National Defence Committee on Oct. 19th, 2010

[The Chair, Conservative, Maxime Bernier]

Welcome to the 28^th meeting of the Standing Committee on National Defence. As per our agenda, pursuant to Standing Order 108(2), we will continue our examination of the new generation of fighter aircraft, and we have the pleasure of having with us today,

from the Department of National Defence, Mr. Ross, Assistant Deputy Minister.

Thank you, Mr. Ross, for being with us. You have 10 minutes to express....

Yes.

[Bryon Wilfert, Liberal, Richmond Hill, ON]

Mr. Chairman, before we go to the witness, I have a procedural question with regard to the F-35, and it has to do with Thursday's meeting.

My understanding is that at the moment we don't have any confirmed witness for Thursday. I know the clerk is looking into it. I understand from our conversations, Mr. Chairman, that you will not be here on Thursday.

I would be prepared to chair a meeting if in fact we have a witness for our discussion. But if we don't have one, and you are amenable, we should then have a steering committee meeting. If you are amenable to that, we would have a steering committee meeting on Thursday to discuss future witnesses with regard to the F-35.

I'm simply putting that out to you, Mr. Chairman, because I think members should be cognizant of what we may or may not be doing.

[The Chair, Conservative, Maxime Bernier]

Thank you.

I know the clerk is working on having a witness, Lockheed Martin maybe, but it's not confirmed as yet.

Mr. Hawn.

[Bryon Wilfert, Liberal, Richmond Hill, ON]

That's great.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

Mr. Chair, we also have the Chief of the Air Staff and the program manager for the next generation fighter available for Thursday to answer the questions that have been posed by the opposition on what the requirement is for the aircraft. These are questions they asked. We have people prepared to come and answer those questions. We simply offer that, because that is what the opposition asked for.

[The Chair, Conservative, Maxime Bernier]

Mr. Harris.

[Jack Harris, NDP, St. John's East, NL]

Mr. Chairman, I really am concerned about the ad hoc nature of this inquiry. I think we do need a steering committee to figure out who it is we need to call. It's all very well to say someone is available, but it may be convenient for someone to have someone available. If we're going to undertake this study, we have to decide who it is we're going to call, how many we're going to call, and in what order we're going to call them.

We can't have this bouncing back and forth based on “Well, you asked this question, so we've got someone who's going to answer it.” That's not the way we should run a study.

So I suggest that before we have any further witnesses...I know Mr. Ross was engaged by a motion last week and Mr. Williams the same way before, but let's not carry on like that, lurching from meeting to meeting. Let's have a proper steering committee and decide what witnesses we're going to call. Everybody will have a pretty good idea by now as to the lay of the land, so let's decide as a committee where to go from here.

[The Chair, Conservative, Maxime Bernier]

Thank you, Mr. Harris.

I want to remind all the members that we have a list. The clerk has a list right now that all the members agreed to on this study. The question is who is available and when. That's a question of timing, but we still have a list of witnesses that everybody agreed to, and we must follow this decision by the committee.

Mr. Hawn.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

I would agree with that, and I believe those folks are on the list, CAS and Colonel Burt.

[The Chair, Conservative, Maxime Bernier]

I agree also that we need to have a steering committee as soon as possible to be able to plan for the future. It would be useful for the clerk to know that in advance, so I agree with you also on that point.

Yes, Mr. Hawn.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

But I suggest we have the steering committee not during one of the main meeting times, because those are limited, and we have a list of witnesses we have all agreed should come. It's a matter for the clerk to sort out when they can make it.

[The Chair, Conservative, Maxime Bernier]

We'll know before the end of this meeting about the availability of witnesses. If they're available, I think we'll chair a meeting with witnesses next Thursday and a steering committee the Tuesday after that.

But let's now hear our witness, Mr. Ross, and maybe at the end of the meeting we can have a further discussion on that.

Mr. Ross, you have 10 minutes. Thank you very much.

[Dan Ross, Assistant Deputy Minister (Materiel), Department of National Defence]

Thank you, Mr. Chair. I'm delighted to be back.

First I'd like to talk about the operational requirements for a moment or two. Let’s remember we are acquiring a fighter for the next 30 or 40 years. I would ask whether you would want your son or daughter or future granddaughter in yesterday’s technology or in the most effective and secure aircraft in the future. That's essentially what we're talking about with the fifth-generation fighter. We are talking about new technologies that change the game. It's about stealth, the ability to prevent the bad guy from seeing you and thereby potentially reaching out and killing you.

Would you want the enemy to see your son or daughter pilot 100 miles out, or would you rather they fly unseen into a mission, accomplish the mission, and be back out before anyone even knows they've been there? That's assuming, of course, they haven't dropped a bomb or something and then everyone would know they'd been there.

Stealth means protection and survivability. It's also important to note that this degree of stealth needs to be built in, and it can't be added to an existing platform.

Fifth-generation technology is also about sensor fusion and interoperability, the ability of the aircraft to see and sense all around it and be in constant secure communication with its friends. The system then presents all that information in a simplified logical manner to the pilots, so they can immediately focus on the important elements and not be swamped and distracted by millions and millions of bits of non-essential information.

Secondly, let me address some of the recent statements made about the joint strike fighter program. While no one can deny that the cost of the design and development phase of the JSF program has grown significantly, not unlike most complex military equipment, nowhere is it acknowledged that these costs have been paid for by the United States government at no additional cost to Canada. That’s important because it did not increase our costs in any way.

If I could turn now to some of the issues circulating regarding the competitive process and the costs of Canada’s participation in the joint strike fighter program, claims have been made that Canada could achieve a 20% savings on the purchase of a new fighter. That's quite extraordinary, as there is absolutely no basis for such claims.

Let’s state the obvious: you must have more than one viable supplier to have a competition, and there is only one fifth-generation fighter available. The F-22 Raptor is not a multi-mission aircraft, it is very expensive, and it is not for sale or export by the U.S. government. Nor is it practical for Canada to acquire and operate the new Russian stealth fighter. Even if it met our technical requirements, clearly we would have no interoperability with our key allies.

Thus there are no other fifth-generation fighter programs under way in the western countries. Our CF-18s will largely be retired due to structural fatigue over the next 10 to 15 years. That leaves us with the F-35 as the only operationally viable fifth-generation fighter solution.

The issue, therefore, is if we are getting the best possible price without being able to conduct the more traditional competitive request for proposal process. The answer is clearly yes, as there is no possible way you could obtain a cheaper price. There are only two ways to buy a joint strike fighter: by exercising your option as a partner under the memorandum of understanding or through the United States foreign military sales program on a government-to-government basis. The U.S. government does not participate in RFP competitions; it will simply give you a sale price to foreign military sales.

Acquiring these jets under the MOU would result in an $850 million to $900 million cost avoidance from foreign military sales fees. A competitive process with the F-35 being selected--far from resulting in a 20% cost savings, as some have suggested--would, at a very minimum, result in an 8% to 10% cost increase because we'd have to pay that $850 million to $900 million.

In terms of the joint strike fighter MOU, we have to be clear that in order to run a competition, Canada would be forced to withdraw from the MOU. I would point out that that is because the MOU precludes that countries have agreed not to apply the normal IRB process. A Canadian competition would have to entail the normal IRB process, and you cannot do that within the MOU.

If we withdrew from the MOU, we would lose key benefits. We would be subject to penalties, the industrial guarantees we already have would be negated as those contracts run out, and Canada’s industrial plans with our partners would be suspended.

Let me make a couple more observations about the costs of the aircraft. First of all, Canada is buying the conventional take off and landing variant--the least costly variant--for which the current estimate is in the low to mid $70 million per aircraft. And we are buying at the cheapest price point on the production curve.

Second, this program affords Canada access to incredible economies of scale. Upwards of 3,000 to 5,000 aircraft will be produced.

Third, while it is possible that some partners could reduce the number of aircraft they are purchasing, we expect that any reduction in partner buys will be offset by sales to non-partners, such as already witnessed in Israel. I just note that a few minutes ago the U.K. confirmed that it will continue to buy 138 joint strike fighters.

Fourth, while the government has announced up to $9 billion for the capital program, the $9 billion covers much more than the cost of $5 billion to $5.5 billion for 65 aircraft. It also includes logistics, simulators, spares, weapons, infrastructure, and program management contingency, etc. And all of these items would be purchased regardless of which aircraft we chose.

Finally, the price that Canada will pay is the cost of production per aircraft, as it comes off an assembly line with a Canadian flag on the tail. Many analysts have cited a myriad of numbers that the U.S. government will pay, but you must remember that these numbers reflect the total program cost to the United States government, which is compelled to report to Congress. That includes all the tooling costs, testing, and research and development, etc. Canada does not pay for those costs.

As for joint strike fighter life cycle costs, remember that the current fleet of CF-18s costs money today to keep it running. The money we anticipate paying for the in-service costs of the F-35 will be of the same magnitude. Training a pilot is training a pilot, a litre of fuel is a litre of fuel, and runway repairs are runway repairs.

As a partner in the joint strike fighter program, we have access to all known costs associated with sustaining the fleet. As I said at my last visit, we estimate the cost of sustaining the fleet to be approximately $250 million to $300 million per year, but we believe the story will be better. For example, we are looking at pooling our spares with our other international partners. That would mean a 50% reduction in the number of spare parts that we would have to initially buy to create that initial pool of logistic spares.

So far from not knowing the costs of sustaining, we probably know far more about sustaining the F-35 than we have known about sustaining any previous new fleet, and we hope to achieve real savings.

Let me summarize, in conclusion, the major benefits of the joint strike fighter program. First of all, it's the only aircraft in the western world that meets the operational requirements of the CF. It affords Canada and Canadian industry unprecedented access to technology, including detailed cost data. It provides us with the most cost-effective approach to long-term sustainment and follow-on development because we're doing it jointly with eight partners. The Government of Canada will receive millions of dollars in royalty cheques from sales to non-partners. Indeed, we welcome the recent announcement by Israel to purchase F-35s because it will generate a royalty cheque to Canada. It will work to keep the purchase price low for us, as well as generating real work for Canadian industry.

And on the subject of industry, Canadian industry is guaranteed access to the largest military cooperative program in the world--in fact, ever--with benefits being realized every day across this country. To date, Canadian companies have been awarded more than $850 million in contracts. Opportunities identified in the industrial participation plans with the three major company groups are estimated to be worth, in the long term, $12 billion U.S. And this only takes into consideration the existing orders of 3,173 aircraft for the partner nations. It does not include the estimated 2,000 additional aircraft for export sales.

To conclude, one thing I have come to appreciate in the job of ADM Materiel is that many of the defence procurements are far more complex than they appear on the surface. We're not buying cars here. There is no magical way to create a more competitive situation or to predict what a different process would or would not save. To generalize, to oversimplify, is to do a disservice to the men and women who put their lives on the line every day for Canada.

Ladies and gentlemen, and Mr. Chairman, thank you very much for your attention.

[The Chair, Conservative, Maxime Bernier]

Thank you very much, Mr. Ross.

I will give the floor to Mr. Wilfert for seven minutes.

[Bryon Wilfert, Liberal, Richmond Hill, ON]

Thank you, Mr. Chairman.

Welcome, Mr. Ross.

I have two questions for you.

First of all, I have a comment with regard to the type of fighter aircraft we will need. In places like Afghanistan they suggest that the type of fighter aircraft is really not very effective against insurgencies, and that's the kind of conflict we may be up against in the future. So what is being proposed may not necessarily be very useful for the kind of warfare we may be engaged in. Could you comment on that?

Second, you stated that if we were to withdraw from the MOU to hold a competition, the industrial guarantees we already have would be negated. Could you point out to me, Mr. Chairman, where it states in the MOU that we'd have to withdraw from the program to hold a competition? And how does this reconcile with section 3.2.1.1.1, which clearly states that we are allowed to abide by our domestic procurement practices while remaining JSF partners? What were the industrial guarantees you were referring to, and how would they be negated if we withdrew?

If I have more time, I'll ask more questions.

[Dan Ross]

I'm not sure if I got all of that. I'll give it a try. You might have to remind me if I miss a couple.

[Bryon Wilfert, Liberal, Richmond Hill, ON]

I apologize. I'm deaf in one ear at the moment, so if you could speak up, I'll do my best to hear you.

[Dan Ross]

Thank you, sir.

We didn't anticipate the Yugoslavia mission. We didn't anticipate we would have to fly air combat into Yugoslavia. No one anticipated the invasion of Kuwait in the first Iraq war and the second Iraq war. Most people would say you don't need stealth and an F-35 to do the close support missions in Afghanistan.

I would comment that we don't know what we don't know five years, 10 years, or 25 years from now. I would simply state that if you bought old technology today, your sons and daughters would go to some unforeseen conflict with a one-to-one chance of success because we've given them the same tools the bad guy probably has. Twenty years from now, their chance to come back alive would be one in ten or one in twenty. That's not an acceptable situation. We cannot predict the future. You cannot buy old technology that is acceptable for unforeseen threats for 20, 30, or 40 years.

In terms of the MOU, the primary reason you must withdraw from the MOU to run a competition is that one of the primary reasons we run competitions is to allow Canadian industry to have the opportunity of the normal IRB program that is a mandatory requirement for vendors. Dollar for dollar, 100% return of the investment that we pay out comes back to Canadian industry.

Under the MOU, it states very specifically that partner countries will not apply offsets and IRB policies if they intend to remain in the MOU. So you have to withdraw from the MOU to be able to do the competition and get the same or similar industrial benefits.

Sir, you had follow-on questions. I probably lost some of them.

[Bryon Wilfert, Liberal, Richmond Hill, ON]

What were the industrial guarantees you were referring to, and how would they be negated?

[Dan Ross]

Industrial participation is proportional to the partner nations' contributions to the program. In Canada's case, our contributions have been $168 million to date, and a total of $551 million over the full 40-year period of the MOU. So we are not necessarily guaranteed, but effectively have opportunities to participate as a partner competitively in the industrial opportunities that are proportional to our contribution. When one withdraws from the program...or, in our case, recently when we did not make a commitment to buy, virtually none of those industrial opportunities were flowing to Canada.

If we completely withdrew from the MOU, the existing contracts would not be terminated, but they would peter out. The current delivery quantities would be delivered and they would end. There would be no new contracts for the fleet of 3,000 to 5,000 aircraft flowing in the future to Canadian industry. That's a fact that clearly comes with participation in the MOU, and it does not come if you withdraw from the MOU.

[Bryon Wilfert, Liberal, Richmond Hill, ON]

I was going to revisit that. May I ask you the question, then, with regard to Brazil? My understanding is that the F-35 is a contender for the Brazilian Air Force, along with others. Why is it that they have a competition and we don't?

[Dan Ross]

The Brazilian Air Force is not a member of the MOU. If they were to select a joint strike fighter, they would have to purchase it under foreign military sales from the U.S. government. The U.S. government will not participate in their competition. The U.S. government will simply tell them that this is our sale price.

[Bryon Wilfert, Liberal, Richmond Hill, ON]

Do you know what their specs are versus ours, in terms of what it is we want this fighter for, because obviously there are other...? We keep hearing that there are no other contenders on the market for what it is we're looking for. I'm not sure what we're looking for, given the issue of the Arctic versus wanting fighter aircraft to do certain things. There seems to be a misstatement out there that there's absolutely no other competitor in the marketplace.

[Dan Ross]

Mr. Chairman, sir, clearly Brazil and Canada have different geopolitical environments. Canada is a G-8 country. Canada is one of the founding members of both the UN and NATO, and as a G-8 country, we participate in hard things. Brazil is an entirely different world and geopolitical and geographical environment. I would assume that they're more concerned about local irregular activities that perhaps you'd use a different type of air force for.

[Bryon Wilfert, Liberal, Richmond Hill, ON]

Well, they're concerned about territorial sovereignty there, which is what we're concerned about. They're concerned about intruders, as we are. I still don't see the connection in terms of whether there is something else in the marketplace. The issue we've always raised is that it was a sole-source contract with no ability for anyone else to compete.