National Defence Committee on Dec. 2nd, 2010

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Thank you, Mr. Chairman.

There's been quite a bit of talk in the news about this purchase. I sent out a survey to all my constituents so that they'd understand what it was about. I asked them whether Canadians should leave our air defence and aerospace jobs to another country, to the Americans. Not only did I receive responses, but one gentleman gave me a four-page letter. He has given me permission to refer to it.

Kevin Andrews, of Renfrew, Ontario, wanted to first state that he's ex-air force and was raised in an army family. He says, “I've studied our governments over a very long time in my life and this is the first time that I can hold my head high and stick my chest out in the purchase of the F-35!”

First and foremost with respect to the purchase is the concern about the safety and security of our nation and having this done with the safety of our airmen and airwomen in mind. In addition to that, as we've heard, there's also the industrial benefit aspect. Can you explain Lockheed Martin's industrial participation plan concept?

[Tom Burbage]

Sure. The plan is to allow all of the partner countries—there are nine nations together, the U.S. and eight other partners—to participate from the very beginning, without the commitment to buy the airplane initially, in the design, development, test, and build of the airplane. To date, there are 54 companies in Canada that actually have contracts on the F-35, going back as far as 2001. If you look at the actual contract to buy the airplane in 2014, that's 13 years ahead of the contract award that we have been working with the Canadian industry on this project.

I will tell you that when I talk to the other partner nations I often use the model of Canadian industry as a great example of a government-industry partnership going forward. Not many other countries do that, by the way. The ability of your industry to work with your government programs to actually make them more competitive, to compete and win work on the program, has paid off.

I think it's a very robust plan. We have taken the plan all the way out through the known production period of the program, which today is 2036.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Even further than the contracts, there are the subcontracts. Would your company know, of all the subcontractors as well as the principal contractors, who is doing that work in Canada?

[Tom Burbage]

It's very hard to track work below second, third, and fourth tier. We give a contract to Héroux-Devtek or to Magellan and they have suppliers. That has the trickle-down effect, where they build the components that go into their parts. We track the dollar value that we've given to the primary company. We just don't have the resources, and it's hard for Canada to track it and get back to us, but there are clearly second, third, and fourth tiers of small and medium enterprises that provide parts and services for all the contracts we have, but that we don't carry as part of our list.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

So the multiplier could be even greater.

What is your opinion on the Canadian aerospace industry with regard to bidding on future contracts for the F-35?

[Tom Burbage]

Canada has proven already that they are very competitive. I don't think there is any issue at all with Canada continuing to win and hold the work they've had. Canada is very much like the U.S. We have a lot of U.S.-Canada relationships that have actually built the aerospace industry here over the years. I don't know if you're familiar with this, but Lockheed Martin has been providing airplanes here for 65 years, first as Lockheed, and a large part of the industry that has grown up around those programs has become the core aerospace industry here.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

What contracts have Canadian industries received to this date? How many companies are involved that you are aware of? Are you able to state the names of these first, second, third, fourth...?

[Tom Burbage]

I can state some of them. I don't work this program exclusively, but I can tell you that there are 54 companies in Canada that have contracts today.

We have some 200-plus projects that we've identified over the course of the production program. Not all are under contract yet. We have a couple of major assembly projects—the horizontal tail for the air force airplane and the outer wing for the navy airplane—that are under contract but haven't started yet because we're just coming up the production curve right now.

I'm looking at my map here. We have a couple of companies in British Columbia and Manitoba. We have a number of companies in Ontario and certainly a number in Quebec, and we have one in Nova Scotia, Composites Atlantic, which is doing a lot of good composite work for us.

We have gone across the breadth of Canada and tried to find excellent small and medium enterprises, and they have been very competitive on the global market in winning this work.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Now let's talk about the functionality. Can you explain to us the importance of stealth capabilities within the F-35 and its impact within air combat?

[Tom Burbage]

Stealth is a technology that has evolved over time. We're now in what we call the third or fourth generation of stealth, F-22 being the predecessor, and F-35 being the successor to F-22 and building a lot on F-22 experience, taking it to another level, primarily in the area of ease of maintenance. We have substantially improved the fragility of stealth technology now, until it is very rugged; two of our three airplanes have to go to sea on ships, and therefore the technical characteristics have to be very rugged.

If you had your choice of being in a stealthy airplane or not being in one, you would want to be in one, because you have a significant tactical advantage in that there's uncertainty on the part of the adversary as to where you are and what you're doing, and there is certainty on your part as to where he is and what he's doing. That's a significant tactical advantage. When you couple that technology with the sensors we have now, to give the pilot a 360-degree view of everything that's happening around him and integrate all that data for him so that he basically is looking at a big-screen TV and seeing the world around him and not trying to manage sensors, you have a serious significant technical advantage over any other airplane that's flying out there.

We are very confident that this airplane is going to revolutionize. We're building this airplane for the next 50 years. We're operating some fighters today that are 50 years old, and we're going to be flying this airplane way into the future where technologies are changing more rapidly than they are today. So we have to have a good solid base on them. We have to have one that will evolve with time, and we think that's what this airplane does.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Thank you.

[The Chair, Conservative, Maxime Bernier]

Mr. Bouchard, please.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Thank you, Mr. Chairman.

Thank you for being here today. We're asking questions today to find out more about this project. My first question relates to the economic spinoffs.

Your company has talked about $12 billion in benefits for Canada. According to a study done by the Pentagon, the actual benefits would be far less significant, in the range of $3.9 billion, as opposed to the $12 billion mentioned by your company. Canada also has its own estimates, which are that the benefits, other than the acquisition, construction and production of the future F-35s, would not exceed $6 billion.

How do you explain such a significant difference? Are you still saying that the purchase by Canada of 65 F-35 aircraft will yield $12 billion worth of benefits?

[Tom Burbage]

This is the second time I've heard reference to a Pentagon report that quotes an industry figure. The Pentagon isn't involved with our industrial activity. It's part of the agreement, but it's totally managed by the industry. I'm not familiar with the report you're talking about. I'm sorry. I know of no Pentagon report that quotes the number $3.9 billion. I'd be happy to find it and read it, but I'm just not aware of it.

[An hon. member]

It's a 2003 report.

[Tom Burbage]

Well, this is 2010, and things have matured. The value of our project has grown by $2 billion in the last two years.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

What kind of benefits do you see for Canada? You probably gave a sales pitch and said that if Canada joined the project, there would be benefits. Are you still putting forward that $12 billion figure? If not, what is the figure, in your opinion?

[Tom Burbage]

I see now where the number's coming from, but 2003 was less than a year after Canada joined the program. That's probably what it was worth at the time, because we had not explored the opportunities that are here. In the intervening seven years we found other opportunities and we brought many more companies on. So that's not the correct number.

On the number we're looking at now, if we take all the projects we've identified for Canada and extrapolate them over the production program, from the Lockheed Martin perspective, their worth is about $9.5 billion. When we add to that the engine work, it goes up to well over $10 billion.

We're not including in that any costs associated with sustainment of the airplane when it gets into service. It will be in service in Canada for about 30 years, so we are confident that there is a significant amount of additional industrial participation that's not accounted for yet. When we look at that versus the purchase cost of the airplane, we think there's a very big advantage to being part of this program. Because you're building parts for 3,173 airplanes, not for the 65 airplanes that Canada would buy.

That's the basis of the program. Now, is there any risk in that? There is risk in that industry has to perform, because no country, no government, wants to pay for poor performance as increased costs for their airplanes. Am I confident that Canadian industry will perform? I'm very confident. Your industry has been very competitive. Amongst all the partner nations I would say that Canada is as competitive or more competitive than the rest. They're very good.

It's a risk that industry has to take on. If they're willing to take on that risk, my sense is that the industrial benefits will far exceed those of the F-35. There will be opportunities in other programs. Your advanced composites manufacturers will be set up to do commercial work, as an example, so there are other opportunities that will open up by being part of this high-technology program.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

I would like to ask you about something else: the unit price of an F-35.

According to the figures I have here, one aircraft cost $50 million in 2002. Now the figure is $92 million.

In the MOU that you signed with Canada, are there rules that protect Canada and ensure that it will get its money's worth? Is there going to be continued growth or can the price not exceed a certain limit?

[Tom Burbage]

Yes. The cost of the Canadian airplane will be exactly what the U.S. cost is, because you're going to buy the airplane with the United States. It's going to come to us as one contract. We're going to build 200 airplanes, and some number of those airplanes will belong to Canada. We don't know which ones, because we don't have a separate contract with Canada.

So you have the buying power. This is the difference in having a competition. You have the buying power of a much larger quantity of airplanes to drive the cost down, and you have a very extensive negotiation process that we go through with the U.S. government on your behalf. There are advantages to that.

Now, in terms of the cost, when the U.S. looks at cost, they're not looking at cost through the same criteria that Canada looks at cost. They're looking at what it costs to establish a large number of operational bases inside the U.S. and what does it cost to complete the development program? Canada's costs are fixed and Canada will have a much smaller infrastructure, so the numbers you quoted are numbers that are in the media, but they're not an accurate representation of the cost of the Canadian airplane.

A better record is to look at the cost that we've actually settled our contracts for and project down that cost curve to the point at which Canada's going to buy their airplanes, which is still out in the future, four years from now, before the first contract is made. At that point in time, we have a very good estimate of what the cost is going to be for the Canadian airplanes, and we have a good confidence--not 100% confidence, but good confidence--band around that. And the amount of money that your government has budgeted for the airplane will be well within that.

You have to look at the numbers that are being used in the Washington media as not being completely representative of what Canada is going to pay for the airplane. You'll pay the unit price of the airplane--the same unit price the U.S. pays--but you won't be paying to put all the U.S. infrastructure in place, and you won't be paying all the development costs of the airplane.

[The Chair, Conservative, Maxime Bernier]

Thank you very much.

I will give the floor to Mr. Braid.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Thank you very much, Mr. Chair.

Thank you, Mr. Burbage, for being here.

Mr. Burbage, it sounds like the Washington media gets it wrong sometimes as well. Is that correct?

[Tom Burbage]

I don't want to say they get it wrong. I'm just saying they're not describing Canada's program. They're describing Washington's program.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Mr. Burbage, in your experience, do you believe that Canadian aerospace companies can compete with the best?

[Tom Burbage]

I think Canadian companies in many cases are the best. There's some work that's done here that's just absolutely top-notch.