Israel nails rich F-35 maintenance contract
OTTAWA — Israel has scored guarantees of billions of dollars of work on the stealth fighters Canada eventually hopes to buy — even though, unlike Canada and other nations, it has not invested any money in the development of the aircraft.
Israeli Defence Minister Ehud Barak has said he approved in principle the proposed deal to buy 20 Joint Strike Fighters, adding that the country's industries have been guaranteed more than $4 billion in work on the aircraft in exchange for the purchase.
Aerospace analysts say that will spark questions from countries such as Canada, Denmark, Italy, Britain and others that invested upfront in the plane, also known as the F-35, in the hopes their own industries would have the inside track on winning contracts. Canada plans to spend $9 billon purchasing 65 F-35s but it is unclear at this point what, if any, guarantees of work the Harper government has received from Lockheed Martin, the builder of the F-35.
Asked about the Israeli deal, Defence Minister Peter MacKay said that Canadian firms have won more than $330 million worth of contracts on the F-35 and that he is confident the government's decision to buy the fighter will open "the door to a huge influx of business for Canadian aerospace."
MacKay noted the decision to buy the plane will pave the way for Canadian industry to bid on an estimated $12 billion worth of work. Industry officials, however, say there are no guarantees that much work will come to Canadian firms.
Some Canadian aerospace executives have privately voiced concerns about whether the purchase will result in significant "industrial benefits." Besides the initial purchase of the aircraft, Canada will enter into a contract for long-term support for the F-35, a deal that is expected to be worth around $7 billion.
In previous defence procurements, it has been common for Canada to obtain the equivalent of 100-per-cent industrial benefits. In the case of the F-35, industry officials argue that Canada should receive at least $16 billion in aerospace and other contracts from the program.
One of the Canadian government's main selling points for the F-35 purchase, the most expensive military procurement in the country's history, is the windfall in industrial work that will come from participating in the program. Because Canada got in on the ground floor of the development of the plane, it is in an excellent position to obtain that work, government and Defence Department officials have argued.
Canada contributed around $170 million to develop the F-35, MacKay noted. "Canadian aerospace is very competitive," he added. "We have the ability now, the opening, to make the case for building parts of this aircraft in Canada."
Defence analyst Martin Shadwick noted that Israel was able to gain lucrative benefits without having to join the program. "This will attract the attention of the official partners and spark some pointed questions for the Americans," he said, adding that the U.S. and Israel have a close defence partnership.
The Israeli purchase of the 20 planes is expected to cost $2.7 billion U.S. But a Lockheed Martin spokesman said Israel's industrial participation agreement with the company is based on the country's desire to eventually buy 75 F-35s.
"Israel's industrial participation in the F-35 program is best-value based, with no offset arrangements, and will have no effect on the F-35 partner nations' industrial plans," the company stated in an e-mail. "Israeli companies will compete based on cost, schedule and quality for F-35 work."
There have been ongoing concerns from Denmark and Italy about the amount of work their domestic firms have obtained on the program so far. Norwegian industry has also criticized the amount of work they have on the F-35, prompting the government to only commit to the plane if domestic firms are guaranteed high-value work that is equivalent to what it will spend on the aircraft purchase.
Canada's proposed F-35 deal has been controversial, with opposition parties questioning whether the purchase is needed at a time when the country's deficit has ballooned to $50 billion. Liberal leader Michael Ignatieff has promised to review the purchase if the Liberals are elected.
Canada won't be required to sign a contract committing it to purchasing the fighters until 2013, opening the door for any future government to back away from the deal. The military's CF-18 fighters can continue flying until around 2018.
The union representing aerospace workers has been pushing for the government to make sure the contract for the maintenance of the planes stays in Canada. They have been joined in that call by industry executives such as Sylvain Bedard, the president of L-3 MAS in Mirabel, Que. The company currently maintains the CF-18s. On Thursday MacKay announced that the F-35s, expected to be delivered in 2016, will be operating from CFB Cold Lake, Alta, and CFB Bagottville, Que.
Vancouver Sun, SEPTEMBER 10, 2010 5:02 AM