How selecting the Lockheed Martin F-35 could impact Canada’s economy

The Lockheed Martin F-35A Lightning II has long been considered the favourite to replace the Royal Canadian Air Force (RCAF) CF-188 Hornet. But in a competition now being contested in a weakened economy in which the government faces a ballooning deficit and an uncertain job market, how well each fighter jet scores on acquisition and sustainment costs and economic benefits to Canada – worth 40 per cent of the evaluation – could be almost as important as how well the aircraft meets the Air Force’s capability requirements.

The Joint Striker Fighter (JSF) has become the most expensive weapons program ever for the U.S. Department of Defense and could cost more than US$1 trillion over its 60-year lifespan, according to the New York Times. The Department of National Defence in 2013 estimated the full cost of procuring and operating the F-35A at US$45 billion over 30 years. Others have pegged the number far higher.

Furthermore, under the rules of the JSF partnership agreement, to which Canada is a signatory, Lockheed Martin cannot offer traditional industrial and technological benefits (ITBs) to Canadian industry.

If company officials are feeling at a disadvantage, they aren’t admitting it.

“We understand the rules, we understand the way the competition is structured and the requirements,” said Steve Callaghan, Lockheed Martin’s vice-president of F-35 development and a former U.S. Navy F-18 squadron commander and Fighter Weapons School instructor.

In an online briefing to media on Aug. 6, Callaghan shared the results of an economic impact assessment that suggested selection of the F-35 could impact GDP by almost $17 billion and generate more than 150,000 jobs over the life of the program.

Lockheed Martin submitted its 7,000-page bid on July 31 to replace the RCAF’s 94 legacy Hornets with 88 F-35A fighters. The proposal is one of three the federal government received at the deadline for a contract valued at up to $19 billion. Boeing’s F/A-18E/F Super Hornet and Saab’s Gripen E are also in the running.

The government may begin negotiations with one or more of the compliant bidders once the initial evaluation is completed, likely by next spring.  The final decision is expected in 2022 and first deliveries by 2025.

As the RCAF and Public Services and procurement Canada now begin to evaluate the proposals, Lockheed Martin was keen to remind Canadians the F-35A is the only fifth-generation fighter in the competition. “It truly is a generation ahead of any other fighter in production and can be procured for about the same or less than the far less capable fourth-generation aircraft,” said Callaghan.

Though the Joint Strike Fighter program was originally launched with the intent of developing a more cost-effective family of aircraft with a shared design and common systems, and high production volume to reduce procurement and sustainment costs, the ambitious program has struggled with high development costs and the final price tag.

However, between the second Low Initial Production Rate (LRIP) in 2008 and LRIP 10 in 2016, the cost of an F-35A decreased by about 60 per cent. As Lockheed Martin ramps up to a production rate of about 141 aircraft per year for LRIP 14, its reached a per unit cost of about US$78 million.

The aim now is to bring the cost per flight hour down under US$25,000 by 2025.

“We are putting that same level of focus, that same level of rigour and innovation to reduce sustainment costs,” said Callaghan. “With … every flight hour, the enterprise gets smarter, more mature, more effective, more on track to meet several critical performance and affordability targets.”

Equally important to a government that will be eying more well-paying jobs in the aerospace sector for decades to come, Callaghan highlighted Canada’s involvement in the JSF program. The federal government was the first nation to sign on to the U.S. partnership and to date “more than 110 Canadian companies have contributed to the development and the production of the F-35,” he said, resulting in about US$2 billion in contracts.

According to the economic impact study, conducted by Offset Market Exchange (OMX), a Toronto-based firm that helps OEMs develop their Canadian supply chains and provides analytics to ensure compliance with ITB obligations, the full impact of the program between production (2007 and 2046) and sustainment (2026 and 2058) could result in $16.9 billion to Canada’s GDP.

Though contracts are awarded on a “best value” basis among all participating countries, Canadian companies have proven their ability to compete and deliver quality, he added. And suppliers would be building parts not just for 88 aircraft, but likely for over 3,000.

With the F-35 manufactured in the U.S. and many sustainment hubs already selected, several Canadian companies have been raised concerns about access to high-value in-service support work. Though Callaghan wouldn’t commit to specifics, he noted that more than 2,500 F-35s could be operating in North America past 2060, resulting in “a large number” of potential sustainment opportunities.

“I think Canadian industry is in a very good position to capture quite a few of those contracts,” he said.

If Canada opts for another aircraft, the current contracts would be honoured “to their conclusion,” but would then be placed up for best value bids to JSF nations, he added.

Though Lockheed Martin is still ramping up production and addressing software issues, the F-35 is a rapidly maturing program. Over 550 aircraft have been delivered and the entire fleet has accumulated over 300,000 flight hours. Eight services, including five outside of the U.S., have declared initial operating capability and the Royal Australian Air Force is expected to do so before the end of 2020.

F-35s have been part of operations and joint and international exercises. Both Norway and Italy have conducted NATO Iceland air policing with their fleets.

“These are indications of the maturity of the program,” said Callaghan. “We are a mature program that is really hitting stride.”