Let's Be Honest About the Price Tag on Those Planes
(Source: The Ottawa Citizen; published March 23, 2011)
One of the main difficulties with the debate regarding the costs of the F-35 is that there are so many definitions of "cost." For example, there is the "unit recurring flyaway cost", the "total flyaway cost", the "procurement cost", the "acquisition cost", the "life-cycle cost", to name just a few. The fact is, only when Canada signs a contract will we know for certain how much money we will spend to buy and to sustain the aircraft we choose. Until then, the least Canadians should expect is honesty in the discussions regarding the costs.

Let us first focus on the cost to acquire the aircraft. When I signed the 2002 Memorandum of Understanding (MOU) in February of that year, Canada (as well as other signatories to the program) was assured that if we decided to purchase this aircraft, we would not need to pay the research and development, test and evaluation costs associated with the program. This is a huge benefit for Canada and, as such, any costs now quoted should exclude these costs. The cost term typically associated with this scenario is called the "procurement cost."

Therefore, the question is, what is Canada's expected "procurement cost"? Department of National Defence bureaucrats have been consistent in briefing a $75-million cost -a figure the government continues to repeat. In reviewing the government material tabled on March 17, 2010 before the Parliamentary and House Affairs Committee, it appears to me that the $75-million figure is not the "procurement cost" but rather the "unit recurring flyaway cost", which is merely part of the procurement cost. The government should clarify whether the $75-million figure represents the total cost Canada would pay to purchase the aircraft or merely a part of the purchase cost.

There are, however, a couple of new reports that do shed light on the cost to buy the F-35.

First, the U.S. Government Accountability Office (GAO) just released a report indicating that from 2001 to June 2010, the average procurement cost for the F-35 rose from $69 million to $133 million.

Second, since June 2010, the F-35 program has undertaken a major review and restructuring in an attempt to curtail cost increases and get the program back on schedule. Last week, Vice Admiral David Venlet, the new chief of the F-35 Joint Program Office, appeared before a U.S. congressional committee regarding the F-35s. He told the committee that, after his latest review of the program, he is confident in his new cost estimates. For the F-35A (the model Canada plans to acquire), his procurement cost estimate was $126.6 million (including $15 million for the engine).

Third, it has just been announced that Israel purchased 19 F-35As, at an average cost of $144.7 million. As Israel is only considered a "Security Co-operative Participant" their cost includes the research and development, test and evaluation costs of approximately $23 million for each aircraft. Eliminating this figure from their cost results in an average cost of $121.7 million.

None of us can know for certain what the final cost to acquire the F-35 will be until we get a firm price quote. As production increases, the costs may drop. Nevertheless, all evidence to date indicates that we would pay over $120 million per aircraft, rather than $75 million, should we decide to acquire this aircraft.

With respect to the life cycle costs, it is important to keep in mind two important factors. First, the F-35 is expected to remain operationally effective through the year 2040. Second, while the F-35 is applying leading-edge logistics to help restrain the support costs, these support costs are heavily driven by the complexity of the software. The F-35 is the most software-intensive airplane ever built. The aircraft is estimated to use approximately 5.7 million lines of code, more than double that of the F-22 raptor. Maintaining and upgrading this software are what drive the support costs upward.

In its report on the Joint Strike Fighter dated March 2009, the GAO states, "The total expected investment is now more than $1 trillion -more than $300 billion to acquire 2,456 aircraft and $760 billion in life cycle operation and support costs."

This ratio of the costs to buy versus the costs to support, of about 1 to 2.5, mirrors my experiences at DND. Applying this ratio to Canada's potential purchase would result in a purchase price of $7.8 billion (at $120 million per aircraft), long-term support costs of $19.5 billion, for a total cost of $27.3 billion over approximately 25 years.

Finally, while it is important to understand the costs of this program, it is even more important to have a public debate on the aircraft requirements and their linkage to the role and mission of our military. To date, this has been lacking.

Alan Williams retired in 2005 after a 33-year career in the federal public service. The last 10 years of his career was spent in the business of defence procurement, five years as ADM Supply Operations Service in PWGSC followed by five years as ADM Materiel at DND. In 2002 he signed the Memorandum of Understanding committing Canada to the second phase of the Joint Strike Fighter program. He is now president of The Williams Group.


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