National Defence Committee on Sept. 15th, 2010

[Scott Simms, Liberal, Bonavista—Gander—Grand Falls—Windsor, NL]

But we weren't a part of that process.

[Rona Ambrose, Conservative, Edmonton—Spruce Grove, AB]

Actually, Canada was a part of a very lengthy and intense competition to choose the company to build the joint strike fighter program. It was a U.S.-led competitive process. There were two companies, Boeing and Lockheed Martin, that put forward prototypes, and Lockheed Martin won the design phase to be the supplier to build the joint strike fighter.

Two years ago the air force, through the Canada First defence strategy, made a policy commitment to replace the CF-18s with a next-generation fighter. We have since done the research to ensure that the F-35 is the only aircraft that meets the requirements of the air force. Because we're part of the MOU for the joint strike fighter, we're able to use the MOU to procure these aircraft.

[The Vice-Chair, Liberal, Bryon Wilfert]

Mr. Simms, you have one minute.

[Scott Simms, Liberal, Bonavista—Gander—Grand Falls—Windsor, NL]

Let me give you an example of what I'm talking about. Earlier there was a release about the perceived threat, we'll say, of the Tu-95, which was the Russian bomber that came close to our airspace.

Now, in that particular situation--this is just a simple yes or no, and maybe the Minister of Defence can answer this--is that the kind of perceived threat that you're talking about, that the F-35 would be beneficial? Just very quickly.

[Peter MacKay, Conservative, Central Nova, NS]

Well, I'll answer your question, Mr. Simms.

I think what we're talking about, Mr. Chair, is all threats, all airborne threats. This also includes, of course, our ability to patrol in the offshore area—that is, anything that is approaching from the water as well. So it's not just the current threats; it's looking out into the next generation.

[Scott Simms, Liberal, Bonavista—Gander—Grand Falls—Windsor, NL]

But a fighter—

[Peter MacKay, Conservative, Central Nova, NS]

It's looking toward any threat that could be coming.

[Scott Simms, Liberal, Bonavista—Gander—Grand Falls—Windsor, NL]

Minister--

[Peter MacKay, Conservative, Central Nova, NS]

So this new aircraft, a fifth-generation aircraft—

[Scott Simms, Liberal, Bonavista—Gander—Grand Falls—Windsor, NL]

Minister, please, I only have a few seconds.

[Peter MacKay, Conservative, Central Nova, NS]

--if I could finish, Mr. Simms--allows us to project capability into the future with its sensors, its onboard technology. It's the only fifth-generation aircraft on the market today.

[The Vice-Chair, Liberal, Bryon Wilfert]

Thank you, Minister.

We'll now move to the Bloc Québécois.

Mr. Bachand, you have 10 minutes.

[Claude Bachand, Bloc, Saint-Jean, QC]

Thank you, Mr. Chair.

I want to welcome the three ministers and tell them how honoured we are to have them here before the committee this morning.

Mr. Chair, I would like to draw your attention to the fact that this is a first in terms of F-35s. To my knowledge, this is the first time that we are going to give up guaranteed economic benefits for Canadian industries.

In my opinion, the ministers are being overly optimistic. It is just wishful thinking. They say that because we have the best companies, they will without a doubt benefit. What recourse is there if Lockheed Martin or someone else in the chain says “sorry, but we do not accept CAE, L-3 or Héroux-Devtek”? So far they have gotten small contracts, but others will get them in the future. We will end up with a contract that makes no guarantees. That is the risk we run right now.

That concerns certain countries such as Israel and Australia. It is important to keep a certain amount of independence with respect to the supplier, namely, Lockheed Martin. What I mean by keeping a certain amount of independence is holding on to Canadian sovereignty. That is something very important to me. When the supplier is in control, the supplier decides who will get what. There is no recourse to say that, according to clause 6.2.3 of the contract, that is not what it says. There will be nothing on economic benefits. That is huge, extremely important. We are leaving our companies hanging, without any legal or contractual standing. I would say that is a major issue.

Up to now they have said that the production line is important and that our companies will be part of that production line. It has to do with the acquisition costs. But I have not heard anyone talk about end support service. Our companies are world leaders in providing end support service. And when I say end support service, I am referring to aircraft maintenance, to the training of pilots and maintenance technicians. If we do not have the contracts, we cannot provide the training. So it involves high-tech content. As soon as you do not have contractual guarantees, you cannot ask for any transfers of intellectual property. Lockheed Martin can keep all that and give us small contracts. We will not have any recourse against them.

Now is the time to include the importance of economic benefits in the contracts. That also needs to be shown to Lockheed Martin. You say our companies are world leaders, and some of them are in your own backyard. You mentioned a few of them: L-3 MAS, Pratt & Whitney Canada, CAE and Héroux-Devtek. They are in your backyard, and you should protect them. You should guarantee them a minimum amount of economic benefits. You should not be handing that over to Lockheed Martin simply because it has been there since the beginning and will give us some contracts. It does not work that way. You have to stand up for taxpayers. Taxpayers are having a hard time accepting the bill. It would be easier for them to accept if they knew there were going to be economic benefits and that jobs were going to be created in Canada. As it stands now, there are no guarantees.

Would you agree to starting negotiations immediately? Would you agree to sitting down at the negotiating table with Lockheed Martin? You are the customer. Personally, when I buy a car, I include the options I want in the contract. If the option I paid for is not included, I am not satisfied, and I can go after the dealer. But if there are no contractual clauses providing protection, no matter how much you say our companies are the best in the world, they will fall by the wayside. I hope that does not happen. I have confidence in those companies. We need minimum guarantees.

Are you willing to discuss minimum contractual guarantees and economic benefits with Lockheed Martin? If not, you are giving up a part of Canada's sovereignty, and Lockheed Martin will be making the decisions instead.

[Tony Clement, Conservative, Parry Sound—Muskoka, ON]

I would like to answer that question.

This approach includes guaranteed access to the supply chain. The approach is new, of course. It does not provide a contractual guarantee but a guarantee of access to the supply chain. We are talking about roughly 5,000 planes.

This is a new model. Yes, there is no guarantee of each contract. I admit that. It's clear in the MOU. But we have guarantees that we will have preference, as part of the original group of suppliers and as the original creator of the aircraft, that our companies, Canadian companies, get to bid as part of this global supply chain.

That's the upside. Our industry and our companies are anxious to be part of the global supply chain. That's what's in it for them, and that's why this new approach is so important to them.

I think the minister wants to respond on the service support.

[Peter MacKay, Conservative, Central Nova, NS]

Yes, thank you very much.

Thank you, Mr. Chair, and I must say, I find it refreshing to hear the honourable member talking about Canadian sovereignty. I wish you had the same faith in the aerospace industry as you had in other forms of sovereignty, because you said yourself, back in July of this year--I'm quoting you, Mr. Bachand--that Quebec companies are “all pleased about the project”, that they already have contracts with Lockheed Martin, and that “we say it’s important” that these maintenance contracts be given to those companies.

Well, some of those companies that are under the Aerospace Industries Association of Canada...and I'm quoting now from Mr. Claude Lajeunesse, whom I think you're familiar with. He says, “The Next Generation Fighter is the single largest military aircraft procurement program of the Government of Canada in the foreseeable future and will positively affect the Canadian aerospace industry for decades to come.”

And I can quote others in the same area. Mr. Richard Aboulafia, vice-president of analysis, Teal Group, in Quebec, described the JSF program as a game-changer that is estimated to capture more than half of the world fighter production by 2019.

Also Gilles Labbé, chair of Aéro Montréal, president of Héroux-Devtek, said: “This is a historic procurement for Canada and excellent news for the Quebec aerospace cluster and the entire Canadian aerospace industry.”

On your question, Mr. Bachand, about maintenance and sustainable costs, as you will know, we are still maintaining and sustaining the current fleet of CF-18s, so sustainable costs continue through the life of the aircraft. We'll receive that aircraft around the year 2016-17, and then on as we receive all 65 planes. So the cost of sustainment is anticipated to be in the same order of magnitude as the CF-18 fleet. That is to say--and I think it's quite remarkable when one considers that we will have had those planes for 30 years--the cost of maintaining them will be comparable, somewhere in the range of $250 million annually. When you project those dollars from 1980 dollars to 2010 and onward, it's the same range, same order of magnitude, and that's because we're in a global supply chain.

In fact, as more companies buy this aircraft, and because we're in the MOU, we will in fact see the potential for the cost of the aircraft to come down. Countries like Israel have joined on, and Japan and Singapore are similarly looking at buying this aircraft. If they do, the potential costs of ongoing sustainment, because we're in the global supply chain, could come down.

[Claude Bachand, Bloc, Saint-Jean, QC]

Mr. Chair, you can even quote what I said last time. I will repeat it. What you are saying is true. Right now, any company in Quebec or Canada would be happy to get a contract with Lockheed Martin. However, if there are no contractual guarantees, the contract could end at any given time, and these people could very well decide not to renew the contract with the same company. The issue, here, is the guarantee of a firm contract and the legal option to initiate proceedings if the contract is not respected.

You just said that will not happen. This is in fact a new approach, which includes the possibility of gaining access to 5,000 aircraft, as you mentioned, Mr. Clement. It is true that our companies are world leaders and that we are giving up our sovereignty. I know what it means to delegate responsibilities to someone else. Sovereignty is a bit like that. And you are leaving it up to Lockheed Martin. At any point, it could very well decide to assign end support service to someone else. Without contractual protection, these companies will be overlooked.

I maintain my position that you should ask the Lockheed Martin people to give our companies minimum contractual protection. Obviously, those that have the contract now are happy, but we need to make sure that our companies will be able to go further, contractually speaking. That is all I wanted to say.

[The Vice-Chair, Liberal, Bryon Wilfert]

Mr. Minister, you have 30 seconds.

[Peter MacKay, Conservative, Central Nova, NS]

Just very quickly, if we were to follow your example and go outside of the memorandum of understanding--that is, demand IRBs--we would in fact bear the risk of paying more for the aircraft. It's because we're part of that international global supply chain that it allows us to get a preferred price and in fact benefit from future sales that could see the cost per aircraft come down.

So we would no longer be inside that club. We would no longer be part of that large international consortium. Demanding IRBs would actually force the price of the aircraft to go up, not come down.

[The Vice-Chair, Liberal, Bryon Wilfert]

We'll now to go Mr. Harris of the New Democratic Party.

Mr. Harris, you have ten minutes.

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

Thank you, Mr. Chair.

Welcome to the ministers and to our guests.

My first question is directed to Minister MacKay. It came as a shock to me, I have to say, when the announcement was made in July, because I have your statement, Minister, in the House of Commons on May 27 at the estimates committee, where you say, and I am quoting from Hansard: This has been a magnificent aircraft. This next generation fighter, again, will be an open, competitive, transparent process that will see us receive the best capability, to provide that capability to the best pilots in the world.Later, to clarify in case there was any misunderstanding, you said:I just want to be very clear on the record that the reference to the next generation of fighter aircraft does not preclude a competition, and an open and transparent one.

Sir, in light of those statements and the later decision, I wonder what Canadians should make of this, in terms of your word and your commitment to the people of Canada and in terms of accountability and responsible purchasing when it comes to a decision to sole-source these contracts without any knowledge of what the full life-cycle costs would be.

[Peter MacKay, Conservative, Central Nova, NS]

Thank you.

I resent the implication that you're questioning my word about a true open and transparent process--

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

It's--

[Peter MacKay, Conservative, Central Nova, NS]

--if you'll let me answer the question, Mr. Harris--when that is in fact what happened. I think Minister Ambrose quite clearly laid out how this process began in 1997. There was a rigorous, inclusive process. It's all on the record. It's all there for anyone who wants to take the time to look at how we arrived at the decision to purchase the F-35. It is very clear that this was an open, transparent process. It is in fact the only fifth-generation aircraft on the market. As Minister Ambrose said quite emphatically, there is no competition for a fifth-generation aircraft, because it is the only one.

Yet, having stated that, this process went on for years. It went back to 1997. I commend the previous government for entering into the process, because in fact it was that early decision to enter into that MOU that allowed us, for the investment of roughly $170 million, to receive over $350 million in benefits already as a result of that early decision.

So we have continued in that MOU, and now exercise an option that was available to us in the MOU, as a result of a competition, as a result of rigorous examination and consultation with both industry and people like the Chief of the Air Staff and his predecessor Angus Watt, all of whom gave advice that this was the right plane for the right price for the Canadian Forces and for the country.

I am very confident that we've made the best decision for Canada.

[The Vice-Chair, Liberal, Bryon Wilfert]

Mr. Harris, seven minutes.

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

Mr. Minister, with respect, I think you're insulting our intelligence to suggest that that competition was about which jet aircraft met Canadian military requirements for the future.