Thank you very much, Mr. Chairman. It's a great pleasure to be here.
By way of introduction, I've been on the F-35 program for a little over 10 years now. I'd like to read my prepared remarks for the record, and then I look forward to taking your questions.
Let me first thank the committee for allowing me to participate in this hearing. I was hoping to host members of this committee at our facility in Fort Worth earlier this week for you to see it in person. I hope we can reschedule that visit at your committee's convenience, sir
This is a very critical program for all the nations that are involved. I use the word “critical” because it is critical to the United States and our close allies. As we move to affordably recapitalize our tactical air forces and our defence and aerospace industries, it important that we think of both of these together.
Before I get into specifics, it is worth a moment to reflect on the realities of the world today. The challenges we face as a global community are unprecedented. We operate as a coalition of nations with a common interest in preserving the ideals and way of life that are challenged on several fronts. No nation faces this threat alone, and none of us has operated either as isolationists or as a solitary force in any sustained conflict over the last several decades.
For many years, the sovereign nations of the world have operated similar front-line fighter aircraft, primarily those based on pre-eminent U.S. technology. This is evidenced by the CF-18 fighters that your air force operates today. Those aircraft have served us both well, but they are aging rapidly and they are not capable of remaining effective in the advanced threat environments of the future.
It's an important factor to consider as we make decisions that will affect our children and grandchildren. My five grandsons will be called on to defend my country at some point in the future, and my personal resolve in this program is to give them the best capability we can to assure their effectiveness, both in peacekeeping and, if required, in combat operations. Most importantly, we are focused on ensuring their ability to come home safely from any encounter.
In the early 1990s, the United States decided that the multiple modernization programs that each of our services were independently launching were unaffordable and not representative of the new world we found ourselves in. We're now in a world that demands joint service, coalition-based projection of air-power capability.
The joint strike fighter program was launched to develop a family of three airplanes, each uniquely tailored for the very different operational environments the three services face: conventional runway operations for the air force; small ships and expeditionary fields for the U.S. Marine Corps; and large catapult and arresting gear equipped aircraft carriers for the U.S. Navy.
Beyond that tailoring, the airplanes are identical, with the same engine, same mission system sensors, and common cockpits. When you sit in the cockpit of any of the three airplanes, you don't know which one you're in. This feature is very important to ensure real interoperability and dramatically reduced costs of procurement, ownership, and long-term operations by capturing the true economies of scale.
On October 26, 2001, Lockheed Martin was awarded the contract to develop the joint strike fighter following a highly contested and very expensive competitive process. That process included all the major prime contractors in the United States, and it involved building and flying prototype demonstrator airplanes. Canada was one of several observer nations during the competition. There is a reason the competition did not include other nations' candidate airplanes at the time; that is, there is simply no competing technology among any of the other fighter airplanes in operation today.
At that time, the United States and the United Kingdom were the only formal participating nations in this endeavour. Following the competitive contract award, close allies who were flying the U.S. front-line fighters were offered the opportunity to recapitalize their air forces as full partners in the endeavour.
Canada was the first nation to join the partnership--in February of 2002--and six other nations joined the project over the next eight months. The list of incentives offered to participating nations was unprecedented in the history of U.S. Department of Defense programs. It included industrial participation during the system development and demonstration phase of the program.
Participating nations were categorized by their level of financial contribution, with Canada being in the lowest tier, at about $150 million U.S. spread over 10 years. This contribution was a fixed cost, and it has been leveraged over a development program that is now approximately $50 billion U.S. Canada's costs have not increased despite significant additional U.S. development dollars that have been required over time. In return, the prime contractor, my company, Lockheed Martin, was asked to ensure that partner nations were allowed to participate on a best-value basis in the development of the F-35.
In December 2006, the Canadian deputy minister of defence, Ward Elcock, signed a multilateral agreement between all nine participating nations that advanced the partnership from the system development and demonstration phase into the follow-on phase for production, sustainment, and follow-on development. That new agreement dissolved the earlier one and put all participating nations on an equal footing.
Throughout the years of Canada's participation in the joint strike fighter program, the government--Liberal and Conservative alike--has supported continued participation. Each government evaluation recognized the benefits of participation and committed to the next phase. Through programs such as Technology Partnerships Canada and the strategic aerospace and defence initiative, the Government of Canada has recognized the national benefit in supporting industry to modernize its facilities to compete in the global market. That government support has positioned Canadian industry well to capitalize on the benefits the JSF program is offering.
Let me briefly describe those industrial benefits. All industrial opportunities from the F-35 are founded on competitive best-value principles, since all participation consists of direct work on all F-35 partner aircraft, including the United States', and not solely on the airplanes being procured by any individual country. That requirement assures long-term high-quality aerospace and defence work, provided industry can deliver on its commitments to provide competitive cost, quality, and schedule performance.
Over the past nine years, we've had a very close relationship with your JSF team from the Department of National Defence and Industry Canada. They've been true leaders and team builders among the F-35 participating nations. Together, we have identified key companies across Canada and matched them with development and production opportunities. When this activity is combined with the excellent work of our propulsion system contractors—who, just as an aside, are under a separate contract and not part of our contract—the potential total industrial return from the F-35 is unprecedented in the history of Canadian military procurement.
The F-35's consolidated industrial participation plan reflects the true benefit of the best-value economic model. It also offers secondary opportunities in a global market as your industry becomes more competitive and leverages relationships born through collaboration on the JSF program.
Let me give you a few specifics. We placed our first Canadian F-35 contract with Honeywell Canada in Mississauga, Ontario, in late 2001. When our factory began F-35 operations, our advanced tooling concepts included innovations from Handling Specialty, an excellent Canadian company. When the F-35 made its first flight in December 2006, Canadian parts were on board and contributed to making that flight successful.
To date, we have placed $319 million U.S. in contracts with Canadian industry, not including our propulsion brothers. Today, we project Canada's industrial plan for the production portion of the program to substantially exceed the cost of Canada's procurement of the F-35, which is the basis for traditional industrial regional benefit expectations.
As Canada begins early preparation for the arrival of the F-35, our teams are now beginning to focus on delivery of sustainment. Next week we are conducting a Canadian industry summit in Fort Worth to help industries from across Canada better understand their capabilities to perform maintenance and repair work on the F-35. The autonomic logistics global sustainment strategy will provide substantial cost savings in through-life cost while delivering full operational capability here in Canada.
To conclude my prepared remarks, Mr. Chairman, it may be worth taking a closer look at the program through the lens of the Canadian value proposition. Canadian requirements are the responsibility of the Canadian Chief of the Air Staff, but from the perspective of the F-35 program, they're both national and coalition based. The F-35 introduces the integration of revolutionary new technologies of stealth, integrated avionics, advanced sustainment, and interoperability, capabilities that don't exist today in legacy fleets.
The inherent intelligence, surveillance, and reconnaissance capabilities of this next generation of sensors will contribute to Canada's national sovereignty and defence objectives over the vast expanses of Canada and will provide a critical node on the security internet of Canada's integrated defence infrastructure. The multinational development of the F-35 also allows Canadian Forces to seamlessly operate within coalitions if and when required. There is simply no other airplane today that offers these capabilities.
The development of the F-35 has been a monumental challenge and has experienced both successes and setbacks, all of which have been widely publicized. Canada is buying only one of the three variants and is not sharing the technical or cost risks associated with the system's development and the demonstration of this revolutionary capability. The significance of these facts should not be discounted, as there are no unique Canadian development risks or costs, which often have been negative attributes of other acquisition programs.
The U.S. Air Force variant of the F-35, which is also the Canadian variant, has proven to be very productive and reliable during its initial flight testing. This has increased our confidence that the F-35 will achieve its ultimate goal of fulfilling your national requirements and ensuring seamless integration in the coalition air power capability if required.
Today, all three variants of the airplane are in production and flight testing, a substantial factor in achieving the affordability objectives of the program. We recently signed a production contract for our fourth production lot of 32 F-35 airplanes. Lockheed Martin accepted the associated risk in assuming that contract under fixed-price conditions two years earlier than the F-35 acquisition plan. We believe this is a good faith demonstration of Lockheed Martin's commitment to affordability in the procurement cost of the airplane.
Our production backlog now stands at 63, with airplanes destined for five services in three countries. Canadian industry is participating in the manufacturing of key parts for all of those airplanes and is on track to capture program opportunities that far exceed the procurement cost projected for your eventual purchase. The industrial opportunities are real and are happening today, years ahead of a contract to actually buy the airplane. There has never been a program offered to coalition allies that recapitalized the front-line military fighter fleets while simultaneously recapitalizing the critical high-technology aerospace and defence industries that define leading-edge technology across the globe.
Ladies and gentlemen, thank you for this opportunity. I would now be pleased to answer your questions.
