Conservatives' handling of F-35 process 'deceitful, dangerous'
By John McKay MP, Liberal Defence Critic, Postmedia News May 4, 2012
OTTAWA — The fog of war strategy may be a perfectly valid tactic in warfare, but it has no place in the business of procurement.
The Stephen Harper government's deceitful campaign of misinformation contributed to his election victory on May 2, but the cost of deliberately lying to confuse Parliament and the people of Canada on the F-35 procurement has created a poisonous atmosphere that puts both Canadians and our military personnel at risk. Bad decisions get made when the decision makers defend the indefensible and denounce those critics who speak truth to power.
There is no doubt that our fleet of CF-18's needs to be replaced. Successive Liberal governments under Jean Chretien and Paul Martin contributed to the research and development phase of the F-35 program, which allowed Canadian companies to bid on contracts, a decision which has since paid off with more than $435 million dollars in regional benefits. This contribution in no way committed Canada to buy the planes, but left the door open should Canada choose to in the future.
However, under the Harper government, this modest contribution has morphed into a full-borne commitment to buy the planes — without a contract. Between those two points lies a well-documented tale of deceit, deception and duplicity, first exposed by the parliamentary budget officer in March 2011, and confirmed by Auditor General Michael Ferguson in April 2012.
In order to understand what went wrong, it is important to first understand how a military procurement works. In any procurement, the "holy trinity" consists of costs, mission profile and industrial benefits. Under the Harper government, the holy trinity has become the un-holy trinity of understated costs, mission mystery and dubious benefits.
The issue of costs has plagued the F-35 program from the beginning. Many who have attempted to clarify the costs and provide Canadians with a realistic estimate of how much this project would really cost, have been dismissed by the government. Parliamentary Budget Officer Kevin Page, who tabled his report in March 2011, largely based on U.S. figures (because the Canadian government would not provide them to him), is just one of the many victims of this slander, and was heavily criticized for doing things "the American way."
However, as Page has rightly pointed out, this is a U.S. program. In the unlikely event that all the planes contemplated were actually produced and sold, costing would be based on U.S. figures. It is U.S. laws and U.S. definitions that prevail. U.S. law says no nation can buy at a lower cost than the U.S. Defense Department. In this scenario, Canada is a price taker not a price maker.
Defence Minister Peter MacKay's faint hope that Canada can buy in the "sweet spot" of the production cycle (when production is highest and costs are lowest) is just one of his richer fantasies. All partner nations will be competing to buy in the sweet (cheap) point of the production cycle. The likelihood that Canada (which is only buying two per cent of the production run) will get its order filled at the lower price is a fantasy, pure and simply. MacKay and Associate Defence Minister Julian Fantino seem to assume that we are operating in a vacuum with no other players; this is just not the case.
Still, the minister and associate minister of defence keep repeating the mantra that the budgeted envelope will be $9 billion. According to them, with this budget we will get 65 airplanes at $75 million each — this is ludicrous. Page, in his pointed letter to the Defence Department, suggested the figure of $137 million (which closely resembles the estimates set out by the U.S. Congressional Budget Office) is a more realistic average unit cost. The escalating costs and the reduced and or postponed orders are well-documented, and no one outside of the Conservative caucus believes the minister's numbers. We still may be able to buy the planes within the $9-billion dollar envelope, but we won't be able to afford to fly them. Something has to give. It's either escalate the $9 billion, or reduce the number of planes.
It's a measure of contempt that this government has for Parliament and by extension, the people of Canada that it expects us to suspend the laws of mathematics in order to believe the estimates provided by the various ministers. As the denominator goes down (the number of orders) and the numerator is static or increases, the price per unit must go up. Or worse, at some point, the entire program may enter into a death spiral. The price per unit just becomes too rich for some nations and the whole program collapses in on itself. Which brings us to the fundamental question that the minister never seems to have asked himself: "Why this plane? Why the F-35's? Why stealth?"
To return to the holy trinity of procurement, the answer to "why this plane" should be found within the "mission profile." What do you want this asset to do? Why do you need stealth to perform patrol missions in North America? What is the bulk of the work that will be done by these airplanes? And finally, on the occasion when Canada participates in an international mission, why would we be expected to lead a bombing run? Canada runs support missions. That's what we do, and this is what the U.S. and our allies expect us to do.
One of the reasons the U.S. refuses to sell the only other stealth aircraft — the F-22, is that the U.S. doesn't want any other nation (friend or former friend now foe) to gain air superiority. But the F-22 is in many ways a far superior aircraft — faster, lighter, better range, more manoeuvrable and a bigger payload. Not one other country — least of all the U.S. — expects us to have stealth capacity because it is not in our mission profile, but if they can sell Canadians a few dozen, why not?
The development of this plane also has been plagued by well-documented problems. The process chosen has been to build it based upon sophisticated mathematical modelling and to fix problems as they arise. In other words, Lockheed Martin builds them flawed. If plane No. 37, for instance, develops a problem, big or small, all previous 36 get a recall notice and have to be brought back into the hangar for repair. When you have five million lines of computer code, even small problems can become big problems.
Much has been made about the apparent problems with the pilot's helmet. To a laypersons' mind, this would seem to be insignificant, but for a sophisticated piece of equipment like the F-35, the apparently insignificant becomes very significant, indeed. Small problems become large headaches, which explains why Lockheed Martin is only four per cent of the way through the planning and testing schedule when it should have been 35 to 45 per cent through by now.
Which brings me to the biggest headache — the stealth skin. Interestingly the debate in other partner countries about stealth is quite robust. Many are wondering out loud how long this technology will be advantageous before some nations develop an anti-stealth capacity, which nullifies the advantage. These planes are scheduled to last 30 years, but if someone develops a detection system in five years, what do you do with a slow, limited range bomber with poor manoeuvrability for the remaining 25 years?
Worse still is the "skin" itself. In order to maximize the benefit, it has to be perfect, otherwise it's useless. Minor dings and scratches to the skin give away the stealth benefit, so minor incidents put the plane in for a retrofit making it far less available for operations than it should be. The parliamentary budget officer has noted the minister has used the F-18 repair history as the basis for predicting this plane's likely repair costs and availability.
This is like saying that a pickup truck spends as much time in the garage as a Porsche. It is fundamentally misleading to expect that the time out of service and the costs of repair are the same for the F-18s and the F-35s. For example, the estimated flying cost per hour for the F-35 is almost twice the estimated flying cost of the F-18.
And finally, the last pillar of the holy trinity — the industrial benefits. Apparently the minister was dazzled by the allure of Canadian businesses being able to compete for a share of the work for 3,000-plus planes. The auditor general rather dryly notes that competition means that there is no guarantee that you will get the contracts. To make better sense of the auditor general's cryptic observation it's helpful to think of the CF-18s and the F-35s as being like a PC versus the Mac. When your PC doesn't work you have your nerdy nephew come over to the house one night with his screw driver and half an hour later, you're up and running. The F-35, however, is the Steve Jobs repair model. You can't even pry it open. It's off to the Apple Store to get it repaired and you only get it back when Apple says that it's available.
Traditional procurement contracts work on a two-for-one model. One dollar of taxpayer's money yields two dollars in industrial benefits over the life cycle of the asset. The real money for the acquirer nation is in the post-acquisition period. Indeed, Canada has become so sophisticated at CF-18 repairs that Montreal probably could build one nose to tail if it chose to because Canadians over the years have become so skilled and knowledgeable about this plane.
This is not the case with the F-35 procurement model. There is little or no chance that Canadians will ever host a repair centre because the F-35 is a Mac, not a PC. The management of the stealth skin is very difficult and complex and likely will have to be done by Lockheed Martin. Whatever contracts Canadian companies can compete for will be of the less-significant variety. The aircraft was never designed for offsets.
So going back to our holy trinity of costs, mission profile and industrial benefits, a reasonable person might well say this is a procurement disaster. The cost overruns have been well-documented. The parallel set of books hidden from Canadians by the minister was exposed by the auditor general for all to see. The minister got himself so tied up in knots trying to explain the $10-billion deceit he criticized his own department thinking that it was the parliamentary budget office.
Unlike other countries, there has never been a debate about our "mission profile." And finally, the minister was caught like a bunny in the headlights when he told Canadians that billions of industrial offsets would come our way. Who was he kidding?
Fog and deception are a necessary part of war tactics but misinformation and duplicity in procurement leave Canadians confused and suspicious. Buying airplanes in a fog is both deceitful and dangerous.
John McKay is the MP for the Ontario riding of Scarborough-Guildwood.