Procurement rule changes for F-35 will hurt Canada, rival fighter-jet makers warn
The Trudeau government’s plan to loosen federal procurement rules for the F-35 stealth fighter is sparking public warnings from other fighter-jet makers that it will ultimately hurt Canada.
The Liberals revealed earlier this month that they plan to ease industrial requirements for aerospace companies in the $19-billion competition to replace Canada’s aging CF-18s with 88 new fighter jets.
The government would essentially lift a long-standing requirement that companies bidding on major defence contracts make contractual commitments to spending some of the proceeds on Canadian goods and labour or have their bids tossed out.
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The proposal followed U.S. complaints the criteria violated an agreement Canada signed in 2006 to become one of nine partner countries in the development of the F-35, which is being built by Lockheed Martin.
Yet executives from two of Lockheed’s rivals, Boeing and Saab, came out swinging against the plan on Wednesday, saying the previous policy has worked well – and that changing it could shortchange taxpayers and Canada’s aerospace industry.
“You’ve got a policy that’s been in place for decades and it’s been very successful for Canadian industry,” said Jim Barnes, director of business development in Canada for Boeing, which builds the Super Hornet fighter jet.
“So why would you deviate from a policy that’s been so successful to accommodate a competitor?”
Those lost benefits to the industry could also damage the military’s ability to operate whatever fighter jet wins the competition, said Patrick Palmer, executive vice-president of Swedish firm Saab, which builds the Gripen fighter.
“I am concerned both as a Saab executive and also as a Canadian taxpayer that the changes … may not give Canada the best ability to support and sustain the equipment for the life that we need to be able to support it,” he said.
The two, who spoke in separate briefings on the sidelines of the annual Cansec arms-trade show in Ottawa, stopped short of saying the government’s proposal will unfairly tilt the upcoming competition in the F-35’s favour.
But they did make clear that they had voiced their concerns to the government and were waiting to see how it responded – which could have an impact on whether their companies decide to bid.
“Our position right now is we’re going to review the final (request for proposals) and we’re going to make that determination,” said Palmer. “We have not committed one way or the other.”
Innovation Minister Navdeep Bains insisted during a lunchtime discussion at the Cansec show the government would be able to balance the military’s requirements with the need for a fair competition while at the same time “maximizing economic benefits.”
“These are the principles that have been guiding our decisions,” he said.
U.S. officials had threatened not to enter the F-35 into the competition if the industrial-requirement rules weren’t changed, noting that under the partnership agreement signed in 2006, companies in each member country instead compete for work.
The threat was contained in one of two letters sent to the government last year and published in a report from the Macdonald-Laurier Institute think-tank earlier this month.
Canada has contributed more than $500 million over the past 20 years toward developing the F-35, while Canadian companies have won $1.5 billion in contracts associated with the plane. Canada will also be able to buy the plane for less than non-member countries.
Under the new process, bidders can still guarantee that they will reinvest back into Canada if their jet wins the competition and get full points – which is the likely approach for Boeing, Saab and Eurofighter, which build the Typhoon.
Those like Lockheed Martin that can’t make such a commitment will be penalized and asked to establish “industrial targets,” lay out a plan for achieving those targets and sign a non-binding agreement promising to make all efforts to achieve them.
The government has said it plans to launch the long-overdue formal competition to select Canada’s next fighter jet in July, nearly four years after the Liberals were elected in 2015 on a promise to hold an immediate competition.
Companies are expected to submit their bids next winter, with a formal contract signed in 2022. The first plane won’t arrive until at least 2025.