Public Accounts Committee on May 3rd, 2012

[Laurie Hawn, Conservative, Edmonton Centre, AB]

Okay. So it's here for the F-18 today and it will be there for the F-35 tomorrow.

There's obviously a lot of confusion around this. To go back to the operating costs for the F-18 versus the F-35, Mr. Lindsey, I don't know if you have the answer to this or not, but there are two figures for every airplane. There's one that's the sort of hourly operating cost in terms of POL, which is fuel, oil and lubricants, and so on, and then there's what we used to call—I don't know if we still do—the log guide figure, which is a much bigger number and includes salaries and pensions and the whole nine yards. That's the figure I think Mr. Allen was looking for—the log guide figure.

Do you have that off the top of your head for the F-18?

[Kevin Lindsey, Assistant Deputy Minister, Chief Financial Officer, Finance and Corporate Services, Department of National Defence]

No, sir, I don't have that figure for the F-18. What I could affirm, though, is that the combination of those cost factors you've just identified are those costs that form the costs in this $10 billion in operating costs.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

A big chunk of that is sunk costs, which we just described.

[Kevin Lindsey]

Sir, I wouldn't characterize them as sunk costs. I would categorize them as ongoing operating costs—a cost of operating a fighter fleet.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

Right, which some people have termed sunk costs; but yes, yours is much more correct.

With respect to the F-35 program being a development program, going back to the F-18, there were far fewer F-18s flying at the time when we made the decision to buy that airplane than there are F-35s flying now. So I would suggest, maybe to Mr. Ross, that, yes, it's a development program, but we've been there with development programs before, which turned out just fine, thank you, meaning the F-18. Is that a fair statement?

[Dan Ross]

Yes, it is.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

Now, with respect to going back 20 years and so on, the reason we don't use more than 20 years is because it's so unpredictable. There are so many unknowables out there that it really becomes a meaningless number. But I'm not sure who I'd ask about this....

I'll ask Mr. Fonberg. You can pass it on.

You can take that number and extrapolate it to anything you want. You can extrapolate it to 30 years, 40 years, or 50 years, but for sound planning, you have to go with something that at least has some predictability to it. Is that a fair statement?

[Robert Fonberg]

Yes, absolutely.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

Okay.

Mr. Kennedy, we talked about industrial benefits and so on, and technology. Is it fair to say that if we don't participate in the level of technology that is available to us through the F-35, and in all the things that go into that airplane in supporting it, we will not be in a position to be a part of whatever the next level of technology is? Is that a fair statement?

[Simon Kennedy]

I think what I would say is that we certainly see, from an Industry Canada perspective, certain advantages to being part of this consortium because of the access to the very advanced technologies and the ability to develop them that it provides, which you wouldn't have with another process.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

With respect to suggestions we've just had that if we think the F-35 is the airplane, why don't we just do an open competition if we're so sure, one of the things we would lose by doing that and getting out of the memorandum of understanding is access to that technology.

[Simon Kennedy]

I think that's well understood: that the purchase of the aircraft has being part of that consortium as part of the arrangement.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

On the purchase price within the MOU, Mr. Fonberg, we may not be able to get a definitive number, but can you give a ballpark number as to how much less we will pay within the MOU, as opposed to buying it in foreign military sales directly from the U.S. government?

[Robert Fonberg]

Thank you for the question.

I believe Dan Ross would have the nature of the premium we would pay through a foreign military sales purchase.

[Dan Ross]

Thank you, sir.

Our understanding is about $800 million for foreign military fees and other things. You'd also forgo the royalties that come to Canada when the U.S. government sells planes through FMS to other non-partner countries.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

So with Israel and Japan buying airplanes, or planning to buy airplanes, we will get money from the U.S. government when Israel and Japan buy their F-35s.

[Dan Ross]

Yes, sir. We receive royalties on those sales.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

Perfect.

[The Chair, NDP, David Christopherson]

Thank you.

Moving on, the floor is now Mr. McKay's. As the substituted member of the committee, he is deferring his time to Mr. Rae.

Mr. Rae, sir, you now have the floor.

[Bob Rae, Liberal, Toronto Centre, ON]

Thank you.

Mr. Fonberg, I'd like to ask you to look at the chart on page 27 of the Auditor General's report.

In that chart, that's the sort of I suppose now famous discrepancy between the number that the Auditor General says was your estimate used for decision-making in June of 2010, and the public response that the department gave to the Parliamentary Budget Officer's report in March of 2011, which I gather was on the DND website in 2011. Is that correct?

[Robert Fonberg]

I believe that's correct.

[Bob Rae, Liberal, Toronto Centre, ON]

Well, in his testimony this morning.... If you multiply 65 by $85 million, you don't get $9 billion, you get under $6 billion. And that's the number that's also on that chart, the 5,580 number. And as my friend Mr. Hawn points out, if you divide $9 billion by 65, you get $138 million. So when the Parliamentary Budget Officer came up with his higher number, Minister MacKay said in the House on March 23 that his methodologies were flawed, his findings were flawed, his numbers were completely out of line and they bore no relationship to the numbers of DND. But in fact, with great respect, Mr. Fonberg, they do bear considerable relationship to the numbers you set out, with respect to the total 20-year costs, when the government made its decision in June of 2010.

My question is, why would you not have admitted to that number? Why would the government not have admitted to that number when it was engaging in the debate with the Parliamentary Budget Officer? Rather than attacking the Parliamentary Budget Officer, why would the department not have said, “Well, there are different ways of calculating this actual cost, but yes, it could be somewhere in the $25 billion to $35 billion range, if you include the full life cycle costs over a period of time”. And then if you add the period of time, you might get a different number.

But let's not get away from the fact that when Parliament was in the middle of a critical debate, the Department of National Defence seriously undercut the credibility of the Parliamentary Budget Officer, when for many outside observers you'd say the discrepancies are not in fact that huge. What's huge is the fact that $10 billion went missing when the debate with the Parliamentary Budget Officer started. Who made that decision?

[Robert Fonberg]

Mr. Chairman, if I could ask for the question.…

There were many numbers the member referred to. I'm not sure what clarification he wants on which particular number. If it's the $6 billion, which is the $75 million times the 65 aircraft at the time, or the discrepancy between the $6 billion and the $9 billion and how the PBO dealt with that, we can talk about that. If it is the issue of operating costs and the discrepancy between $14.7 billion and $24.7 billion, we can talk to that too. I'm just not sure which clarification—

[The Chair, NDP, David Christopherson]

You've got a minute and a half.

[Bob Rae, Liberal, Toronto Centre, ON]

I think it's pretty clear.

Let me ask you very directly, because I don't think it's an obscure question. How do you account for the difference between the number given to the cabinet and to the government in June of 2010, according to the Auditor General of Canada, and the number given by the department and by the minister in the debate surrounding the report of the Parliamentary Budget Officer? Why were those two numbers so different? Why was there a $10 billion gap in that discussion? That's the question. And who authorized the different accounts?