Spotlight on Military Procurement: Canada and the Joint Strike Fighter Program

Tasneem Jamal

Author
Kenneth Epps

The Ploughshares Monitor Summer 2002 Volume 23 Issue 2

Canada has joined the Joint Strike Fighter (JSF) program to provide the Canadian aerospace industry with access to the largest military procurement program in US history. Industrial participation may be the first step to a Canadian order for the combat aircraft.

In a Washington ceremony in February 2002, the Canadian government joined the Joint Strike Fighter (JSF) program as a “Level Three” international partner. A Memorandum of Understanding signed with the US and the UK at the ceremony committed Canada to funding and services for the JSF totalling more than US $150 million. The commitments include US $100 million from the Department of National Defence (DND), US $50 million from Technology Partnerships Canada (TPC) – an industrial subsidy program of Industry Canada – and the services of the Canadian Commercial Corporation and Canadian test and evaluation sites. Under terms of the TPC program, Canadian aerospace industries also will be expected to invest in JSF development, although the extent of these investments has not been determined.1 In return, Canada will participate in the System Development and Demonstration phase of the JSF program, with the Canadian government awarded one position out of 152 in the JSF program office. More significantly, Canadian industry will be allowed to compete for JSF contracts which government and industry officials claim could total US $500 to $600 million during this development phase alone.

The JSF has been dubbed “the largest acquisition program in US, DoD [Department of Defense] history” (CanadExport 2002, p. 7) and has been compared in size to the Manhattan Project of World War II. As its name suggests, the program is a joint initiative of the US Navy, Marines, and Air Force, all of which are looking to replace large numbers of several models of fighter and attack aircraft in the next decade. Together the three services are expected to receive about 2,900 aircraft starting in 2008. The United Kingdom, as the earliest and most senior foreign partner in the program (Level One), expects its first deliveries of 150 aircraft in 2010. Other international partners – Italy and the Netherlands at Level Two and Australia, Denmark, Norway, Turkey, and Canada at Level Three – along with countries such as Singapore and Israel which have expressed an interest in acquiring the JSF, are also expected to order hundreds of the aircraft.

The JSF will be produced in three variants to meet the varying tactical roles required by the different military services: the F-35A, a conventional-takeoff-and-landing (CTOL) variant for the US Air Force; the F-35B, an carrier-based variant (CV) for the US Navy; and the F-35C, a short-takeoff/vertical landing (STOVL) version for the US Marine Corps. The UK Royal Navy and Royal Air Force are evaluating the STOVL variant and most other non-US buyers are expected to purchase the CTOL variant. The combined US and UK orders totalling about 3,000 aircraft are valued at about US $200 billion. Industry commentators suggest that up to 3,000 additional aircraft will be ordered by other nations. The total program thus could be worth up to US $400 billion to the aerospace industries of the US and its international partners.

“Interoperability” and “affordability”

Acquisition of the JSF is touted by government and industry officials as important to advancing “interoperability” among US and allied forces. In promoting the JSF program to the Dutch government in December 2001, Tom Burbage, a senior Lockheed Martin official, wrote, “the most significant measure of national stature in the world of allied co-operative forces is the ability to operate shoulder to shoulder with the United States in future conflicts” (Lok 2002, p. 5). The point was echoed by another Lockheed Martin official in a press release issued for the February signing ceremony with Canada. “A foundation of this program, envisioned several years ago, is its international character,” said Dan M. Hancock, president of Lockheed Martin Aeronautics Company, a business area of Lockheed Martin Corporation. “By joining the Systems Development and Demonstration phase, Canada strengthens a highly interoperable, common defense asset for multiple allies” (Lockheed Martin Aeronautics Company 2002). Similarly, at a May press conference announcing Danish partnership in the JSF program, the Danish National Armaments Director, Jorgen Hansen-Nord said, “This project will enhance interoperability with US and allied forces, and will provide opportunities for Danish industry to participate in this cutting-edge aerospace project” (Agence France-Presse 2002).

Interoperability is consistently underlined as one of two key attributes of the JSF program. The program is posed as an opportunity for US allies to make good on intentions to more closely cooperate in coalition missions by ordering common aircraft, particularly if the common aircraft is the sole combat jet the US plans to purchase after 2013. US officials argue that aerospace industries of partner nations will benefit from joint procurement through participation as subcontractors in the JSF program. Some European industry leaders are less convinced of the argument, however, and worry about US domination of the combat aircraft market. Following the January announcement that the Netherlands would join the JSF program, “Bruno Cotté, Dassault’s senior vice-president for military sales, claimed that the Netherlands decision would effectively ‘terminate’ Europe’s defence aerospace industry, through its expected ‘ripple effect’ on smaller European air forces” (Jane’s Defence Weekly 2002a, p. 5).

On the economic side, the other touted JSF program attribute is “affordability,” referred to in the US-UK-Canada February memorandum as “a cornerstone of the JSF Program.” According to the Canadian Commercial Corporation, the crown corporation which will act as a broker on behalf of Canadian industries with the JSF office, affordability is a “key aspect” of the JSF program and “this will be the first fighter aircraft development program that will treat cost as an independent variable, rather than designing to achieve performance at any cost” (Canadian Commercial Corporation 2000). The projected cost of a JSF plane is considered low for a combat aircraft, at least compared to the anticipated costs of European rivals.2

To benefit from what it considers the most important future combat aircraft market, the Canadian aerospace industry lobbied Ottawa to join the JSF program. The industry emphasized the economic benefits of participation, claiming that beyond the anticipated sales from the JSF system development phase, the industry stands to win up to $10 billion in business from the full production phase of the program.3 In addition, the JSF program is viewed by the industry as crucial to its future development, through the provision of opportunities and funding for new technologies and processes that could be applied to military and civilian programs alike.

Alan Williams, the DND Assistant Deputy Minister for Materiel who signed the February Memorandum of Understanding, noted that the JSF agreement was “absolutely essential to support the Canadian aerospace industry …. Without it, the whole industry would be dramatically eroded” (Globe and Mail 2002, p. A16). Ron Kane, vice-president of the Aerospace Industries Association of Canada (AIAC), elaborated, linking JSF work to its potential application in the wider commercial aerospace sector. “The JSF is quite critical for Canadian companies to maintain international competitiveness,” he said. “Other large aerospace projects, including Airbus’s A-380 double-decker superjumbo and Boeing’s Sonic Cruiser, are expected to employ some of the technologies being developed for the JSF” (Globe and Mail 2002, p. A16).

Not for the first time, the government accommodated the aerospace industry. By September 2000, the US Business Development Division of Canada’s Department of Foreign Affairs and International Trade was enthusiastically reporting the opportunities and benefits of Canadian participation in the JSF program. The division highlighted planned missions to JSF contractors in the US for which the Department of National Defence was soliciting the participation of interested Canadian companies (CanadExport 2000, September 15, pp. 6-7). Following Canada’s opening investment in the program (US $10 million for the concept demonstration phase in January 1998), officials emphasized that the government funded the JSF to benefit Canadian industry, not to better position itself to make a future purchase of the fighter aircraft. According to Alan Williams, “the real benefits are not to this department, but it’s going to be to industry who participated in all the contracts leading to this and in being a player in this in the future. They’re the real winners” (Defense News 2000, p. 42).

The cost of benefits

The Canadian government expects to recover some of the funds put into the JSF program. Under terms of the Technology Partnerships Canada program, participant companies are obligated to pay back TPC “repayable investments” as a small percentage of future sales. (The history of TPC and its predecessor DIPP [Defence Industry Productivity Program] suggests this repayment process will be less than complete – to date, typically it has been less than 10 per cent. The AIAC also has negotiated longer repayment schedules for JSF contractors.) Furthermore, “if Canada buys the JSF, research and development recoupment costs, valued at $5 million to $7 million per aircraft, will be waived and the DND will not have to use US Foreign Military Sales purchasing which could also result in significant savings, depending on the value of a future buy. Canada will also receive third-party royalties for every aircraft sold to non-partner nations” (Jane’s Defence Weekly 2002b, p. 8).

The economic benefits to Canada look good on paper but the reality may be otherwise. While there is little doubt Canadian companies will win JSF-related contracts (some companies are already in on the ground floor via prototype contracts), they could fall well short of the US $10 billion total across all phases of the program expected by industry. The US government has made no secret of its interest in getting the most for its JSF contract money. In fact, US officials have made clear that the “affordability” of the JSF program is based on competition among international suppliers with no promises for particular national industries. As US Under Secretary of Defense Pete Aldridge Jr stated in February, “There are no guarantees on any of these international cooperative efforts on other countries. They will be done on a competitive basis. That’s value added to the project. And all industries will have to compete on a fair and even basis” (United States Department of Defense 2002).

With the aerospace industries of all JSF partner nations in competition, it is apparent that not all will win the value of contracts promised or anticipated. The Norwegian government was conscious of this situation when it announced its continued participation in the JSF program in June. According to the Norwegian Ministry of Defence, the agreement “contains clauses which give Norway special rights to terminate the agreement if Norwegian industry is not afforded satisfactory opportunities to participate” (Norwegian Ministry of Defence 2002). Similarly, the US-UK-Canada memorandum signed in February includes a clause that allows the Department of National Defence to withdraw from the JSF program “if it concludes that the Canadian industrial participation in this Project is not satisfactory” (JSF SDD Framework MOU 2002, Section VIII).

Despite government assurances that the February JSF agreement does not commit Canada to purchasing F-35 aircraft,4 Canadian participation in the JSF program will generate pressure on the government to buy F-35 aircraft. US emphasis on interoperability among allies will undoubtedly spell out as pressure on JSF partners to order the F-35, and the aircraft could become the focus of repeated US administration calls for Canada to spend more on defence. Domestically, Canadian aerospace industrial participation in the program will generate economic pressure not only to consider the F-35 first among combat aircraft but also to give priority to the F-35 above other procurement needs. Indeed, the economic benefits to Canadian industry of the JSF program – regardless of their final size – already may have determined a future military procurement decision.

1 In a June 2000 letter to Industry Canada, the Aerospace Industries of Canada noted that US $120 million of TPC funds “would leverage approximately US $200M of industry contribution.” This suggests that the US $150 million committed by the government should yield at least $200 million from industry (Smith 2000).

2 Dutch air force evaluations “placed the F-35 in the lead in terms of both performance and cost …. Dassault Aviation’s Rafale F4-standard fighter was runner-up by a very small margin in performance terms, but would be significantly more expensive to acquire than the JSF.” (Jane’s Defence Weekly 2002a, p. 5).

3 The industry is mute on whether Canadian benefit projections for the production phase are dependent on Canada’s ordering F-35 aircraft.

4 In remarks prepared for the February announcement of Canadian participation in the next stage of the JSF program, then-Defence Minister Art Eggleton “made it clear that Ottawa isn’t prepared to commit to buying the JSF planes” (Globe and Mail 2002, p. A16).

References

Agence France-Presse 2002, May 28.

CanadExport 2002, March 15.

Canadian Commercial Corporation 2000, “Joint Strike Fighter – Business Opportunity for the Canadian Industry,” September 14. [Online.] Available from www.ccc.ca.

Defense News 2000, July 24.

Globe and Mail 2002, February 7.

Jane’s Defence Weekly 2002a, 30 January.

Jane’s Defence Weekly 2002b, 13 February.

JSF SDD Framework MOU 2002, February 7.

Lockheed Martin Aeronautics Company 2002, Press Release, February 7.

Lok, Joris Janssen 2002, “Lockheed urges Netherlands Level 2 partnership in JSF,” Jane’s Defence Weekly, 9 January.

Norwegian Ministry of Defence 2002, Press release, June 3.

Smith, Peter R. 2000, letter from President of AIAC to Peter Harder, Deputy Minister of Industry Canada, 15 June.

United States Department of Defense 2002, “Joint Strike Fighter Signing Ceremony,” News Transcript, February 7.

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