares, weapons, infrastructure, and program management contingency, etc. And all of these items would be purchased regardless of which aircraft we chose.
Finally, the price that Canada will pay is the cost of production per aircraft, as it comes off an assembly line with a Canadian flag on the tail. Many analysts have cited a myriad of numbers that the U.S. government will pay, but you must remember that these numbers reflect the total program cost to the United States government, which is compelled to report to Congress. That includes all the tooling costs, testing, and research and development, etc. Canada does not pay for those costs.
As for joint strike fighter life cycle costs, remember that the current fleet of CF-18s costs money today to keep it running. The money we anticipate paying for the in-service costs of the F-35 will be of the same magnitude. Training a pilot is training a pilot, a litre of fuel is a litre of fuel, and runway repairs are runway repairs.
As a partner in the joint strike fighter program, we have access to all known costs associated with sustaining the fleet. As I said at my last visit, we estimate the cost of sustaining the fleet to be approximately $250 million to $300 million per year, but we believe the story will be better. For example, we are looking at pooling our spares with our other international partners. That would mean a 50% reduction in the number of spare parts that we would have to initially buy to create that initial pool of logistic spares.
So far from not knowing the costs of sustaining, we probably know far more about sustaining the F-35 than we have known about sustaining any previous new fleet, and we hope to achieve real savings.
Let me summarize, in conclusion, the major benefits of the joint strike fighter program. First of all, it's the only aircraft in the western world that meets the operational requirements of the CF. It affords Canada and Canadian industry unprecedented access to technology, including detailed cost data. It provides us with the most cost-effective approach to long-term sustainment and follow-on development because we're doing it jointly with eight partners. The Government of Canada will receive millions of dollars in royalty cheques from sales to non-partners. Indeed, we welcome the recent announcement by Israel to purchase F-35s because it will generate a royalty cheque to Canada. It will work to keep the purchase price low for us, as well as generating real work for Canadian industry.
And on the subject of industry, Canadian industry is guaranteed access to the largest military cooperative program in the world--in fact, ever--with benefits being realized every day across this country. To date, Canadian companies have been awarded more than $850 million in contracts. Opportunities identified in the industrial participation plans with the three major company groups are estimated to be worth, in the long term, $12 billion U.S. And this only takes into consideration the existing orders of 3,173 aircraft for the partner nations. It does not include the estimated 2,000 additional aircraft for export sales.
To conclude, one thing I have come to appreciate in the job of ADM Materiel is that many of the defence procurements are far more complex than they appear on the surface. We're not buying cars here. There is no magical way to create a more competitive situation or to predict what a different process would or would not save. To generalize, to oversimplify, is to do a disservice to the men and women who put their lives on the line every day for Canada.
Ladies and gentlemen, and Mr. Chairman, thank you very much for your attention.
Mr. Dan Ross:
Thank you, sir.
We didn't anticipate the Yugoslavia mission. We didn't anticipate we would have to fly air combat into Yugoslavia. No one anticipated the invasion of Kuwait in the first Iraq war and the second Iraq war. Most people would say you don't need stealth and an F-35 to do the close support missions in Afghanistan.
I would comment that we don't know what we don't know five years, 10 years, or 25 years from now. I would simply state that if you bought old technology today, your sons and daughters would go to some unforeseen conflict with a one-to-one chance of success because we've given them the same tools the bad guy probably has. Twenty years from now, their chance to come back alive would be one in ten or one in twenty. That's not an acceptable situation. We cannot predict the future. You cannot buy old technology that is acceptable for unforeseen threats for 20, 30, or 40 years.
In terms of the MOU, the primary reason you must withdraw from the MOU to run a competition is that one of the primary reasons we run competitions is to allow Canadian industry to have the opportunity of the normal IRB program that is a mandatory requirement for vendors. Dollar for dollar, 100% return of the investment that we pay out comes back to Canadian industry.
Under the MOU, it states very specifically that partner countries will not apply offsets and IRB policies if they intend to remain in the MOU. So you have to withdraw from the MOU to be able to do the competition and get the same or similar industrial benefits.
Sir, you had follow-on questions. I probably lost some of them.
Mr. Dan Ross:
There are two things.
First of all, in the department, we were engaged in a very detailed review of the options and the cost of those options from a performance point of view, a cost point of view, and an industrial point of view, working with our colleagues at Public Works and Industry Canada. That was not centred around, in the case of the F-35, being able to do a normal, competitive RFP process, which we knew we couldn't do within the MOU without having to leave.
We did have to consider Eurofighters. We did consider Super Hornets and several other aircraft. We worked with our international allies and so on to identify the cost of ownership. I can't speak authoritatively to what the minister intended at the time. I knew he was well aware of the previous fair, open, and transparent competitive process that occurred to select the F-35 or the F-36. I know that many individuals disagreed that it was a Canadian competitive process, having spoken to Mr. Lagueux, who was the ADM at the time, and Mr. Slack, who was involved at the time.
When we joined the permanent MOU in 1997, we had full-time representation in the joint project office. We had full involvement in the scope of the requirements being stated, on our behalf and on behalf of the other partners, by the United States Air Force and the United States Navy. It was clear at that point, to people directly involved, that this would be the competition for the western world's next-generation fighter. That's why European countries participated back in 1997. They knew that other countries in the world would never be able to afford to move to a next-generation fighter by themselves. It was not affordable.
We joined early because it was important to have access to what was going on and to have a say and input into the scope of those requirements. In the long term, if it paid off and was successful, you could acquire it. If you didn't, at least you had a detailed understanding of what was happening and what was not happening.
I think that would be my response to those two points.
Mr. Dan Ross:
The competition between the F-35 Lockheed Martin and the F-36 Boeing, as I mentioned earlier in my remarks, in the view of previous ADMs, really was the competition to select the next-generation, fifth-generation, fighter for the western world, because no one else could afford to do so.
The United States and the other eight countries participated in that, and the United States was attentive to the needs and interests and operational requirements of its partners. It had to be because they would not have continued to participate if they hadn't been attentive to it.
You're right. At that time we had not made any specific decision to replace our F-18s. We were managing their fatigue life to take that fleet to approximately 2015 to 2020, which is the current situation. We didn't need to make a decision at that moment on actually going to government and seeking approval to replace them and buy joint strike fighters. But it was prudent to participate early so you would have access to the information—access to highly classified information—and to allow Canadian companies access to high-technology opportunities early, as they have done extremely successfully.
Then the options were open to us, to subsequent governments. If the joint strike fighter program run by Lockheed Martin was successful, as it has been, and fully met the requirements of partner countries, the government would have the choice at that time to acquire them.
Clearly, we brought those options to government on several occasions. We made it crystal clear on the last occasion that we wanted to continue to participate up to $551 million over the 40 years, but it did not, absolutely, at the day of question, entail a commitment to buy, and we would come back to government with a recommendation.