Canada invests another $54M into F-35 as Boeing hedges on fighter competition

F-35

Canada has quietly paid another $54 million toward development of the F-35 stealth fighter, bringing its total investment in the controversial project to roughly a half a billion dollars over the last 20 years.

The government is consulting fighter-jet makers, including U.S. aerospace giant Boeing, before launching a formal competition early next year to decide on a replacement for the air force's aging CF-18s.

The annual F-35 payment was made to the U.S. military earlier this month, the Department of National Defence said and will keep Canada at the table as one of nine partners in the fighter jet project for the next year.

Staying in the program has advantages, as partners can compete for billions of dollars in contracts associated with building and maintaining the F-35. They also get a discount when purchasing the plane.

Boeing officials said Wednesday that the company remains on the fence about whether its Super Hornet will participate in the Canadian fighter competition because of enduring questions about how the government will run it.

One concern is a new provision the government announced last year that aims to make it more difficult for companies that are deemed to be hurting the Canadian economy to win defence contracts.

The measure was announced at the height of Boeing's bitter dispute with Canadian rival Bombardier, which has since been tossed out by the U.S. International Trade Commission. Boeing opted not to appeal the decision.

"We want to evaluate what the requirements are and the evaluation criteria," said Jim Barnes, business development director for Boeing Defense, Space and Security, told reporters on the sidelines of the CANSEC arms show in Ottawa.

"And it doesn't take a rocket scientist to figure out there's one new evaluation criteria that we certainly have to understand before we provide a proposal."

It was during last year's CANSEC show that Defence Minister Harjit Sajjan lashed out at Boeing over the trade dispute with Bombardier, saying the U.S. company was not behaving like a "trusted partner."

A few months later, the government cancelled its plans to buy 18 interim Super Hornets from Boeing for an estimated $6.4 billion and announced the "economic-harm" provision, which is still in the works.

Despite the political backlash, Boeing Canada managing director Kim Westenskow said company executives "think our message was heard," namely that fair competition in the aerospace industry is critical.

She wouldn't say, however, whether the fight was worth the lost contract for interim Super Hornets; the Liberals opted instead to buy 18 used fighter jets from Australia, the first of which is due to arrive next year.

"We went into the situation with our eyes wide open and knew there were risks," Westenskow said. "It was important for us to get the message across."

Not that Boeing has been completely shut out, as the government announced last month that it had extended a maintenance agreement for the military's Chinook transport helicopters.

That $313-million deal could become particularly important as the Forces prepare to deploy two Chinooks to Mali, where they will be expected to provide round-the-clock medical evacuations in a harsh desert environment.

The government has already asked Boeing to send a technical adviser to Mali with the Canadian contingent, Boeing executive Mario Clement said, and could ask for more, depending on the military's needs.

The company could also be called upon to upgrade Canada's existing CF-18s so they can fly to 2032, Clement said, adding that it would be difficult for any other firms to do the work, given Boeing's role in developing the aircraft.

The government had originally intended to replace the CF-18s by 2025, but pushed that plan back late last year.

Feds fail to spend $2.3B from defence budget

The federal government spent $2.3 billion less than originally planned last year on new military gear, Defence Minister Harjit Sajjan sais, even as a prominent economic adviser to the Liberals sang the praises of investing in the defence sector.

The spending shortage, which will require Canada's military to continue to use some equipment longer than expected, means the government is already losing ground on the promise it made last year to invest $62 billion in the Forces over the next 20 years.

The mixed messages came during the first day of the two-day CANSEC gathering in Ottawa, Canada's largest annual arms show, where officials from the world's biggest defence companies descend on the national capital to pitch their wares to the government and military.

Sajjan kicked off the event with an update on the Liberal government's new defence policy – a blueprint that details the specific equipment the military intends to buy over the next five years.

Many companies had been eagerly waiting to see which of the dozens of projects included in the multibillion-dollar defence policy were considered a priority and which were being put on the back burner.

What they heard instead was that the ambitious Liberal plan to ramp up spending got off to a slower start than expected: where the federal government had planned to spend $6.2 billion last year, figures published with the defence policy show, they only managed to get $3.9 billion out the door.

Sajjan played down the discrepancy, saying a portion of the unspent money represented savings that the government was able to find on some projects, while others were the result of companies not fulfilling their obligations.

But he also admitted later that for some projects, "we weren't able to get it to the level we wanted. We're improving on that and things have improved drastically for this. It will improve as time goes on."

Defence companies won't be the only ones hoping Sajjan is right.

One of the government's most influential economic advisers told a luncheon audience that Canada's defence industry will be critical to sparking innovation and ensuring the country's prosperity over the long term.

"If we want to grow – and we can in Canada, and we want to grow more significantly  – the defence sector is going to play an essential part in doing that," said Dominic Barton, the chair of Finance Minister Bill Morneau's growth council.

Automation is expected to cost Canada some 2 million jobs in the coming decades, Barton said, but the defence sector is one area where there is potential for substantial growth. as well as technological developments to help build and grow new industries.

"This is how we're going to get some of the leading-edge innovation that we can then commercialize and transform the broader economy," he said, adding that the government can support small businesses with defence investments.

The defence sector currently supports 60,000 jobs in Canada and sells an estimated $6 billion worth of arms and equipment to other countries each year – some of them causing headaches for the government because of questionable human rights records.

One of the more controversial sales was a multi-year, $15-billion contract for the provision of armoured vehicles to Saudi Arabia, which was the top non-U.S. destination for Canadian arms in 2016.

The government also faced pointed questions earlier this year about its plan to sell military helicopters to the Philippines despite Prime Minister Justin Trudeau criticizing that country's human-rights record only a few months earlier.

The deal was eventually scrapped by Philippines President Rodrigo Duterte after a public outcry prompted the Trudeau government to reconsider the sale.