Saturday, February 11, 2012

Canada convenes international meeting over troubled F-35 fighters

WASHINGTON - Washington's plan to further slow production of the F-35 Joint Strike Fighter is prompting Canada to convene a meeting with seven other international partners as the countries rethink their own orders for the stealthy new fighter jet.

Canada has committed to purchasing as many as 65 of the planes, but delays and shrinking orders threaten to drive up costs each country must bear for what is already the most expensive weapon system in history.

The Pentagon is restructuring the program for the third time in recent years; a move that will delay savings that would come from building more planes faster.

In January, Associate Defence Minister Julian Fantino said in a statement the Canadian government is still committed to the F-35 program, but that he had ordered Defence Department officials in Ottawa to investigate what implications the Pentagon's decision would have on Canada.

International partners who were banking on the savings as they face their own budget pressures are balking at the shift, according to multiple government and industry sources in the U.S. and overseas.

Lockheed Martin Corp., the Pentagon's No. 1 supplier, and U.S. officials who run the $382-billion US weapons program are anxiously preparing for a meeting in Australia in mid-March where the partners - Canada, Britain, Denmark, Norway, Italy, Australia, Turkey and the Netherlands - will outline their revamped procurement plans.

But Canada has tentatively scheduled a meeting of the partners at its embassy in Washington before the Australian meeting to get an update on the program and better coordinate their approach.

Each U.S. restructuring has consequences for the partners, which have already chipped in hundreds of millions of dollars for development of the fighter, which was sold as an affordable way to replace a dozen older jets in use around the world.

Canada's plan to purchase up to 65 of the jets is based on a very specific timetable, and a slower ramp-up in production could force a tough decision between paying more per plane or extending the life of the country's CF-18s. The government has estimated the jets would cost $16 billion, including maintenance. Others have pegged the cost at up to $30 billion.

The Conservative government has planned to have Canada receive its F-35s in a staggered delivery between 2016 and 2023, when they are in ``peak production''' to ensure the best price. At the same time, Canada's fleet of CF-18s is due to retire by 2020.

``The situation is increasingly becoming a fiasco. People are pulling out, pulling back . . . reassessing what they're going to do," NDP MP Matthew Kellway told Reuters on Friday.

He said the Pentagon had given Canada every reason to step back, by stepping back itself.

The Pentagon will provide details on Monday about the latest restructuring. Sources familiar with the plans say it will delay U.S. orders for another 179 jets until after 2017, bringing the total number of U.S. jets delayed to over 400.

The new plan calls for the United States to buy 244 jets over the next five years, with the partner countries and Israel and Japan slated to buy 285 planes, although it is clear that the international orders will likely drop from that level.

The Pentagon's initial plans called for Lockheed to quickly move toward production levels of more than 100 jets a year, with the resulting economies of scale to generate big savings in material costs and overhead. Instead its production rate will ramp up at a much slower rate through fiscal 2014.

Lockheed executives are now criss-crossing the globe to drum up other foreign orders and reassure the partner countries that the F-35 is making good progress in testing despite a constant stream of negative headlines and criticism from U.S. lawmakers.

U.S. Defense Secretary Leon Panetta endorsed the Marine Corps variant in late January and lauded progress on the overall F-35 testing program, but said a week later that he was slowing its production to avert costly retrofits.

Behind the scenes, the partners are frustrated by such mixed messages and Washington's new go-slow approach, which comes just as the program is showing real progress on flight tests and other technical issues, these sources said.

"They see progress in the test program and are scratching their heads why Washington is slowing down its orders," said one of the sources, who was not authorized to speak publicly. "If they're short of money, they should just say so."

The U.S. Defense Department is facing cuts of $488 billion, or about 8.5 per cent, from its $5.62-trillion budget between 2012 and 2021.

Panetta has said the U.S. is at a "strategic turning point" after a decade of war in Iraq and Afghanistan and the state of the global economy.

He said the U.S. military will become ``smaller and leaner,'' focusing on technological advances to give it an edge in future conflicts. It will also plan to bolster space and cyber-security capabilities - while maintaining the U.S. nuclear arsenal as a key deterrent.

The F-35 program was conceived in the frugal post-Cold War era and cost overruns were more easily absorbed when budgets were increasing during the Iraq and Afghanistan wars. But the situation is different now, when as the top U.S. Air Force general put it this week, "there ain't no more money."

Lockheed says slowing production will hamper its efforts to lower the cost of the plane. The F-35 will generate about 20 percent of Lockheed's revenues once it hits full production.

So far, the company still expects steady downward movement in the price of the planes, but some analysts question whether further delays in orders could actually drive the price up.

The Pentagon last year estimated the average cost of each F-35 warplane will be about $90 million, up from early estimates of $50 million, based on current plans to buy 2,443 jets. Early production models cost more, and the government paid $111.6 million for each of 11 Air Force variants it bought in a fourth production contract, but that sum does not include the engine.

U.S. officials have already warned of grave consequences for the F-35 if U.S. lawmakers do not reverse further big cuts to defense spending that are due to take effect in January 2013.

Given the uncertainty, Lockheed is also trying to woo more foreign buyers like South Korea and India, after winning Japan's fighter competition in December. Every additional order will help drive down the price per plane for all buyers.

Britain, the biggest contributor to the joint development program, said in a 2010 defense review that it would cut its planned order of 138 F-35 fighter jets and decided to pull out of the short-takeoff variant completely.

This week, a U.K. official said the government would not decide until 2015 how many F-35s it will buy.

Turkey has already halved its initial order of four planes and Australia is rethinking when to buy the next 12 of its initial order of 14, given the U.S. delays.

Italy, the only other buyer of the short-takeoff version of the F-35, has hinted at possible "significant" reductions in its overall buy of 131 planes, with Italian media reports citing a cut of 30 planes.

Norway's parliament approved the purchase of four F-35 training jets last summer and is slated to decide this year on plans to buy up to 52 more planes.

Dutch Defense Minister Hans Hillen visited Lockheed's mile-long F-35 factory in Fort Worth, Texas last month, telling Radio Netherlands after the visit that a stream of negative reports about the program was causing him political headaches at home.

"The price, the rumours about technical shortcomings. Are they true, and if they are not: why is it that they keep doing the rounds?" he said. The Netherlands plan to buy 85 F-35s in total, but has put off a final decision until a new cabinet takes office, which may not happen until 2015.

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