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Canada Reconsiders JSF; Italy’s Leading PM Candidate Would Trim F-35 Buy

Dec. 8, 2012 - 01:15PM   |  
By AARON MEHTA, DAVID PUGLIESE and TOM KINGTON   |   Comments
The prospect that Canada may drop the F-35 Joint Strike Fighter entirely and Italy would trim its planned buy of the stealthy jet as Washington think-tanks urge the Pentagon to cut the program is raising concern that the world's largest and most expensive defense program could be destabilized.
The prospect that Canada may drop the F-35 Joint Strike Fighter entirely and Italy would trim its planned buy of the stealthy jet as Washington think-tanks urge the Pentagon to cut the program is raising concern that the world's largest and most expensive defense program could be destabilized. (Lockheed Martin)
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WASHINGTON, OTTAWA and ROME — The prospect that Canada may drop the F-35 Joint Strike Fighter (JSF) entirely and Italy would trim its planned buy of the stealthy jet as Washington think-tanks urge the Pentagon to cut the program is raising concern that the world’s largest and most expensive defense program could be destabilized.

Dismissing news reports that they had canceled a planned purchase of 65 F-35s, Canadian officials did say they were reconsidering the program and may compete the contract to replace the country’s aging CF-18 fighters.

Boeing has long lobbied Canada to ditch the JSF in favor of its F/A-18 Super Hornet, while Eurofighter, Dassault and Saab have been eager for what would be a major order for new combat jets. The JSF would bid as well.

The potential cancellation of the Canadian JSF program comes as the man many expect to be the next prime minister of Italy indicated his government would evaluate whether to make cuts to the program.

“I would consider a relaxing, a reduction of the commitment to the F-35 and military spending,” Pier Luigi Bersani, the head of the center-left Democratic Party, said to Italian TV.

Meanwhile, as Washington debates its fiscal future, the biggest acquisition program on the Pentagon’s books is attracting attention as defense analysts and even a number of influential think tanks — including the Stimson Center, Center for Strategic and Budgetary Assessments (CSBA) and Center for American Progress — have suggested a range of ways to scale back the program that depends on volume to keep unit prices down.

For their part, Pentagon leaders are remaining firm on JSF orders, explaining they can afford to make cuts far in the future to keep near- and mid-term production volume up.

But that’s not the case abroad, where fiscal challenges are even more acute.

“The key point is that this doesn’t just impact DoD, but it impacts all the partners,” said Mark Gunzinger, of the CSBA, on potential cuts to international orders.

The JSF program is jointly funded by the U.S. and eight partner nations: the U.K., Italy, Netherlands, Turkey, Canada, Australia, Denmark and Norway.

JSF prime contractor Lockheed Martin says it has received interest from 10 countries looking to purchase more than 700 jets. The largest international customer is Britain, which plans to buy 138 of the fifth-generation fighters, although officials have suggested that figure could fall.

Because no country buys its jet orders all at once, those figures are “program of record figures” — the number that countries have said they would like to buy, rather than the actual number they have funded. And that means they are subject to change.

That change can come from cuts, as is the case with Italy, or simply a partner deciding to go another route. For instance, Denmark is expected to acquire 30 jets, but hasn’t formally selected the JSF as its new fighter.

And every cut can potentially raise the price-per-unit for JSF, already the most expensive program in Pentagon history.

“Rising costs can produce a death spiral,” said Richard Aboulafia, an analyst with the Teal Group. If Canada moves away from the JSF, “it would be the first loss of a committed, major partner, and that could open the door to all kinds of mayhem.”

“The general problem is that as military spending is cut, the most expensive and apparently least urgent programs are hit,” said Michele Nones, head of the security and defense department at the Istituto Affari Internazionali, a Rome think tank. “But as JSF orders are cut, the costs rise so it becomes a vicious circle.”

But when it comes to how much international cuts could drive up costs, “I don’t think anyone really knows” where that tipping point would be, Gunzinger said.

One way to control costs among current partners is expansion into new markets. Although not initial partners in the program, Israel and Japan have signed deals to purchase the F-35. Japan is close to joining Italy as the only international partners to have a final-assembly and check-out facility, which will assemble all but four of the F-35s the country has agreed to purchase.

Israel, the program’s first export customer, remains committed to “full implementation” of delivery terms and costs outlined in a $2.75 billion 2010 contract with the U.S. government, an Israeli defense source said.

The first pair of the 19 F-35s on order is expected by the end of 2016, with the full deliveries of the Air Force’s first squadron planned by the end of 2017 or early 2018.

Nevertheless, Air Force, industry and Ministry of Defense officials alike are constantly monitoring program shifts and their likely impact on the affordability of follow-on buys.

Gunzinger points to a country like South Korea as a potential fit for the F-35, in particular the STOVL variant. Lockheed submitted a bid for South Korea’s fighter replacement program, which plans to purchase 60 jets.

“Look at anyone who has a robust Air Force flying F-16s, and you see the potential there for them joining the F-35 down the road,” said Rebecca Grant, an analyst with IRIS research.

Aboulafia calls the Canadian situation “a desperately needed wakeup call for the F-35 program. Lockheed has been talking 5th gen for so long that they tend to think they’re in a protected place on the market where price doesn’t matter nearly as much. That’s dangerous.”

Domestic Production

Because the U.S. is still by far the largest partner in the JSF program — the Air Force order of 1,763 F-35A variants is more than double all international partners combined — Grant argues that the cost for each JSF relies more on how quickly DoD moves beyond low-rate production.

“The main impact on price right now is U.S. government production rates, and that’s far more significant in the next couple of years,” Grant said.

Costs per fighter have dropped steadily in each block of jets purchased by the U.S. On Nov. 29, DoD and Lockheed reached an agreement on the fifth block of JSFs, composed of 22 F-35A conventional-takeoff-and-landing variants used by the Air Force; three F-35B short takeoff/vertical landing (STOVL) variants for the Marines; and seven F-35C carrier variants requested by the Navy. The total cost was just short of $4 billion, less than half of what the initial block 1 order cost taxpayers.

The most recent selected acquisition report from the Pentagon estimates a unit recurring flyaway cost — the average cost for each aircraft over the life of the program — of $78.7 million per F-35A variant, $87 million per F-35C variant and $106.4 million per F-35B, all in 2012 dollars. Lockheed estimates the cost for the A variant at about $70 million.

“We anticipate achieving full rate production of 20 aircraft per month in the 2018-2020 time frame,” wrote Lockheed spokesman B.J. Boling in an email.

Officials expressed confidence in the program, but acknowledged that each partner has to work within its unique political system.

“The partner nations are committed, but each nation has to decide what’s best for their country,” said Joe DelleVedova, spokesman for the F-35 Joint Program Office.

At a Nov. 8 event, Tom Burbage, Lockheed’s general manager for the F-35 program, dismissed the idea that having JSF partners decide to purchase a different jet could harm the program.

“It’s totally up to the countries to decide what they want to do, what their national interests are,” Burbage said. “I don’t think it reflects on the program at all.”

Gunzinger said countries looking away from the JSF for budget reasons would regret it.

Allies can “choose to buy something that’s not fifth generation, that’s best suited for the wars of yesterday, or they could have a modern Air Force that’s prepared to address the threats of today and tomorrow,” he said. “Strategic choices should be driven by strategy, not by budget considerations.”

Canada

Canada’s decision to move away from the JSF came as a new report expected this week from an outside auditor will reportedly show rising prices tied to a longer-than-expected lifespan for the fighter.

In July 2010, Defence Minister Peter MacKay and Public Works Minister Rona Ambrose announced Canada would purchase 65 F-35s. Mac-

Kay stated at the time that the F-35 was the only aircraft that could meet the country’s military needs.

Since then, however, the government has faced a public and political backlash with questions about how the F-35 was selected and what the aircraft will ultimately cost.

After an April report by Canada’s auditor general, Michael Ferguson, questioned the F-35 acquisition, the Conservative Party government of Prime Minister Stephen Harper froze the purchase. The government has appointed a National Fighter Procurement Secretariat, made up of civil servants and independent advisers, to examine the purchase of a future fighter aircraft to replace the current fleet of CF-18 jets.

The audit, “Replacing Canada’s Fighter Jets,” found the Department of National Defence (DND) kept the government in the dark on the proposed purchase of F-35s.

Ferguson also found that although the DND told Parliament’s Budget Officer in 2011 that the F-35 purchase, including long-term maintenance and support, would cost 14.7 billion Canadian dollars ($14.5 billion), the year before it had quietly estimated the actual price to be 25 billion Canadian dollars.

The Royal Canadian Air Force had planned to order the conventional-takeoff version this year and take delivery of its first plane in 2016. Canada operates 78 modernized CF-18s.

Canada’s decision to look at other options could provide new hope for the Super Hornet. Boeing officials have been lobbying government officials since the 2010 F-35 decision to give the company a chance to show what its aircraft can do.

Mary-Ann Brett, Boeing’s manager for international communications, said in an email, “Boeing welcomes the opportunity to provide Canada with information and data about the F/A-18 Super Hornet that would allow Canada to make a transparent and fully informed decision that is in the best interest of all stakeholders.”

Officials with Eurofighter did not respond to a request for comment. The Typhoon could be another contender, according to industry representatives.

Gunzinger sees the Super Hornet as the early favorite. “There will be competition,” he said, but with their experience and interoperability with current Navy aircraft, “you would think the F-18 would have a leg up in the competition.”

“There is going to be a complete survey of everything that could possibly compete to replace the CF-18,” Gen. Tom Lawson, Canada’s chief of the Defence Staff, told the House of Commons Defence Committee.

Lawson, once a strident supporter of the F-35, now acknowledges that other aircraft could be an option, but wouldn’t specify which aircraft could meet Air Force requirements.

“Lockheed Martin has been a partner with the Canadian Forces for more than 50 years,” wrote Lockheed spokeswoman Laura Siebert in an email. “We remain dedicated to continuing to support Canada and its military requirements with the F-35.”

Italy

Even before Bersani’s statements this week, Italy this year already had reduced its JSF order from 131 to 90 aircraft to cope with defense cuts linked to austerity budgets.

As austerity measures bite, the JSF has come to represent a frequent target for groups in Italy seeking to protect social spending.

In an address to the defense commission of the lower house of the Italian parliament last week, procurement chief Gen. Claudio Debertolis said Italy had already saved 4 billion euros ($5.2 billion) by cutting 41 aircraft from its order, a calculation that presumes about 100 million euros per airplane.

Debertolis said the program was “fundamentally important” for Italy, reminding the commission that it would replace 18 AV8 aircraft, 136 AMX bombers and 99 Tornados now in the Italian fleet.

Direct and indirect employment linked to the Italian assembly line being built for the aircraft at Cameri would amount to 3,000, he added.

“Italy is among the countries that most needs the JSF to replace aging aircraft like the AMX and the AV8,” said Nones of the Istituto Affari Internazionali. “Italy has also invested 800 million euros in its final assembly line, so we have less flexibility.”

Italy’s former center-right Prime Minister Silvio Berlusconi stepped down last November as the budget crisis mounted, paving the way for the Italian president to nominate a government of unelected technocrats led by former EU commissioner Mario Monti.

Last week Berlusconi suggested he would run again in 2013.

Monti has pushed through spending cuts and tax hikes to balance the books, but is due to step down next year to make way for elections. Bersani’s party now leads the polls, but Bersani cannot become Italy’s next prime minister if he cannot form a workable majority after the election and must ally with centrists, who would insist on Monti returning to lead the government.

Bersani won a primary vote on Dec. 2 to retain his spot as party leader. In a primary TV debate on Nov. 28, he was more circumspect about the JSF than in his Nov. 30 statement, claiming, “To Obama I would say let’s talk about [the JSF program] and see how we can reshape it.”

Earlier this year, Debertolis told the lower house commission that each conventional fighter ordered at the start of Italy’s run of orders would cost $80 million. Then, last month Italian defense undersecretary Filippo Milone told the senate commission that the figure was 80 million euros, the equivalent at the time of $114,3 dollars. A defense source said that the initial reference to $80 million rather than 80 million euros had been an error.

Last week Debertolis said the current base price for the three conventional JSFs that Italy has ordered in 2012 — its first orders — was now 90 million euros each. The price hike of 10 million euros per plane was due to Italy’s reducing its order from 131 to 90 aircraft.

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