2016-06-10 Lockheed Martin warns it will pull $825M in F-35 contracts if Canada buys another jet, CBC
Canadian companies could stand to lose at least $10B over lifetime of aircraft
U.S. defence giant Lockheed Martin is warning Canada that $825 million in aerospace industrial contracts signed with Canadian companies to build and equip F-35 jets would be moved to other partner nations if the Trudeau government decides to buy a different fighter jet.
Steve Over, the company’s director of F-35 international business development, says other countries that have already committed to buying the stealth jet are clamouring for the work.
“It’s not really a threat,” Over said in an interview with CBC News. “I don’t want it perceived as a threat, but we will have no choice, if Canada walks away from F-35, except to relocate work in Canada to other purchasing nations.”
By the end of the year, Over said he expects the value of Canadian parts and sustainment contracts to reach $1 billion, with an anticipated lifetime value of $10 billion or more.
The comments mark a sharp escalation in the war of words over the Liberal government’s efforts to speed up the replacement of the Royal Canadian Air Force’s current fleet of CF-18s fighters.
During the 2015 election, Prime Minister Justin Trudeau promised not to buy the F-35 and instead go with a cheaper alternative. Lockheed Martin remained silent at the time, regarding the comments as campaign rhetoric.
Under questioning this week, Defence Minister Harjit Sajjan refused to exclude the notion of a sole-source purchase of brand new Boeing Super Hornet fighters, despite a campaign promise for an open bidding process.
The deputy minister of material at DND, Pat Finn, told a House of Commons committee Thursday that all options, from sole-source to full-blown competition, were being studied by the government, but no decision had been made.
Change in tone
Earlier in the week, Lockheed Martin officials seemed content to pull their punches when it came to the industrial benefits question, saying only that they would “evaluate their options.”
Even going back to 2013, months after the Harper government put the acquisition of the F-35 on hold, company officials were soft-pedalling the consequences, suggesting that if Canada went in a different direction, existing contracts would remain safe but no new work would be offered.
But all of that was tossed aside Friday as Over and other company executives made it clear that existing contracts would be honoured until renewal, and once they expire, they would go to nations participating in the program.
“If, in that most negative scenario where Canada chose to purchase a different airplane, we would have to take those future opportunities that are today envisioned for Canadian industry and we’d have to offer it to countries that are purchasing the airplane,” he said.
Losing future contracts
The example he offered was Mississauga, Ont.-based Magellan Aerospace’s 20-year, $1.2-billion subcontract from BAE Systems Inc. to build the jet’s tail fins.
“So Magellan would just no longer be offered the opportunity to produce horizontal stabilizers,” Over said.
A 2006 memorandum setting up Canada’s participation in the development of the stealth fighter was signed by the Conservative government with the implicit suggestion the country was in for the long haul.
“The government of Canada and Lockheed committed together that we would put this industrial work in Canada, assuming that Canada bought airplanes, and we can’t meet our commitments around the rest of the partnership if Canada doesn’t buy the airplane,” said Over.
“We want to approach this in a good-faith effort, but Canada is going to have to help us with that.”
There are approximately 110 Canadian companies working on the F-35.
Industry warns of lost money, jobs
Unlike other defence procurement contracts, the stealth fighter is unique in that Canadian companies don’t get guaranteed work. They are required to compete and work collaboratively to keep costs down.
The Lockheed Martin warning comes one day after an open letter published by Canadian companies involved in the program expressed fears about what would happen to them if the Trudeau government went with another plane.
“Not selecting the F-35 will set off a chain of events that will see hundreds of millions of investment dollars lost and high-tech jobs leaving Canada, going to countries who are buying the F-35,” said the letter.
“Sole-sourcing a legacy aircraft will leave Canadian industry in the unfavourable position of working on 30-year-old technology over a finite period of time, with little opportunity to progress Canada’s aerospace capabilities globally. The future landscape of the aerospace and defence industry in Canada will be permanently affected in an adverse manner.”
The Liberals have attempted to justify their desire to move quickly — and possibly avoid an open competition — by saying the air force is facing a “capability gap,” which means it may not have enough fighters to live up to its domestic and international obligations.
In the Commons Friday, Liberal MP John McKay, the parliamentary secretary for defence, put the blame on the previous Conservative government.
He said only 20 of the air force’s 77 CF-18s will be available for service by 2025 if circumstances remain the same.
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