U.S. company says backing out of F-35 deal will cost Canada

The U.S. company that makes the controversial F-35 fighter is publicly warning that Canadian industry stands to lose as much as $10.5-billion in spinoff contracts if the federal government ends up not buying the warplane.

Orlando Carvalho, executive vice-president of aeronautics at Lockheed Martin, delivered this cautionary message in Montreal on Friday. He said Canadian companies can keep the roughly $500-million in fighter-related contracts they have, but no more F-35 work would be likely for this country if Ottawa does not embrace the Lockheed plane.

"If, in fact, the Canadian government were to decide not to select the F-35, we will certainly honour the contracts that we have here with the Canadian industry, but our approach in the future would be to try to do business with the industries that are in the countries that are buying the airplane," Mr. Carvalho said while opening an engine overhaul facility in Montreal.

It is a sharp and high-profile reminder for the Harper government – which has tried to dampen controversy about its fighter-jet plans by launching a review of rival aircraft – that Canada will suffer if it does not buy the cutting-edge Lockheed plane.

Last year, the Harper government walked away from a commitment to buy 65 F-35 jets as a replacement for Canada's aging CF-18 Hornets. It was a rare U-turn for an administration that only infrequently acknowledges it is wrong – but the Conservatives had been dogged for months by a damning Auditor-General's report that said they selected the F-35 without due regard for price and availability.

A defence expert called the Lockheed Martin move a hardball tactic.

"They're making it crystal clear that if we don't buy the F-35, we get almost no more money out of the project," said Mark Collins, a research fellow at the Canadian Defence and Foreign Affairs Institute.

"Effectively, this is telling Ottawa if you don't buy the F-35, all your promises about jobs, jobs, jobs are down the tubes."

Canadian firms already have $488-million (U.S.) in F-35-related contracts. In 2006, Canada and other countries signed a memorandum of understanding establishing conditions for participation in the Joint Strike Fighter program to build the F-35. The MOU established rules that firms in partner countries could bid on work to build, assemble and equip the fighter.

Mr. Carvalho said on Friday that Lockheed estimates Canadian industry could receive $11-billion in contracts over 25 to 40 years as 3,000 planes are assembled for air forces around the world. That's including the contracts awarded to date.

Mr. Collins said Lockheed has incentive to prod Canada for a decision because U.S. government budget cuts threaten to reduce that country's order for F-35s. "I think the urgency for Lockheed going public here is fundamentally linked to the U.S. situation," he said.

"Lockheed is desperate to lock in foreign orders to keep the production rate as high as possible in the fairly near term: 2017-2020," he said.

Lockheed Martin and its Canadian PR firm did not respond to a request for comment.

The development of the war plane has been plagued with technical glitches and rising costs that have pushed the expected final price tag beyond what Ottawa has budgeted. The "cradle to grave" cost for Canada's F-35 purchase is now estimated to exceed $45-billion.

The Harper government is trying to decide whether to hold a new competition for a fighter jet, and other manufacturers including Boeing are ready to step up. Boeing CEO James McNerney said in Calgary last week says he's confident the F-18 Super Hornet could meet Canada's needs.

With a report from The Canadian Press