Canada is facing a complex challenge as it gets ready to launch a full competition for new fighter jets stemming from its long-standing involvement in the international coalition that is building the Lockheed Martin Corp. F-35 stealth aircraft.
The federal government confirmed on Monday that it will maintain its membership in the F-35 consortium. At the same time, Ottawa is getting ready to send out requests for proposals for new fighter jets to five potential bidders, including Lockheed Martin.
Federal officials insist that all bidders will have to adhere to Canada’s Industrial and Technological Benefits policy (ITB), which requires the winning supplier to “make investments in Canada equal to the value of the contract." The cost of replacing the Royal Canadian Air Force’s current fleet of CF-18s is estimated at $26-billion.
Under the rules of the F-35 consortium, however, partner countries such as Canada must forego such regional offset programs, which have long been a central element of Canadian military acquisitions. Earlier this year, Canada paid $54-million to remain in the F-35 buyers’ pool.
“We’re keeping our involvement alive to get access to that product at the best possible terms,” Pat Finn, an assistant deputy minister at the Department of National Defence, said in an interview on Monday. “If the F-35 were to win, the lowest cost access to the aircraft is through the partnership. Having been involved from the outset, we don’t want to lose the privilege of that."
Since 1997, Canada has paid nearly half a billion dollars to stay in the F-35 consortium.
Jeff Waring, a director-general at Innovation, Science and Economic Development Canada, said it will be up to Lockheed Martin to determine how it can meet Canada’s requirement for regional offsets if it wants to bid on the contract.
“The ITB policy is a market-driven approach; it doesn’t prescribe to bidders how they need to invest in Canada,” he said.
The federal government has nearly finalized its request for proposal for the new fighter jets. It is now waiting for industry feedback over the next six weeks before launching the formal competition next year.
Three European companies (Dassault Aviation, Saab Automobile and Airbus) and two American companies (Lockheed Martin and Boeing Co.) have said they intend to bid on the contract.
In the draft request for proposal, the government has laid out new details on its “economic impact test” that will penalize companies that are deemed to have a negative effect on the Canadian economy. When it was announced last year, the test was dubbed the “Boeing clause” because of U.S.-based Boeing’s trade dispute with Canada’s Bombardier Inc., which Bombardier subsequently won.
The new measure is expected to look at whether companies have launched a trade action in the two previous years against a Canadian company. Given Boeing launched its case against Bombardier in 2017, it will likely be in the clear by the time it would have to submit a final bid in 2020.
The previous Conservative government had committed to buying F-35 fighter jets, which were deemed at the time to be the only aircraft able to meet Canada’s requirements, in large part because of their stealth capabilities.
The current Liberal government has modified the requirements to make sure there can be competition between the various manufacturers.
“If your aircraft cannot meet [a requirement] today, we are not saying automatically that you’re out; but you have to tell us what is your solution to meet it, at what price and what schedule,” said Mr. Finn.
In the last federal election, the Liberals said in their platform that they would not buy the F-35, promising instead to select “one of the many, lower-priced options that better match Canada’s defence needs.”
However, the Liberals also promised to launch an “open and transparent” competition, which is now scheduled to be launched in May.