F-35 Joint Strike Fighter Procurement Program in...

F-35 Joint Strike Fighter

Procurement Program in Canada

Applied Project for Athabasca University

Master of Business Administration Program

APRJ-699

Author: Ken Lin

Word Count: 13,741

Submission Date: April 17th, 2012

Academic Supervisor: Dr. Ike Hall

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Executive Summary The CF-18 fighter jet fleet currently serving the Royal Canadian Air Force is expected to reach the end of

its service life between 2016 and 2020. Planning for the replacement aircraft by Canadian Department of

National Defence (DND) started in 1997; since then, Canada has participated with Lockheed Martin’s

concept development phase and system development and demonstration phase for the F-35 Joint Strike

Fighter (JSF) program. The two phases have required $160M of Canadian government investment into

the JSF development program along with funds from eight other partner countries, totaling nearly US$5B.

The Government of Canada announced in 2010 that the F-35 JSF aircraft “has been selected.” However,

a procurement contract had still not been signed by March 2012, when this Applied Project was being

prepared. This project reviews the history of Canadian participation in the JSF program, and the

progression of the sole-source procurement approach taken by the Canadian government to date, along

with procurement status of other international partners in the program. The data used for this analysis is

limited primarily to the various US and Canadian government reports generated between 2005 and early

2012, tracking the progress of the JSF program.

Concerns about the cost and schedule of the JSF program have continued to grow. The time allotted for

the development program has increased significantly, requiring several revisions to the Integrated Master

Schedule, and the cost has also ballooned, requiring funding revisions and a funding freeze for certain

aspects of the program, pending corrective actions being implemented.

The schedule delay and cost increase have also created concerns among all the international partners,

even though they recognize that complex development programs have the potential to develop these

issues. It is the magnitude of the problems in the JSF program that has resulted in international partners,

including Canada, indicating they are reconsidering their options while assessing the potential impact of

the cost increase and schedule delay to their respective fighter replacement programs.

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Furthermore, the traditional Industrial Regional Benefit (IRB) program does not apply to the JSF

program. Instead, the program is based on “best value,” with Lockheed Martin selecting companies to

provide services or products for the JSF program. Unlike the traditional IRB program, which is

structured around a “same as contract value” award of business opportunities for each partner nation

based on the value of the JSF aircraft purchased, the “best value” approach provides the advantage of

early industry participation during the development phase and the opportunity for companies to fulfill all

of the JSF production needs, therefore generating the potential to gain business volume that is not

possible under traditional IRB programs. However, the disadvantages of the JSF industrial benefit

approach include uncertain opportunities for companies to gain JSF work, and no opportunity for startup

companies seeking funding to develop a new service or product if it already exists and can be supplied by

an established company at better value.

The Canadian procurement process for the F-35 JSF must ensure that the aircraft matches Canada’s

requirements in future military missions without suffering the same fate as past military procurement

program failures, such as the Avro Arrow and EH-101. It is also important to ensure the aircraft selected

to replace the CF-18 fleet will meet Canada’s future military obligations while taking into consideration

capability, cost, and delivery schedule, and will include any additional cost implications, such as the air-

to-air refueling capability of the F-35A being considered for RCAF, since this variant is incompatible

with current Canadian tanker aircraft, and the possible addition of a drag chute to slow down the aircraft

and combat slippery conditions when landing on remote Arctic runways.

The JSF development program has not met all five objectives in the program performance assessment

framework; the aspects of cost, schedule, and reliability have not performed well, while quality and safety

have. The CF-18 transition must include contingency plans to address and mitigate the impact of potential

delays in the transition to the new fighter aircraft selected by the Canadian government.

Recommendations are:

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• Confirm RCAF requirements for the fighter replacement

• Assess pricing and delivery for the selected replacement aircraft

• Assess choices other than the F-35, and assess the impact of withdrawing from the F-35 program

• Liaise with international F-35 partners for greater program management involvement

• Establish a comprehensive and enforceable procurement program should the F-35 remain

Canada’s choice for CF-18 replacement

• Prevent political interference in the selection and procurement process

• Initiate contingency planning to extend the CF-18 operating lifespan to compensate for delayed

delivery of the replacement aircraft

• Ensure industrial benefit is protected

• Maintain political transparency

In conclusion, the Canadian F-35 JSF procurement process requires a reassessment to determine if the F-

35 is the suitable aircraft as the CF-18 replacement for Canada, and to ensure the replacement aircraft

selection process is performed based on sound judgment and the S.M.A.R.T. process.

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Table of Contents

1 Introduction ..................................................................................................................................... 8

2 Delimitations ................................................................................................................................... 9

3 Literature Review .......................................................................................................................... 10

3.1 Major Procurement Program Strategy ..................................................................................... 10

3.2 Cost, Schedule, and Performance Requirement ....................................................................... 12

3.3 Offset Obligation Requirement ............................................................................................... 15

4 Research Design ............................................................................................................................ 16

4.1 Method of investigation.......................................................................................................... 16

4.2 Data collection ....................................................................................................................... 17

4.3 Research Questions ................................................................................................................ 17

5 Procurement Practice ..................................................................................................................... 17

5.1 History ................................................................................................................................... 18

5.2 Canadian procurement status .................................................................................................. 19

5.3 International partners procurement status ................................................................................ 20

5.3.1 Norway .......................................................................................................................... 20

5.3.2 Japan .............................................................................................................................. 20

5.3.3 Denmark ........................................................................................................................ 21

5.3.4 United Kingdom ............................................................................................................. 22

5.3.5 Australia ......................................................................................................................... 24

5.3.6 Italy ................................................................................................................................ 24

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5.3.7 Turkey ............................................................................................................................ 25

5.3.8 Israel .............................................................................................................................. 25

5.4 Canada’s procurement process ............................................................................................... 26

5.4.1 The sole-source approach ............................................................................................... 26

5.4.2 Requirement definition ................................................................................................... 28

5.5 Large-scale military procurement ........................................................................................... 30

5.5.1 Past Experiences ............................................................................................................. 31

5.5.2 Outcomes ....................................................................................................................... 32

5.5.3 Lessons learned .............................................................................................................. 33

6 Schedule and Cost Factors ............................................................................................................. 34

6.1 Lockheed Martin development program status ........................................................................ 35

6.2 Program schedule performance............................................................................................... 37

6.2.1 Current delivery schedule ............................................................................................... 42

6.2.2 Forecasted delivery for Canada ....................................................................................... 43

6.2.3 Capability concerns ........................................................................................................ 44

6.2.4 Implication to RCAF planning ........................................................................................ 45

6.3 Cost structure ......................................................................................................................... 46

7 Economic Benefit .......................................................................................................................... 48

7.1 Industrial Regional Benefit (IRB) program ............................................................................. 49

7.2 The Lockheed Martin approach .............................................................................................. 50

7.3 Canadian participation ............................................................................................................ 53

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8 Recommendations ......................................................................................................................... 53

9 Conclusions ................................................................................................................................... 56

Bibliography ......................................................................................................................................... 59

Appendix 1. F-35 Development Schedule Revisions 2003 to 2012 ......................................................... 71

Appendix 2. F-35 JSF Procurement Quantities 2012 .............................................................................. 74

Appendix 3. F-35 JSF International Development Contribution, ............................................................ 75

Appendix 4. F-35 JSF Procurement Quantity Forecast 2010................................................................... 76

Figure 1. A Quad Constrained Project Management Model (Norrie & Walker, 2004) ............................. 28

Figure 2. F-35 JSF SDD Completion Forecast ....................................................................................... 39

Figure 3. F-35 JSF Program Performance Objectives ............................................................................. 40

Figure 4. Canadian F-35 Price Estimation (Weltman & Yalkin, 2011).................................................... 47

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1 Introduction

The largest defense procurement program in the Canadian military history has been undergoing

preliminary technical and financial analysis phases since 2002, when the Canadian Department of

National Defence (DND) signed the memorandum of understanding (MOU) as a Tier III partner

(Government of Canada, 2006) for the system development and demonstration (SDD) of the F-35 Joint

Strike Fighter(JSF) program. The overall price for the Canadian Next Generation Fighter program has

been estimated between $9B to over $30B (CAD). The aircraft procurement program will replace the

aging Royal Canadian Air Force (RCAF) CF-18 Hornet fleet with 65 new planes, and the current sole

candidate for this program is the new Lockheed Martin F-35 Joint Strike Fighter (JSF) which is still under

development.

While the F-35 JSF is considered to be one of the most advanced military fighter jets available amongst

the current contenders, as of early 2012 a formal binding contract had not yet been awarded by the

Canadian government to Lockheed Martin. This scenario is intriguing, since the current Conservative

government previously made an announcement in July 2010 that Canada intends to procure the F-35 JSF

aircraft under sole-source and un-competitive selection process (National Defence and the Canadian

Forces, 2011). There appears to be continued hesitation by the very same Conservative government to

proceed with awarding the contract. This is perhaps due to the criticism about cost, delivery schedule

concerns, lack of industrial benefit commitment, mission requirement, and most significantly, the absence

of a competitive bidding process when the F-35 JSF was chosen.

The uncertain status of the procurement contract allows for an opportunity to continue reviewing some of

the underlying issues with the F-35 JSF procurement development to date.

The topic selected for this AP study will embody the selection process and economic impact of this

procurement program which will not only consume significant Canadian defense budget spending but will

also have long term economic influence in contributing to both present and future Canadian industry

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participation relating to this procurement. Specifically, the AP study will review the F-35 JSF

procurement history and process of international customers, and critique the procurement process

conducted by the current Conservative government since 2006. The review framework will be based on

strategic management philosophy, managerial economics assessment, management decisions,

procurement strategy, and financial analysis.

2 Delimitations

Due to the complex and extensive nature of the Next Generation Fighter Replacement Program, this study

will primarily examine the data from 2005 to 2011 while utilizing comparable reference data from 2002

when the original effort for this procurement program was first initiated by the Canadian Government.

The Applied Project will not attempt to address detailed technical issues due to the in-depth technical

knowledge required to perform legitimate assessments.

The information utilized to compile this Applied Project has been retrieved from traceable documented

sources and does not contain information gleaned from verbal discussions. The web site links of the

sources provided in this Applied Project were accurate and active at the time it was produced,, however it

cannot be guaranteed that these web site links will remain active indefinitely.

Finally, as a result of US Congressional reviews on the F-35 JSF program, in particular because of

significant cost increases and schedule delays, the F-35 JSF Program Office and Lockheed Martin had

committed in mid-2011 to producing a revised integrated master schedule (IMS) by early 2012. As of the

end of 2012’s first quarter, this task has not yet been completed or released, when the research of this

Applied Project was being conducted. It had been anticipated this revised IMS would provide an

important reference point to determine the aircraft delivery schedule for Canada and to assess the

potential impact the delivery schedule may have, along with any contingency plan that may be devised.

Due to the absence of the revised IMS, this Applied Project report has been conducted based on best

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available information, including the FY11 Annual Report produced by the US government’s Director of

Operational Test and Evaluation, combined with other reports available at the time of printing.

3 Literature Review

3.1 Major Procurement Program Strategy

The Standing Committee on National Security and Defence held several hearings in 2005 with senior

Canadian Forces leadership. The committee produced an interim report to address the state of the

Canadian military and its ability to meet the requirements in defending the nation abroad and at home

(Senate Committee on National Security and Defence, 2005). This report identified the Canadian defense

budget, which had been reduced significantly during the 1990s and which is continuously under scrutiny.

Defense spending must be vigilantly planned to ensure appropriate and best use of the budget that is made

available. Maximizing the benefits will depend on the successful execution of the procurement process to

achieve the desired outcome at completion.

A successful procurement program must ensure:

- The requirements are well defined

- The procured service or product matches the purpose it is intended to serve

- The delivery is completed in a timely manner for deployment

- The total expenditure remains within the allocated budget.

Additionally, military procurement programs should be void of political influence, which can drastically

alter the outcome of the procurement selection process in an adverse manner (Plamondon, 2010).

Additionally, the procurement must remain fair in order to deter a flawed process that is not based on the

competitive merit of quality, schedule, and cost.

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There has been an increased use of non-competitive bids or a limited tendering process for Canadian

military procurement over the past decade (Staples, 2007). For example, a sole-source through the

Advance Contract Award Notices (ACAN) process (where an announcement is made by Public Works

and Government Services Canada [PWGSC] that a company has been preselected for a procurement

program) a 15-day public notice is posted to allow other companies to contest the decision. This is often

a rubber-stamping process since there are seldom any valid counter proposals which can be prepared

within such a short time frame given the magnitude of major military procurement programs.

There are circumstances under which adopting this approach is appropriate, such as when time sensitivity

precludes the standard lengthy competitive bid process, or when there are clearly no other viable

alternatives. Additionally, the ACAN process is an intelligent procurement decision when made to avoid

wasted effort conducting an unnecessary and unproductive conventional procurement selection process

based on competitive bidding. However, the overall circumstances of the F-35 JSF as the Next

Generation Fighter replacement for the current RCAF CF-18 fighter fleet is not clear, since several other

viable alternatives exist that may be more suitable for the defense roles Canada is expected to perform in

the future.

The largest international defense spending budget is held by the US Department of Defense (DOD). The

spending by the DOD is indirectly under the oversight of the US government Accountability Office

(GAO), an independent, nonpartisan agency that works for the US Congress often described as the

“congressional watchdog” since it investigates how the federal government spends taxpayer dollars. The

GAO publishes many reports each year to address problems and provides information to Congress

concerning emerging and long-term issues (United States GAO, 2012). It is of interest to note that the US

government is facing similar difficulties with its own F-35 JSF procurement program. The GAO reports

relating to the F-35 JSF procurement program, which have parallels with the Canadian one, provide

valuable knowledge for those in charge of the Canadian procurement.

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3.2 Cost, Schedule, and Performance Requirement

Within the F-35 JSF development program there have been several major issues, such as cost, delivery

schedule, and performance constraints which have alarmed both the US government and international

customers (including Canada). Among these concerns, the cost factor has clearly risen to the top of the

list. The F-35 development program has once again revealed an often-encountered deficiency with major

weapon system procurement programs: the initial acquisition cost and subsequent operating and support

costs continue to rise beyond reasonable expectations. This is an area where the Canadian F-35

procurement office and government decision-makers must continue to maintain their due diligence with

Lockheed Martin to ensure the program cost does not creep up and escalate beyond the financial

affordability threshold of the Canadian Government.

The Parliament of Canada mandates the Parliamentary Budget Officer (PBO) to provide an independent

analysis on the state of the nation’s finances. It is customary for the PBO to perform these analyses on

large-scale procurements over which the Parliament has jurisdiction (Parliament of Canada, 2012). In

particular, a large-scale procurement such as the F35 with the magnitude of $9 billion-plus will trigger

PBO involvement. The report produced in March 2011 by the PBO to assess the fiscal impact of

Canada’s proposed F-35 JSF fighter acquisition has shown a greater discrepancy in the F-35 JSF

acquisition cost than the figures being presented by the Canadian government officials in recent

presentations and press releases (Yalkin & Weltman, 2011). The inconsistencies of the acquisition cost

demonstrates that there is a departure from the expected acquisition cost being presented to the public and

procurement committees, and will be further discussed in later sections of this applied project.

The long-term cost in operating and supporting major weapon systems has historically accounted for 60%

to 80% of the weapon systems’ total expenses. The product-supporting aspect includes material

management, distribution, technical data management, maintenance, training, cataloging, configuration

management, engineering support, repair parts management, failure reporting and analysis, and reliability

growth (United States Government Accountability Office, 2012). In fact, the US F-35 JSF program

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office estimated the life cycle operating and support costs for the US F-35 JSF fleet will cost $1.0 trillion,

and this figure is in addition to the $380 billion in total acquisition costs. The Canadian procurement

team should utilize these figures as a guideline to scale and calculate the approximate total acquisition

costs to replace the CF-18 fleet with the F-35 JSF.

The JSF program is based on the framework of pooling not only technical resources and manufacturing

capabilities of end user-countries but also taking advantage of economies of scale by combining the

purchasing power of many committed end-user countries to ensure the procurement cost remains within a

reasonable and affordable range. Lockheed Martin won the JSF competition in 2001against Boeing in a

funded initial developmental program, without any other US-built competing aircraft. Lockheed Martin

obtained strong “market power,” which increased considerably once the contract to proceed was awarded

by the US government. However, due to the magnitude of the procurement and the collective negotiation

leverage from other customers (i.e., the US government and development funding partner countries such

as Australia, Denmark, the UK, Italy, the Netherlands, Norway, Turkey and Canada), the two parties are

locked in a bilateral monopoly relationship where the market power of the buying organization

(monopsony power) confronts the market power of the seller (monopoly power) and the two parties have

developed a strategic relationship (Markowski & Hall, 2006).

In this bilateral monopoly relationship, the cost factor of the JSF has become a contentious issue between

Lockheed and its customers. In March 2010, the Pentagon acquisition chief (Ashton Carter) informed the

US Senate that the average per unit cost of the JSF had increased substantially from the initial $50M per

unit estimated in 2001 to $95M, which is equivalent to $112M in Fiscal 2011 dollars (Butler, 2010). This

trend has continued, albeit with some reduction of the overall program cost in certain aspects of the

development (such as the cancellation of the alternate F136 GE/Rolls-Royce engine for the JSF in favor

of single-sourcing with Pratt & Whitney an F135 engine) (Norris, 2011),

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With the advanced complexity of the F-35 JSF aircraft, it is recognized and accepted that the development

and production may require long delivery lead times. A side effect of the long delivery lead time in

today’s fast-changing technologies is that the National Defense Organizations (NDOs) may take this

opportunity to update their requirements during the development cycle, which can prolong both the

development and delivery cycles (Markowski & Hall, 2006). This risk of late delivery must be

understood, planned, and mitigated by the procurement team to ensure the procurement does not

adversely impact the purpose for which the procurement was intended to fulfill.

A secondary concern with the delivery schedule is that the US government may significantly reduce its

initially planned purchase quantities of 2,456 aircraft in order to accommodate the constraints of the

available budget (Gertler, 2012). This procurement reduction will directly affect how Lockheed Martin

structures its production plans to fulfill the US requirement, and may impact the foreign customers such

as Canada with delayed delivery and higher unit cost due to reduction of the economies of scale benefit

from the original higher production volume. This is also a factor that the Canadian F-35 procurement

team must consider since the effect of the US reduction will likely result in an undesirable impact on the

selection.

At the time of this applied project, the F-35 JSF procurement program in Canada remains effectively a

sole-source program without the benefit of a competitive bidding process to determine the “best bang for

the buck” from eligible suppliers (Staples, 2007). There have been legitimate circumstances in recent

Canadian military procurements, such as the C-17 Globemaster heavy-lift transport aircraft and the CH-

47 Chinook medium-lift helicopter, when either the nature of the product/service, or the immediacy of the

requirement precluded a competitive selection process. This does not appear to be the case for the

procurement of the F-35 at this time, when major cost increases and delayed delivery schedules are

almost unavoidable. Critics strongly argue that the F-35 may not be the right replacement aircraft for the

RCAF CF-18 fleet (Staples, 2010) based not only on the cost increase and delivery delay concerns but

also on the nature of the military missions that the RCAF is expected to undertake in the future.

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3.3 Offset Obligation Requirement

The mission statement of Industry Canada is to “foster a growing, competitive, knowledge-based

Canadian Economy” (Industry Canada, 2010, p. 1). One of the mechanisms utilized by Industry Canada

to achieve this objective is the Industrial Regional Benefits (IRB) program, which ensures that Canadian

industry benefits from any defense and security procurement by the Government of Canada. In particular,

this policy requires business activities equal to the same value of the contract awarded by the Canadian

Government to be awarded by the winning contractor to business and industry within Canada (Industry

Canada, 2012). The IRB policy would mean that if Lockheed Martin was awarded with Canada’s next

generation fighter replacement program contract, then the company would be required to fulfill the IRB

requirement to provide work equivalent to the contract value with Canadian business and industry.

Although the IRB requirements from Industry Canada have been in place as an obligation and have been

fulfilled by prime contractors in similar large-scale procurements in the past, Lockheed Martin has not

indicated they will fulfill this Canadian government policy. Furthermore, Canadian Industry Minister

Tony Clement “conceded the current arrangement with Lockheed Martin provides no such (IRB)

guarantees and that Canadian companies will have to bid on opportunities” (Brewster, 2010, p. 1).

Due to the high procurement cost of the Canadian F-35 JSF, the IRB is an important mechanism to offset

and balance government spending by creating business opportunities for Canadian industry. This

important factor should not be overlooked, as similar measures are actively being pursued by other F-35

JSF customers such as Australia. The formation of the Australian JSF Industry Group (AJIG, which

replaced the JSF Industry Advisory Council [JIAG] in 2009) is an effort by the Australian industry to

“discuss any systemic issues impacting on all industry, secure the production opportunities identified in

the Australian JSF Industry Participation Plan and identifying new opportunities for sustainment and

follow-on development” (Australian Government, 2009, p. 1). The Australian approach appears to be

more specific and organized as compared to Canada, where the Aerospace Industry Association of

Canada (AIAC) is entrusted with liaising between the Canadian aerospace industry and Lockheed Martin.

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In comparison, the Boeing Company fully complied with Industry Canada’s IRB requirement in the C-17

Globemaster strategic airlift aircraft procurement in 2006 (National Defence of Canada, 2012).

Specifically this meant that for every contract dollar awarded to Boeing, Boeing committed a

corresponding dollar in economic activity in Canada. This is strong evidence that business contracts can

be negotiated in a satisfactory manner between the supplier and the Government of Canada to fulfill the

obligation as laid out in the Industry Canada IRB policy.

For Australia, an international member of the original F-35 SDD team similar to Canada, the effect of the

F-35 procurement program is expected to become a template for future Australian acquisitions.

Traditional offset and work-share arrangement similar to the IRB program in Canada are excluded from

the JSF program, more specifically it is likely that only well-established firms with good track records

will be selected to participate in the JSF supply chain. Rather than developing new industry capabilities

in Australia the successful Australian industry participants within the JSF supply chain will then in turn

be able to provide their service and/or product to all of the F-35 customers (Markowski & Hall, 2006).

4 Research Design

4.1 Method of investigation

This study into the procurement process and economic benefits of the F-35 JSF as the replacement for the

RCAF CF-18 Hornet fleet is conducted based on the following approach and sequence:

1. Compile related defense industry articles from past procurement programs of similar nature to

identify the short comings and lessons learned

2. Compile current defense industry analysis articles and information concerning F-35 cost,

procurement process, delivery schedule, and development trends. The source of articles will be

carefully assessed and taken into consideration to ensure the integrity of the data used as input for

the data analysis is provided in a fair and balanced manner

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3. Compile and assess data collected from the articles

4. Compile industrial regional benefit (IRB) data relating to the F-35 procurement

5. Provide recommendations based on this study

4.2 Data collection

Canada joined the JSF program in 2002 as an active Tier III partner. The data being collected as the

source for this Applied Project will primarily be based on publicly available statistics and financial

reports in the public domain over the past ten years, including several detailed US and Canadian

government review publications. This applied project will reference the various sources of information

relating to the F-35 program to collectively compile and assess these data. This will serve to minimize

the potential for opinion-based bias from the authors of some reports.

4.3 Research Questions

Provided the Canadian F-35 procurement process continues to its completion, the estimated program

value will reach $9B for the aircraft acquisition and additional $6B for life cycle service and support. It

will have become the most expensive military procurement program in Canadian defense history.

The applied project will review the procurement progression of other international F-35 JSF customers for

comparison, and critique the current state of the Canadian F-35 procurement program given the on-going

controversy over the government’s insistence to continue with the procurement process. This applied

project will address the following elements:

- Increasing cost

- Risk of delayed delivery

- New industrial benefit approach

- Unclear requirement definition

5 Procurement Practice

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5.1 History

The F-35 procurement program was initiated by the US Department of Defence (DOD) in the early

1990’s in anticipation to the retirement of most of the military fighter types (including the A-10, F-16, F-

15, F-18 C/D, AV-8 etc.) starting approximately 2020. The concept of developing one common aircraft

with three variants to fulfill the requirement for most of the Western air forces was conceived to promote

cost-saving by sharing the technical development cost and improving the design cycle and delivery

schedule. This concept was conditionally accepted by several countries including Canada, Australia,

Denmark, Italy, United Kingdom, Norway, Netherlands, and Turkey as part of the Joint Advanced Strike

Technology program in 1997. The US DOD had down-selected Boeing and Lockheed Martin in 1996 as

the two final contenders for the Next Generation Joint Strike Fighter fly-off demonstration. Lockheed

Martin was eventually declared the winner in 2001 and awarded with the JSF contract after a heavily

contested selection.

The initial decision in 1997 by the Canadian government to participate in the Concept Demonstration

Phase of the F-35 JSF program for an investment of US$10M was based on the advantages expected by

being a member of a multi-national team to share the expense of the developmental activities. Canada’s

DND then continued with its participation by signing the MOU in 2002 as a Tier III partner for the

follow-on system development and demonstration (SDD) phase to demonstrate the Canadian

government’s further support and commitment to the F-35 JSF program. This required an additional

US$150M investment by the Canadian government which allowed DND to gain access to some of the

JSF program technology and data, (and management and engineering approaches) as well as an increased

access for Canadian industry to contract their product and services with the JSF program (Lockheed

Martin Company, 2012). The Canadian government gave no firm commitment, nor did any other

international partners, to actually procure the F-35 JSF aircraft at that time.

The current approach taken by the Conservative government of Canada is to sole-source the F-35 JSF as

the replacement for the RCAF CF-18 fleet despite continued evidence of cost and schedule issues with the

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technology development program at Lockheed Martin. This has been called to question by the critics of

the sole-source approach and the selection of F-35 JSF (Staples, 2010). The primary concern from the

critics is the government’s continued unwillingness to acknowledge and re-consider the need for a

competitive selection process to evaluate other viable aircraft from several international manufacturers

with capabilities equal to, or potentially more appropriate and at lower cost.

5.2 Canadian procurement status

Since 2006 the current Conservative government of Canada has remained steadfastly committed to the F-

35 JSF procurement despite publicly reported concerns with the F-35 JSF program’s cost increases,

schedule delays, and industry participation. These continuing difficulties are legitimate concerns with

whether the Canadian portions of the F-35 JSF program will remain on track for the benefit of Canada.

In January and April 2011, Prime Minister Harper made a statement suggesting a “contract,” presumably

for the purchase of F-35 JSFs for RCAF, has been in place, when in fact no F-35 JSF procurement

contract for Canada had been signed. After the March, 2012 F-35 program update meeting at the

Canadian Embassy in Washington the statements from the Associate Minister of National Defence Julian

Fantino and Prime Minister Harper indicated and confirmed that Canada had not signed a procurement

contract with the F-35 JSF manufacturer (Lockheed Martin).The statement further suggested that Canada

may delay the procurement of F-35 JSF until the aircraft is in full production by Lockheed Martin in order

to capitalize on the lower production costs in order to meet the $9B target for the currently planned 65

aircraft procurement for RCAF (Payton, 2012).

Furthermore, while in the past the Conservative government and Defense Minister Peter McKay have

both maintained their unwavering support to procure the F-35 JSF since 2006, the government has now

suggested that the option to consider other alternatives for the RCAF has not been ruled out (Berthiaume,

2012). Therefore it appears that the past commitment by the Canadian government to procure the F-35

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JSF is being reconsidered as a result of on-going concerns and public criticism while cost and schedule

difficulties continued to be the primary topics under scrutiny.

5.3 International partners procurement status

The concerns expressed by the critics of the Canadian F-35 JSF procurement program are shared by the

other international F-35 JSF partners. The apprehension over the cost and/or delivery schedules are well

founded when the pertinent details of the cost and schedule performance from the Lockheed Martin

development program are continuing to be identified by the US government and analyzed by many of the

program stakeholders (including partner nations and the industry participants).

The summary of the international partner procurement status is listed in Appendix 2.

5.3.1 Norway

Norway will purchase 4 initial JSF for 4.9 billion Norwegian kroner ($844M), however this budget

includes funding to continue with the Joint Strike Missile indigenously developed by Kongsberg Defence

Systems (Wall, 2011). The initial plan by the Norwegian government to purchase 48 F-35 aircraft was

approved in May 2009 at a cost of $3.4B with unit cost of $70.8M each and this has been observed by

aerospace industry experts as unrealistically low (Sweetman, Norway's Parliament Endorses JSF, But....,

2009) Additional the US Air Force document also shows $90.3M per aircraft was estimated for FY2013

(US Air Force, 2008).

The firm-fixed pricing negotiation is not expected to occur until 2014.

5.3.2 Japan

While not a participant of the initial and subsequent JSF development team, Japan announced in

December 2011 that it has selected the F-35 JSF over Boeing’s F/A-18 Super Hornet and Eurofighter

Typhoon. Japan will procure 42 F-35 JSF at a cost of $8B, with the unit cost of each jet to be $114M,

and the first aircraft is to be delivered in 2016 (Kallender-Umezu, 2011).

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Since Japan did not participate in the JSF development program, its’ cost of purchase will be channeled

through the Foreign Military Sales program with the US government, Lockheed has offered a potential

production line final assembly and checkout (FACO) facility to be constructed in Japan, which may

increase the per aircraft cost as a result due to additional investment by the Japanese Government

(Kallender-Umezu, 2011).

The recent development of a F-35 price increase has already resulted in concerns being expressed in early

2012 by Japan’s chief cabinet secretary Osamu Fujimura (only two months after the initial selection

announcement in December 2011 was made). The Japanese Ministry of Defence will take the position

that if prices rises “without valid reasons, there is a possibility that a procurement could be cancelled”

(Waldron, 2012, p. 1).

5.3.3 Denmark

The Danish Defence Command announced in 2010 that it is no longer considering the JSF as Denmark’s

only candidate for the Danish fighter aircraft replacement program, and will begin evaluating Boeing’s

F/AF-18 Super Hornet and the Eurofighter as potential alternate candidates. This was as a result of

concerns over the delayed delivery date from 2012 to 2016 and with the per-aircraft cost increase by

100% from $50M to nearly $100M (Pugliese, 2010). The decision for the Danish Fighter Replacement

program has now been postponed to 2015 as a result.

In the meantime, an industry organization FAD (Danish Defence & Security Industries Association) with

interests in supporting the selection process by DALO (Defence Acquisition and Logistics Organization),

was formed in November 2011 to continue working with all present and future potential candidates for

the Danish fighter replacement program (FAD, 2012). The benefit to the Danish aerospace industry will

be substantial regardless which aircraft type is chosen at the end of the selection process.

It is worth noting that while Denmark is also an initial Tier III participant of the JSF development

program similar to Canada, Denmark has not confined itself to selecting the F-35 JSF despite having

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made a $135M investment in the JSF international partnership program. The Danish government has in

fact taken tangible actions to demonstrate its resolve to select an alternate aircraft other than the F-35 JSF

in order to ensure responsible defense expenditures. This is despite having already contributed significant

funding towards the JSF program development cost.

5.3.4 United Kingdom

As the sole Tier I partner of the JSF program, the United Kingdom (UK) has contributed $2.5B to the JSF

development program, and is the second largest customer for the F-35 JSF aircraft with initial plans to

order 150 of the F-35 JSF aircraft for $19B. However this plan is now under review and reconsideration

and the UK is likely to reduce the aircraft numbers due to the increasing cost and budget limitations faced

by the UK Ministry of Defence (MoD) (JSF UK Industry Team, 2012).

Although the UK has provided the largest investment contribution of all international JSF partners, it has

not precluded itself from the impact of cost increases for the F-35 aircraft. The original estimated cost of

£37M ($58.6M) had escalated to £62M ($98M) in 2010, prompting suggestions of, albeit unlikely,

reduction of the order from 140 aircraft down to 70 (Norton-Taylor, 2010). Another suggested action to

reduce the UK JSF program cost is to shift the F-35B short take-off vertical landing (STOVL) variant

originally planned for the UK aircraft carriers to the F-35C conventional aircraft carrier variant

(Schwellenbach, 2010).

The UK originally planned to purchase the F-35A for the Royal Air Force and F-35B for the Royal Navy

to be deployed onboard the two new Queen Elizabeth Class aircraft carriers under construction since

2009. However, the aircraft carrier requirement has forced the UK MoD to face a unique issue which the

other international customers will not have to address (except for Italy who also plans to procure F-35B

variant), in particular the two UK aircraft carriers were initially designed to support only the STOVL

(short take-off vertical landing) F-35B variant and cannot accommodate any conventional aircraft

(Murphy, 2012). However, the continued JSF cost overrun had forced the UK MoD to table the

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possibility in its 2010 Strategic Defense & Security Review to change the UK’s purchase of STOVL F-

35B to the conventional F-35C carrier based variant for the Royal Navy.

Since the US Marine Corp, Italian Navy, and Royal Navy are currently the only known customers of the

F-35B STOVL aircraft, a decision change by the UK MoD to shift its requirement from F-35B to F-35C

will reduce the total F-35B production quantity, this will undoubtedly impact the F-35B production plan

with unavoidable cost increases for the F-35B aircraft. This may then propagate the reduction of quantity

the US Marine Corp F-35B had intended to procure in order to align with allocated budgets made

available by the Pentagon.

However, while the change from F-35B to F-35C will save approximately $10M per aircraft, further

assessment has recently identified that this change will require the aircraft carrier design to undergo major

revisions to install the catapult and arrester cable systems to launch and recover the F-35C. The total life

cycle costs for F-35C (with lower initial unit cost and modification to the aircraft carriers) have now been

calculated to be greater than the cost of maintaining the existing aircraft carrier design and purchasing the

F-35B at a higher initial unit cost. As a result of this assessment, the potential now exists that UK MoD

will soon reverse its decision and shift its procurement for the Royal Navy back to the F-35B STOVL

variant (Wall, 2012). A second major decision by the UK MoD to reduce defense expenditure is to

reduce the two aircraft carriers down to one, with a corresponding reduction of the F-35B variant required

(Jones, 2012).

Given the magnitude of the $2.5B development investment and as the second highest aircraft quantity

customer after the US government, and coupled with the complexity of deploying two variants of the F-

35 JSF for the Royal Air Force and Royal Navy, suffice it to say the UK’s procurement program has

become the most complex of the F-35 JSF international customers.

Predictably UK has now deferred its decision on the quantity of F-35 JSF purchase to 2015, although a

firm order for three test and evaluation aircraft has been placed with Lockheed Martin at $632M. The

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Queen Elizabeth Class aircraft carrier is reported to contain 40 fighter aircraft (Naval-Technology, 2011)

and may be used as an initial point of reference to estimate the UK’s likely purchase quantity for the F-

35B JSF variant.

5.3.5 Australia

The Royal Australian Air Force (RAAF) had planned to acquire 100 F-35A JSF aircraft for US$17B with

a purchase order placed for 14 initial aircraft (Royal Australian Air Force, 2012). Amongst the potential

international F-35 JSF customers Australia is the only country which has not only accurately predicted the

risk of delayed F-35 JSF delivery, but Australia also had the foresight to have proactively implemented an

interim solution for the RAAF by placing an order for AUD$3B (or US$2.4B based on 2002 exchange

rate) with Boeing in 2007 to purchase 24 Boeing F/A-18 E/F Super Hornets to fill the strategic gap when

the RAAF F-111 bombers were retired ahead of planned schedule (Defense Industry Daily, 2012).

The 24 Super Hornet procurement program has been completed with all aircraft delivered to the RAAF by

late 2011. This has not only bridged the gap the aircraft were intended to fill, it appears they will now

also serve as a “buffer” to cushion some of the impact the delayed F-35 JSF delivery schedule may have

on RAAF’s future planning.

5.3.6 Italy

Italy is one of two Tier II F-35 JSF international team members alongside the Netherlands, and has

invested $1B to date in the program to assist with significant related activities within Italy, including

construction of a 20-storey building with a 646,000 square-foot final assembly and check-out (FACO)

facility at Cameri Air Force Base in northern Italy to perform final assemblies of aircraft for Italy, the

Netherlands, and Norway. This program is expected to involve 20 Italian companies throughout its life

cycle (Peruzzi, 2012).

The original Italian plan was to procure total of 131 aircraft split between 69 F-35A and 62 F-35B

variants. However the defense procurement spending cut in 2012 is anticipated to result in reduction of

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the quantity by approximately 30 units of the F-35B variant, and to extend the balance of procurement

over longer periods of time (Reuters, 2012).

In the mean time Italy announced in that Feb 2012 it has ordered its first three F-35A at $80M per unit

price, and that the STOVL F-35B variant will be operated by both the Italian Air Force and the two

aircraft carriers of the Italian Navy (Cenciottis, 2012)

5.3.7 Turkey

As a Tier III international partner of the F-35 JSF program, Turkey has planned to procure 100 F-35 JSF

at $16B program cost, however Turkish government was unsatisfied over US government’s refusal to

share the software source code which controls and navigates the advanced F-35 JSF (UPI, 2011). Despite

the disagreement with access to software source code, an initial purchase order for two aircraft for has

been placed with Lockheed Martin to provide in-country logistics training, although the original plan had

been to purchase four aircraft for this purpose (Munoz, 2012).

5.3.8 Israel

Through the foreign military sales (FMS) funding program, Israel is now expected to procure 75

F-35A JSF aircraft in total, with an initial purchase of 20 (Katz, 2010).

Similar to several international customers, Israel is negotiating with the US government to gain

access to the F-35A software code in order to integrate indigenously designed avionics and

weapon systems into the aircraft.

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5.4 Canada’s procurement process

5.4.1 The sole-source approach

The F-35 JSF program will not only be the most expensive military procurement program for

Canada; it is also expected to be the most expensive weapon procurement program in history

globally, based on the total estimated acquisition cost of all international customers combined.

From the perspective of global economic strategy, multiple international customers combining

resources and jointly collaborating in the JSF program fits the “trading industry

internationalization model” integral to the program’s aerospace/military nature (Grant,

2008).The technology developed by Lockheed Martin is exported from a single location, the US,

to exploit international markets and capitalize on the efficiency benefit; Lockheed Martin then

collects the combined financial resources of the multinational participants in order to continue

carrying out JSF development.

The strategy to facilitate international collaborative involvement in the JSF program required the

participating partner countries to sign additional MOUs in 2006 committing them to additional

funding in exchange for preferred benefits from the JSF program. Canada agreed to provide

additional funding along with other countries. While a commitment to purchase aircraft was still

not required, in Section 7.3, the 2006 MOU does indicate that companies in countries actually

buying the aircraft will, in fact, have preferential status, subject to providing “best value” (Hicks,

2010). Thus, Lockheed Martin’s contract award process will provide contracts only to the most

competitive companies in the industry for the value-added benefit of the JSF program, rather

than employing the typical “patronage” reward arrangement.

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The Canadian government agreed to participate in the JSF program through several phases

beginning in 1997, and continues to participate, intending to amalgamate Canadian funding with

that of other interested countries to provide greater financial resources to support the

development program. This is an appropriate and prudent approach for maximizing the economic

power of the participating nations.

However, in a partnership program such as the JSF, the desire to maintain this relationship in

order to protect the industry business interests within each country can result in persistent

industry and/or even political pressure to continue with the program, even when experts have

legitimate concerns and identify them for the decision-makers. The Canadian government’s

ongoing sole-source procurement approach for the F-35 JSF has been criticized for its inability to

exert necessary pressure on Lockheed Martin concerning cost controls and delivery commitment.

Nevertheless, the Aerospace Industries Association of Canada (AIAC), representing around 90

of the country’s most significant aerospace companies, continues to support the selection of the

F-35 JSF for the RCAF, since the program could theoretically bring $12B in economic benefits

to companies throughout Canada, as the AIAC identified in an open letter on their web site

(AIAC, 2010).

This level of industry support cannot be overlooked from a political angle, when industry

lobbyists can raise legislative support or gain institutional approval to reach an objective, and in

doing so reinforce established policy or defeat proposed policy shifts (Baker). Observing the

continued industry and government support to sole-source the F-35 JSF contract with Lockheed

Martin, despite recent validated concerns about cost increases and delayed delivery, a pattern of

government and industry supporting each other’s objectives emerges, and it is clear these actions

are taken not necessarily for the right reasons, when all factors are considered.

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5.4.2 Requirement definition

In order to successfully complete a program, a company’s objective is to meet the three

constraints of quality, schedule, and budget in a balanced manner. However, some scholars argue

that the fourth constraint of a successful program is the dimension of meeting the program’s

strategy objectives. The “balanced scorecard” framework is used to include strategic alignment

as the fourth constraint in the modified constrained model in Figure 1 (Norrie & Walker, 2004).

Figure 1. A Quad Constrained Project Management Model (Norrie & Walker, 2004)

The primary strategic objective for Canada’s next generation fighter replacement program is to

select the appropriate aircraft for the RCAF’s strategic obligations in future domestic and

international military operations; this strategic objective will have to be balanced with the other

traditional three constraints of budget, quality, and schedule.

Once all four constraints have been clearly defined, the planning process can proceed to

determine the appropriate approach to achieve the objectives.

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By reviewing the available Canadian F-35 JSF program information to date, it is evident that

while the Canadian government began participating in the JSF program in 1997, a clear

definition of the Canadian requirements has not yet been released to the public. This has made

the definition requirements for the CF-18 replacement program difficult to qualify and quantify.

Some of the questions raised after the JSF selection decision was announced by the Canadian

government include

Does Canada require the stealth capability of the JSF?

Historically, the American military has carried out “first-day” strike activities in recent

campaigns such as the Gulf Wars and other international conflicts. This approach is

taken to suppress and destroy most of the opponents’ electronic detection capabilities.

Allied nations such as Canada then provide follow-on air superiority coverage, with

minimal risk from other electronic threats that the stealth capability can be of benefit.

Is the JSF’s claimed top speed of Mach 1.6 sufficient?

The roles of tactical air power to be served by the next RCAF fighter jet will include

domestic combat air patrol for potential terrorist hijack scenarios, sovereignty patrol in

the vast Northern Arctic areas of Canada, and participation in allied combat air patrol

during international military campaigns, all of which will benefit from higher top speed

performance. The JSF has lagged behind other fighter aircraft the critics have suggested

Canada consider in lieu of the F-35 JSF, such as the F-18 E/F (Mach 1.8+) and F-15

(Mach 2+).

Is the single engine JSF safe for pilots, given the vast, unpopulated Arctic area which

the RCAF routinely patrols?

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While the Chief of Air Staff Lieutenant-General André Deschamps assured the public

that the safety performance of the new generation single engine and twin-engine fighters

is similar (Deschamps, 2010), it remains to be seen if the single engine JSF can provide

adequate safety and reliability. The RCAF had similar concerns when it selected the twin-

engine CF-18 rather than the single-engine F-16 in the previous fighter selection program

of the early 1980s. This concern has proven valid, since a number of CF-18 pilots have

been able to land safely rather than being forced to eject after one of their two engines

suffered in-flight failures.

5.5 Large-scale military procurement

After several decades of declining defense funding which has resulted in a reduction of Canadian

military capabilities, the current Conservative government has begun the rebuilding process as

laid out in their Canada First Defence Strategy (CFDS) to enable the Canadian Forces to meet

existing and future roles, challenges, and threats.

Since 2007, the Canadian government has made positive leadership decisions to fast-track

several large-scale defense procurement programs to support Canadian Forces personnel during

international deployments into regions with military conflict. The RCAF components of the fast-

tracked programs include

• CDN$3.4B for four CC-177 Globemasters; strategic airlift program (Defense Industry

Daily, 2008)

• CDN$2.1B for seventeen CC-130J Super Hercules; tactical airlift program (Royal

Canadian Air Force, 2010)

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• CDN$4.9B for fifteen CH-147F Chinook; medium-lift helicopters program (DeMille &

Priestley, 2010)

The effort put forth by Canadian government personnel to successfully complete all three

procurement programs in support of the CFDS initiatives should be applauded; the inclusion of

all three types of aircraft greatly assisted the Canadian Forces’ ability to conduct its operational

activities in a safe and effective manner during recent military operations in Afghanistan and

Libya, and these capabilities have also provided humanitarian relief in operations elsewhere

around the world.

5.5.1 Past Experiences

It has been a long-standing pattern since the First World War that Canada has not been

successful in the procurement from or development of an indigenous defense industry. There

have been some rare exceptions, but the bulk of the major military development programs in

Canada were not deemed fully successful due to budgets, schedules, and at times political

interference.

One notable example is that of the CF-105 Avro Arrow long-range interceptor program initiated

in the 1950s to address the threat of a Soviet bomber penetrating Canada’s Northern Arctic

airspace during the Cold War. While the Avro project has great sentimental value from a

historical perspective, it ran over budget and was delayed due to necessary redesigns of the

airframe and weapons control systems. The Liberal government in power at the time continued

to fund the program despite criticism from the Chief of the General Staff, Lieutenant-General

Guy Simonds, who argued that the project was consuming too much of the defense budget and

that the government was ignoring other developing strategic trends, such as ground-to-air

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missiles that could serve the purpose the Avro arrow was built for at a much reduced cost

(Plamondon, 2008).

Another prime example of failed Canadian military procurement was the initial Sea King

replacement program. In July 1992, the Conservative government led by Brian Mulroney

announced that they had awarded a contract to EHI (EH Industries) for fifty EH-101 helicopters

to replace the aging Sea King fleet that had been in service since the 1960s. The total cost of the

program was $4.4B (CAD), with significant benefit for Canadian defense industry participants.

While this was a major expenditure, the failing reliability of the Sea King helicopters, the safety

of their aircrews, and the expected expense to upgrade and maintain the aging fleet supported the

logical justification to proceed with the EH-101 procurement program (Plamondon, 2010).

5.5.2 Outcomes

The CF-105 Avro Arrow project continued to consume too much of the Canadian defense budget

under the Liberal government, until a Conservative government led by John Diefenbaker was

elected into office. The Soviets launched Sputnik I into orbit in 1957, the same day the first

prototype Avro Arrow rolled out of its assembly plant in Milton, Ontario. The significance of the

intercontinental ballistic missile age became clear with the launch of the Soviet satellite, the

purpose and benefit of the Avro Arrow was called into question, and the Avro Arrow project was

terminated in 1959 by the Diefenbaker government, thus closing a chapter on one of the most

well-known Canadian military development/procurement programs (Plamondon, 2008).

The Sea King replacement program initiated in the early 1990s met a similar fate in 1993, when

the newly elected Liberal government terminated the procurement contract for the EH-101s. This

act was primarily justified by the Liberal political platform and their election campaign promise

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to reduce government spending. Winning the election meant that new Prime Minister Jean

Chrétien had to fulfill his campaign promise, regardless of the direct financial loss of

CDN$478M in termination penalties, and significant losses in Canadian defense industry

investment and jobs (Plamondon, 2010).

5.5.3 Lessons learned

On the one hand, the CF-105 Avro Arrow program demonstrated a case in point for the

importance to ensure the procurement decision is supported by appropriate and defendable

strategic requirements, because without these the procurement is unlikely to gain continued

support or remain on track, and is therefore at risk of being cancelled.

On the other, the EH-101 Sea King helicopter replacement program cancelled in 1993 was the

victim of political influence. The Opposition Party used the program’s expenditures as political

leverage during the election campaign. Its cancellation resulted in a significant financial loss due

to the termination penalty and a major delay in acquiring badly needed helicopters that is only

now being met with the anticipated arrival of the first deliverable CH-148 Cyclone to Canada.

This is happening nearly 20 years after the original procurement contract was awarded and then

cancelled, primarily as a result of political influence.

These two examples demonstrate the importance of stakeholder theory in strategic management,

particularly the five steps of stakeholder analysis (Carpenter, Sanders, & Harling, 2012):

1. Identify the value chain

2. Identify the stakeholders

3. Determine the stakeholders’ expectations

4. Determine stakeholders’ power and influence over decisions

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5. Determine which stakeholders will be satisfied and how

The Avro Arrow program cancellation can be attributed to three factors:

- Loss of value-chain: the Avro Arrow no longer served its purpose when unmanned

intercontinental ballistic missile technology became a viable alternative to manned high-

speed long-range tactical bombers.

- As a stakeholder, the United States government provided American-made aircraft as a

more economical option to Canada and protected its own aerospace industry at the

expense of the Canadian one.

- The Canadian aerospace industry became a secondary stakeholder.

The cancellation of the EH-101 Sea King replacement program can be attributed to three factors:

- Fulfilling political campaign promises became the overriding factor in the value chain

once the Liberal government was elected.

- The political stakeholders satisfied their needs at the expense of replacing the aging

helicopter fleet

- Timing of the procurement during economic uncertainty.

Both program cancellations had a notable negative impact on the Canadian aerospace industry.

However, the stakeholders with the most influence succeeded in implementing their decisions

over the rest.

6 Schedule and Cost Factors

The mounting development-related delays and cost escalation have resulted in significant

concerns expressed by not only the US government (the F-35 JSF’s prime customer) but also a

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contingent of other international customers, including Canada. Lockheed Martin’s development

problems and cost increases for the F-35 program were identified by all potential international

customers, and they have raised serious concerns that the result will be an unavoidable reduction

of procurement quantities, increasing the unit cost and delaying the aircraft delivery schedule

(Fulghum, Warwick, Wall, & Ben-David, 2011).

6.1 Lockheed Martin development program status

While the F-35 JSF program has endured critical delays in recent years, it has also achieved

several major milestones in the 12 months preceding this applied project. Achieving every one

of the many program milestones contributes to the successful continuation of the overall

program, but there are some key milestones that have great significance, including but not

limited to (US Government/Dep of Defense, 2012)

- 2,500 flight test hours

- First STOVL testing at sea

- First in-flight fuel transfer

- Completion of F-35B initial ship suitability testing

- First catapult launch of F-35C

- First flight with external weapon payload

- Reached highest altitude to date of 43,500 feet

- First night flight operation

- F-35B program probation lifted one year ahead of schedule

- Receiving Air Force-issued flight release to begin initial operation of F-35As at Eglin Air

Force Base, Florida

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However, as can be expected with any complex technology development programs, there have

also been many delays due to technical issues found during the F-35 JSF flight testing phase,

including but not limited to

- A defective wing structure beam, which reduces the operational life to less than one-sixth

of the design target (Aero News Network, 2011)

- Underrated design for the power supply of electro-hydrostatic actuators that caused a

near-accident early on in the flight testing (Boeder, 2007)

- F-35C power generator mistakenly designed to give only 65% of the required electric

output (Boeder, 2007)

- Gearbox of the F135 engine for the JSF requires redesign to accommodate increased

power from the generator (Boeder, 2007)

- Fuel tank system to prevent explosion from damaged fuel tank failed to insert the fuel

tank spaces throughout combat flight envelopes evaluated (Department of Defense, 2012)

- Handling characteristics will require additional evaluation and changes in flight control

software and potential airframe modification (Director of Operational Test and

Evaluation, 2012)

- F-35C deficiencies, such as a tail hook that is unable to engage the arrester cable and

missing components that are critical to catapult launch for aircraft carrier operations

(Director of Operational Test and Evaluation, 2012)

- F-35B aircraft vertical lift components require redesign to accommodate higher than

expected operating temperature (Gilmore, 2011)

The recently released FY2011 report by the US DOD Director of Testing and Evaluation

expressed concern with the flight testing progress, and the growing use of concurrency testing by

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Lockheed Martin and the JSF Program Office in the mission systems flight test plan. The report

stated concurrency testing “creates difficulty of managing multiple configurations on test and

operational flight lines to assure use of appropriate software, increasing rework of software, and

the potential for greater than expected regression flight tests are significant challenges to the

program.” (Director of Operational Test and Evaluation, 2012, p. 34)

Furthermore, the JSF Operational Test Team has determined that the F-35 program is not on

track to meet operational effectiveness or suitability requirements, specifically in the areas of

human system integration with helmet-mounted display and night vision capability, aircraft

handling, as well as the maneuvering performance for F-35A’s combat radius and F-35C’s

acceleration. (Director of Operational Test and Evaluation, 2012)

The combined problems of test delays, an aggressive testing philosophy, and tangible technical

difficulties will create significant challenges for the JSF program to accelerate and meet its

original program plan for flight testing, initial delivery, and international customer delivery.

6.2 Program schedule performance

The ongoing technical issues identified during flight testing has resulted in the restructuring of

the system development and demonstration (SDD) plans, resulting in a 16-month extension of

the SDD phase for the F-35 JSF program to (Gilmore, 2011)

- accommodate more flight test sorties

- address STOVL F-35B flight performance difference and complexity

- provide the time and effort (previously underestimated) required to develop and integrate

the mission system software

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In March 2009, the GAO identified in a report to the US Congressional Committees of its

concerns that Lockheed Martin and the JSF Program Office’s use of substantial concurrent and

overlapping development, test, and production activities is flawed. This caution was not heeded

by the DOD, which appears to be a cause of additional risk to cost and schedule increases for the

program. The 2009 report estimated a 3-year schedule extension would be required and delay

the completion of development until October 2016 (US Government Accountability Office,

2009).

Based on the Block 1, 2, and 3 developmental testing which makes up the SDD phase, the chart

in Figure 2 summarizes the progression of the F-35 JSF program SDD schedule from 2003 to

2012 with briefing information provided by the US government, including the JSF top-level

2008 SDD program schedule (Davis, 2008) originally presented in September 2008 by USAF

Major General Charles R. Davis, then the F-35 JSF Program Executive Officer. The schedule in

2008 as compared to the most recently available data in 2011 has already been delayed between

3 to 3.5 years for Block 2 and Block 3 SDD development testing phases. See Appendix 1 for

detailed data.

Figure

The trend of schedule delays is expected to

the previous phases of the program

setbacks in the future have been

In reviewing the documented history of the F

identified by the GAO in several reports since

performed well. Using the framework based on five operations performance objectives

Chambers, & Johnson, 2010)

program will have all five objectives balanced

one or more of the objectives

Figure 2. F-35 JSF SDD Completion Forecast

is expected to continue until the technical development

previous phases of the program have been successfully addressed, and provision for

have been mitigated with contingency plans.

In reviewing the documented history of the F-35 JSF development program and the issues

in several reports since 2005, it is evident that the JSF

Using the framework based on five operations performance objectives

of Quality, Speed, Dependability, Flexibility, and Cost, an ideal

program will have all five objectives balanced with one another. However

one or more of the objectives to gain favorable precedence over those that remain

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technical development setbacks in

provision for potential

35 JSF development program and the issues

SF program has not

Using the framework based on five operations performance objectives (Slack,

of Quality, Speed, Dependability, Flexibility, and Cost, an ideal

owever, it is not unusual for

remain, and quite

often this means some objectives are compromised when

higher visibility, priority, and additional focus in the program

given less priority and allowed

For the JSF program, it is apparent

emphasis on the quality, flexibility, and dependability objectives

modified set of performance objectives

Figure 3.

The values assigned for the performance parameters in

- Quality : The performance validation

identifying and integrating additional test points into the test program despite the

objectives are compromised when others considered

and additional focus in the program. As a result, certain

ed to degrade as they are “sacrificed” within the program.

is apparent that cost and schedule objectives have given way to

the quality, flexibility, and dependability objectives as shown in

modified set of performance objectives:

. F-35 JSF Program Performance Objective

The values assigned for the performance parameters in Figure 3 are based on the assessment

: The performance validation process and test results have be


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others considered more critical capture

As a result, certain objectives are

within the program.

given way to more

as shown in Figure 3, with a

JSF Program Performance Objectives

are based on the assessment of

process and test results have been highly effective,


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daunting pressure from the program schedule and cost correction process (Gilmore,

2011).

- Safety: The test program has not compromised safety practice or performance in

exchange for a lower cost or shorter schedule, no major mishap has occurred to date, with

only minor incidents throughout the flight test (not uncommon for an advanced aircraft

flight testing program), and has not resulted in any loss of aircraft or personnel

injury/death. This safety record is commendable, given that over 1,700 test flights have

been conducted since December 2006 (Lockheed Martin, 2012).

- Reliability: The flight test aircraft fleet has required significant maintenance, which

contributed toward fly rates that were lower than planned (US Government

Accountability Office, 2011).

- Cost: The program cost has increased significantly and required multiple reviews to gain

additional funding, and restructuring the procurement plan may result in a reduction in

procurement quantities (Fulghum, Warwick, Wall, & Ben-David, 2011).

- Schedule: An estimated four to five years delay has been accumulated since the

beginning of the F-35 JSF program. This has caused doubts and concerns for potential

international customers, so that some have reconsidered the F-35 JSF as their

replacement fighter choice. In fact, Australia has decided to purchase 24 of Boeing F/A-

18 E/F Super Hornets as interim measure to address the delay of the F-35 JSF delivery

(Defense Industry Daily, 2012) while other nations remain in the F-35 JSF program for

the time being.

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6.2.1 Current delivery schedule

As a result of US Congressional reviews of the F-35 JSF program, examining in particular the

alarming cost increases and schedule delays, the F-35 JSF Program Office and Lockheed Martin

committed in mid-2011 to produce a revised integrated master schedule (IMS) by early 2012.

This task has not been completed by the end of 2012’s first quarter, when the research for this

Applied Project was being conducted, therefore the following information has been compiled

based on the best available data at the time, including the FY11 Annual Report by the US

Government Director of Operational Test and Evaluation, which included a detailed summary of

the FY11 activities related to the JSF program.

As a result of the Technical Baseline Review done in 2010 on the system development and

demonstration (SDD) phase, the SDD completion schedule was delayed by 13 months, and the

full-rate production moved to November 2015 (Gertler, 2012). With anticipated aircraft delivery

as shown in Appendix 4, the following schedule milestones have been adjusted and extended

accordingly:

- Block 2 mission systems capabilities to early 2015 (was mid-2012)

- Block 3 mission systems capabilities to spring 2017 (was mid-2013)

To put this into perspective, Block 2 is the second of three capability phases in the F-35 JSF

program. Block 3 is the planned completion of the F-35 JSF test flight to measure full aircraft

capability as well as hardware and software configuration that will become the operational

baseline.

Ideally, the production of the deliverable F-35 JSF aircraft fleet will not commence until all three

SDD phases are complete and all of the issues identified during the flight test trials have been

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resolved. However, realistically this approach would require a significant extension to the

program schedule, and delaying aircraft delivery again in an already much-delayed program;

therefore, a low rate initial production (LRIP) approach has been adopted to produce small

quantity of aircraft in parallel with the SDD flight test program to facilitate initial transition

activities such as pilot and maintenance training. This approach is taken with the understanding

that while there is an advantage to initiating the production process, the disadvantage is that

some of these LRIP aircraft may require various updates as issues are identified and resolved

during the ongoing SDD flight test program. These updates can potentially be costly, even

though the LRIP is not an uncommon practice in the aerospace industry.

As a result of this approach, the USAF has obtained approval from the Pentagon to initiate F-35

JSF flight operations at Eglin Air Force Base in March 2012 (Majumdar, 2012), a historical

milestone for the F-35 JSF program that was only possible due to the implementation of the

LRIP.

With the Pentagon’s reduction of its initial purchase and the restructure/replanting of the

program, full production of the F-35 JSF is now expected to commence in 2015 (Gertler, 2012).

6.2.2 Forecasted delivery for Canada

The F-35B STOVL variant is expected to undergo another 60 months of flight science test flights

until 2017, but this should not have a critical impact on Canadian procurement since only the F-

35A conventional take-off variant aircraft is expected to be procured. Similarly, additional

issues identified during flight tests for the F-35C aircraft carrier-based variant are not factored

into the delivery schedule analysis for Canadian procurement of the F-35A.

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While the initial forecast for aircraft delivery of Canada’s F-35 JSF was previously estimated and

planned for 2016 (National Defence and the Canadian Forces, 2012), this date appears to be

increasingly unrealistic, given the delays of the flight test program. The full-rate production

delay to November 2015 will result in most aircraft initially produced being delivered to the US

military rather than international customers. Only a few of the early production aircraft will be

delivered to international customers for initial training purposes, while the remaining delivery

will be negotiated to accommodate Lockheed Martin’s JSF production schedule and the

Pentagon’s delivery requirements.

Furthermore, it is understood that the first batch of full-rate production aircraft will likely cost

more than later batches; therefore, the Canadian DND can lower program costs by delaying the

delivery of the aircraft until after the original 2016 deadline. The Canadian government appears

to be considering this option, indicating that it has some flexibility to extend the operational life

of the current CF-18 Hornet fleet, such that they can delay the F-35 JSF delivery to between

2017 and 2023 (Payton, 2012) rather than the originally planned 2016 to 2020 replacement

period.

6.2.3 Capability concerns

Two capability related items must be addressed during the Canadian procurement of the F-35

JSF: these are in-flight refueling capability and drag chute capability (JSF NIEUWS, 2011).

The RCAF in-flight refueling capability with its current fleet of CC-150 and CC-130 tankers is

based on a flexible drogue chute which mates to an extended probe from the receiving aircraft

such as that used by the CF-18 Hornet. However, this refueling system is not compatible with

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the F-35A variant of the JSF Canada will be purchasing, since it has receptacles requiring a rigid

boom refueling system. Therefore, two options exist to address this problem:

- Refit the Canadian F-35A aircraft with the in-flight refueling system from the F-35B/C

variant, which is compatible with the Canadian Forces tankers

- Update existing tankers or purchase new tankers with a compatible in-flight refueling

system.

The drag chute requirement is still under assessment to address potential landing difficulties

associated with shorter runways in Northern Canadian airfields; the drag chute at the tail of the

aircraft will be deployed upon touchdown to assist in decelerating on slick runways, a problem

during the winter months.

Both of these issues will further impact the schedule and cost of the Canadian procurement

program, since these are unique requirements not yet shared by other international customers of

the F-35A variant.

6.2.4 Implication to RCAF planning

The CF-18 fleet currently operated by the RCAF is expected to remain in service until 2020,

when most of the airframes will reach the end of their design life cycles. The current transition

schedule from CF-18 to F-35 had been planned based on the delivery of the first aircraft in 2016

to allow adequate phase-in transition within the Canadian Forces infrastructure (Deschamps,

2010). The planned 2016 initial delivery schedule of the RCAF F-35 would allow for personnel

training, supply chain provision, support equipment installation, and implementation of overall

infrastructure in preparation for the F-35 phase-in process.

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However, the ongoing development delays of the F-35 program in the US have the potential to

jeopardize the 2016 target date for the initial aircraft delivery to Canada. If this delay does occur

as expected, it will force the RCAF to continue operating its current CF-18 aircraft fleet longer

than initially planned. Delaying the retirement of the CF-18 fleet will likely affect Canada’s

ability to carry out military roles, and operating costs will have to increase to support the aging

CF-18 fleet. This is a legitimate concern which has been clearly demonstrated in the past by the

nearly 20-year delay of the Maritime Helicopter Replacement Program for the Sea King

helicopter fleet.

6.3 Cost structure

In conjunction with the schedule delays, F-35 JSF critics have also focused on program costs, as

the estimated price of the aircraft continues to increase.

The current acquisition price for Canada has been estimated at approximately $150M per aircraft

in the Parliamentary Budget Officer’s report dated March 10, 2011 (Weltman & Yalkin, 2011),

while in late 2010, the RCAF Chief of Air Staff (CAS) Lieutenant-General André Deschamps

stated that the procurement price would only be $70M for each aircraft based on the expected

production and delivery timeframes (Deschamps, 2010). Clearly, there is a significant

discrepancy in the financial figures presented.

A counter-analysis was produced by the DND on March 18, 2011 in response to the PBO report,

citing inconsistencies and incorrect assumptions (Kaluzny, 2011) to discount the $148.5M per

aircraft cost estimate. The DND’s response made two notable observations:

- The PBO report overestimated the aircraft unit cost by $19.9M, inferring the aircraft cost

was still $128M per unit

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- according to the CAS, “Canada could anticipate to pay under $90M per aircraft,”

inferring each F-35 JSF aircraft is unlikely to cost much less than approximately $90M,

which is still $20M, or 28.7% higher than the figure presented by the RCAF CAS in

2010.

To address DND’s response, the PBO then provided its own counter-counter analysis on March

23, 2011 clarified the rationales used in its original report, identified inconsistencies within

DND’s counter-response, and referenced a US GAO report dated March 15, 2011 (United States

Government Accountability Office, 2011) to support estimates compiled by the PBO.

Figure 4. Canadian F-35 Price Estimation (Weltman & Yalkin, 2011)

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The average procurement cost chart in Figure 4 was compiled from the March 15, 2011 United

States Government Accountability Office report on the F-35 JSF restructuring process, indicating

not only the extent of the unit cost increase but also the strong likelihood that the unit cost of the

F-35 JSF may double in value. The current effort to accelerate the LRIP while the SDD flight

testing phase is ongoing creates the potential for a costly retrofit process that would be required

for early production aircraft in order to rectify issues not yet identified or resolved while the

LRIP aircraft were being built (US Government Accountability Office, 2009).

Given the level of uncertainty and the numerous variables contributing to the aircraft unit cost

calculation, and based on the best information available currently, it would be prudent and

reasonable to suggest that the F-35 JSF aircraft unit cost for RCAF procurement will likely to

range from the

- “Suggested minimum” of $70M by RCAF CAS

- To the “expected minimum” of $90M by DND

- The “likely maximum” of $128M by DND

- Or up to the “potential maximum” of $150M by PBO

The DND and its officials recognized the lack of a single, authoritative unit cost for the F-35 JSF

in recent months (Berthiaume, 2012), and have provided a range of publicly presented and

speculated cost figures as a result.

7 Economic Benefit

Dan Middlemiss, one of the few authors who writes about Canadian military procurement argued

that defense procurement is a vital component of defense policy. “It is what puts the ‘arms’ into

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the armed forces and because of the many (sometimes very large) contracts and jobs involved, it

is also ‘big business’ in Canada” (Plamondon, 2008, p. 17).

Industry Canada’s Industrial and Regional Benefit (IRB) program ensures Canadian industry will

benefit from a major government procurement expenditure to a foreign supplier such as the F-35

JSF program, expected to cost a minimum of $9B. However, Industry Minister Tony Clement

“conceded the current arrangement with Lockheed Martin provides no such (IRB) guarantees

(Brewster, 2010, p. 1). Therefore, the Canadian government has so far not followed the

traditional IRB policy with Lockheed Martin for the F-35 JSF program. The reasons for this

approach will be discussed in the following sections.

7.1 Industrial Regional Benefit (IRB) program

Historically, it has been the prerogative of the Canadian government to require foreign

companies with large government contracts to establish an investment with the “same value as

the contract” in Canada. This clause was included in the contract to fulfill the Industrial and

Regional Benefits (IRB) policy, intended to ensure Canadian industries will benefit from major

government defense and security procurement with a foreign supplier (Industry Canada, 2011).

The IRB program was established by the Canadian government to ensure the necessary balance

between financial outflow from major defense spending with a foreign company and inflow of

reciprocal economic benefit. It is particularly important for the Canadian F-35 JSF program,

given that the procurement value is currently estimated at a minimum of $9B.

Recent precedents from Canadian IRB benefit agreements in RCAF procurements with foreign

suppliers include

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- Four CC-177 Globemaster strategic airlift aircraft purchased by DND from Boeing

Military Aircraft company, with an IRB value of approximately US$1.5B (Industry

Canada, 2012)

- Fifteen CH-47 Chinook medium-to-heavy lift helicopters purchased by DND from

Boeing Military Aircraft Company, with an IRB value of approximately $4.7B for the

helicopters plus in-service support (National Defence and the Canadian Forces, 2012)

- Seventeen CC-130J Hercules tactical airlift transport aircraft purchased by DND from

Lockheed Martin, the manufacturer of the F-35 JSF, with an IRB value of $1.4B for the

aircraft purchase plus an additional amount for 20 years of in-service support (National

Defence and the Canadian Forces, 2011)

7.2 The Lockheed Martin approach

While IRB programs directly generate economic benefits in the country the product is sold to,

there is usually a premium associated with this arrangement since the supplier cannot actually

provide “full” economic benefit at the lowest price relative to the true value of the product.

Financial stakeholders, in particular the shareholders of the supplier company (in this case,

Lockheed Martin) will demand profit in exchange for their financial investment, so the supplier

company must typically raise the product’s sale price in order to recover their earned profit from

the sales contract and satisfy their shareholders.

In order to maintain a competitive sale price for customers, Lockheed Martin has used a different

methodology from the traditional IRB program, they have implemented an Industrial Share

Program (ISP) with partnership countries, where the opportunity for industry participation is

primarily based on achieving “best value” for the overall F35 JSF program rather than allocating

contracts to specific countries which participated in the SDD or procured the F35 JSF aircraft.

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This approach gives a competent and competitive supplier a better opportunity to gain access to

all of the F-35 JSF business opportunities rather than being limited to the country where it is

based.

The ISP approach taken by Lockheed Martin is based on the management philosophy of

establishing a “strategic alliance” framework, with all the suppliers providing “best value” to the

F-35 JSF program. As opposed to the traditional “in-country, dollar-for-dollar” IRB approach,

the “best value” approach enhances the effectiveness of each company’s strategy (Carpenter,

Sanders, & Harling, 2012), thus creating

- Exchange of knowledge associated with technology, skills, or products

- Trust in the management of the alliance

- Success for the alliance, dependent on the collaborative effort of participating companies

It should also be noted that the VRINE (Valuable, Rare, Inimitable, Non-substitutable,

Exploitable) model, another strategic management assessment framework, provides additional

support for the alliance strategy used by the F-35 JSF program. The VRINE model demonstrates

sustainable competitive advantages since the alliance initiated by Lockheed Martin with the

industry partner companies satisfies most if not all of the VRINE objectives. The potential for

company participation at an international level also means this strategic alliance has a global

presence, with all the attendant benefits such an alliance is capable of generating.

Therefore, it is expected that the innovative ISP approach implemented by Lockheed Martin for

the F-35 JSF program, as opposed to the traditional IRB approach, will provide four benefits

(Caccuitto & Vehmeier, 2003):

It will

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- Facilitate Canadian industrial participation in JSF program

- Evaluate the JSF as a potential candidate for the RCAF fighter replacement program

- Promote interoperability between the US, British, and Canadian militaries

- Gain insight into US procurement methodologies and best practices

It should be noted that the traditional IRB program is typically more suited to the procurement of

a developed product with a known and fixed price, and is often executed after the product

delivery to include post-delivery sustainment contracts. The ISP approach provides the

significant advantage of early engagement in business activities for eligible companies in the

development and production of the F-35 JSF aircraft.

However, there is a downside to the ISP approach; new companies expecting to receive funding

to develop new technologies are unlikely to become a participant company if another company

already exists that fits the “best value” criteria.

The ISP approach is also expected to provide financial savings for the overall F-35 JSF program;

however, other stakeholders may have different prerogatives and misgivings about Lockheed

Martin using the ISP approach, including those who expect the traditional IRB arrangement to

benefit many in-country companies by distributing contracts across Canada based on population

size and density, which not only makes the process more “fair” by allocating opportunities more

evenly across the country but also earns political support from voters. The conflicting benefits

and interests between these two very different approaches will factor into how Lockheed Martin

and the Canadian government resolve the IRB mandate during the negotiations prior to any

possible contract award process.

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7.3 Canadian participation

There are currently over 50 Canadian firms already listed as partners of the F-35 JSF program

(Thornley Fallis, 2012), including broad range of company sizes and types.

In total, Industry Canada has summarized the combined industrial benefit resulting from

Canadian participation in the F-35 JSF program to be $435M as of the end of 2011 (Industry

Canada, 2011)

It should be noted that while certain industrial benefits have been or are continuing to be

received by some of the Canadian companies listed as F-35 JSF partners, other partnering

companies may be precluded, reduced, or potentially removed from ISP opportunities with

Lockheed Martin if Canada chose to stop the F-35 JSF procurement program in favor of a

different aircraft made by a different manufacturer. The economic impact of this potential

scenario must also be taken into account during the review of the industrial benefit elements that

are part of the F-35 JSF procurement decision.

8 Recommendations

The foresight exhibited by US government in the mid-1990s to initiate the Joint Strike Fighter

program demonstrated the effectiveness of the alliance strategy for combining technical and

financial resources from both the US government and multinational partners to obtain

commitment for participation. The combined resources were then utilized to develop a common

platform for next generation fighter aircraft while tailoring three variants: conventional take-off,

short take-off vertical landing (STOVL), and aircraft carrier landing.

The X-35 prototype design by Lockheed Martin successfully beat the X-36 design from Boeing

Military Aircraft Company in a 2001 fly-off competition, resulting in Lockheed becoming the

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prime contractor for the F-35 JSF. Their success was followed by the signing of the system

development and demonstration contract in 2002 between Lockheed Martin and multiple

international customers, including Canada.

At the time I was writing this Applied Project report, the SDD phase of the F-35 JSF program

had been going on for 10 years; while the company has been quite successful developing the

technology, schedule and cost performances have not been as stellar. The project is close to 5

years behind schedule, and unit costs have doubled from US$50M to almost $100M, according

to estimates in the US Government Accountability Office reports. After reviewing the F-35 JSF

program’s history and the Canadian government’s participation in it, I have developed 10

recommendations for the Canadian procurement process:

1. Review the anticipated RCAF missions and objectives to understand how Canada will be

involved in domestic and international conflicts. This will reaffirm the specific

requirements of the replacement fighter program for Canada, and will determine if the F-

35 JSF is still the most suitable choice over other aircraft choices available today.

Factors such as absolute need for stealth and total sensor fusion technology, single engine

safety, maximum performance requirements in speed and range, and so on, must all be

considered.

2. Perform a realistic assessment of the delivery schedule and pricing structure for the F-35

JSF, with specific Canadian customizations such as the “drogue and probe” refueling

system compatible with current RCAF tanker aircraft, and drag chute provision to

improve safe landing distances on Canadian Arctic runways, since both factors will

negatively impact the delivery date and cost.

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3. Determine technical options and financial consequences should the Canadian government

choose to withdraw from the F-35 JSF program, including alternative aircraft choices and

their delivery schedules, loss of SDD investment, loss of in-country economic benefit,

and any financial/contractual penalties.

4. Liaise with other international customers and actively engage Lockheed Martin and the

JSF Program office to address the schedule and cost issues, with cost being the higher

priority. While this is a difficult task, it is a necessary one if the cost and delivery of the

F-35 JSF fleet are to remain realistic as an option for Canada to replace the CF-18 fleet.

5. Increase international stakeholder participation. It is unclear what the current level of

direct involvement is from the international partners of the F-35 JSF program, since the

program has predominately been funded by the US government. However, international

partners have contributed nearly US$5B toward the estimated overall development cost

of US$50B, starting with the concept demonstration phase in 1997 and the system

development and demonstration phase since 2002 (see Appendix 3); this level of

financial investment qualifies the international participants as stakeholders who should

have proportional input in the management of the development program.

6. Establish fair, meaningful, tangible, and enforceable procurement contract provisions to

address schedule and cost performance issues if and when the F-35 JSF procurement

contract for Canada is negotiated. The current F-35 JSF development program in the US

has effectively become a cost-plus program. The US government has had little leverage

over Lockheed Martin’s schedule and cost performance since the commencement of the

SDD phase in 2002, after which the schedule continued to be delayed and costs to rise

beyond what can be expected as reasonable.

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7. Ensure the procurement process is not adversely affected by political interference, and is

achieved while addressing the Canadian requirements that must be served by the new

RCAF fighter jet selection.

8. Initiate risk and contingency assessment processes to extend the operation of the CF-18

fleet operation beyond the originally planned retirement date of 2020; this is a necessary

step in anticipation of the delayed F-35 JSF delivery.

9. Address Canadian industry participation in a fair and equitable manner, regardless of

whether the F-35 JSF is selected as the RCAF replacement for the aging CF-18 fleet.

10. Maintain political transparency during the procurement process, and avoid intentionally

disseminating inaccurate information or deliberate misrepresentation. Examples of these

questionable approaches include the public statements made in 2010 and 2011 by senior

government officials that F-35 JSF contract “has been signed,” and that “Canadian

companies will lose JSF related work if Canada withdraws from the F-35 JSF program”,

only for these officials to concede in March 2012 that the contract had, in fact, not been

signed, and Canadian companies will remain involved in F-35 project (Berthiaume &

Davis, 2012)

9 Conclusions

A well known management framework is the S.M.A.R.T. process (Specific, Measurable,

Achievable, Relevant, and Timely); this framework can be mapped onto the objectives of a

successful replacement fighter procurement program for Canada, which must ensure that

- The requirements are well defined = Specific

- The total expenditure remains within the allocated budget = Measureable

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- The project is free of undue influence = Achievable

- The procured service or product serves the purpose for which it is intended = Relevant

- The delivery is completed in a timely manner for deployment = Timely

In a complex and prolonged procurement process such as the Canadian replacement fighter

program, it is suggested a derivation of the S.M.A.R.T. process that includes continued

Evaluation and Re-evaluation (i.e., S.M.A.R.T.E.R.) to account for the changing scenarios which

can develop. Adding these two steps could address some of the issues experienced during

Canada’s involvement in the F-35 JSF program over the 10 years since Canada signed the SDD

MOU in 2002 to join the development program.

It should be noted that it is not uncommon for a large-scale military development program to

exceed its originally planned schedule and cost. However, the F-35 JSF program in the US has

developed into a classic case of schedule and cost overrun, and shares some similarities to the

recent €20+ billion Airbus Industries A-400M Atlas military medium-lift transport aircraft

development program, where the “customer” was a partnership of defense departments from

seven nations, including France, Germany, Spain, the United Kingdom, Turkey, Belgium, and

Luxembourg.

The similarity between the F-35 JSF and A-400M Atlas programs does not end at the number of

combined international customers. The A-400M program also ran into schedule and cost

difficulties, but since the procurement contract was signed very early in the development

program with a fixed pricing clause, Airbus Industries was forced to take the unprecedented step

of publicly requesting additional funding from the partnering nations, who would otherwise risk

the program being cancelled and a financial loss of over €5.7 billion. The situation was resolved

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when the partnering nations agreed to provide a €3.5 billion loan to maintain this program and

avoid the risk of cancellation (Tran, 2010).

Due to the large funding sum already invested in the $50B development program (Butler, 2010),

it is unrealistic to expect the US government will allow the F-35 JSF program funding to

deteriorate to the point that Lockheed Martin might threaten to cancel the project. This “sunk

cost”, in conjunction with the F-35 JSF being the only realistic fifth-generation fighter option

available to the military had made it highly unlikely, extremely difficult, and very costly for the

F-35 JSF program to be cancelled by the US government. However, the sunk cost invested by

Canada in the F-35 JSF program is $160M at the end of the SDD phase. This smaller investment

may give Canada the possibility to withdraw from the JSF program and accept the loss (i.e., sunk

cost) in order to find an alternate aircraft solution, such as the F-18 Super Hornet from Boeing

Military Aircraft Company, which has a currently published unit price of $53M (Sweetman,

2011), and requires lower infrastructure update costs for Canada when compared to the

transitions necessary for the F-35 JSF. Taking this approach will result in a significant overall

procurement cost reduction compared to the F-35 JSF, an opinion shared in a 2003 US

Congressional Research Service report (Bolkcom, 2003).

Going forward, it is this “re-evaluation” step which the Canadian government should undertake

as part of the S.M.A.R.T.E.R. process recommended for this procurement program.

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Appendix 1. F-35 Development Schedule Revisions 2003 to 2012

2003 F-35 JSF Program Schedule1 (Kopp, 2008)

1 http://www.ausairpower.net/APA-2008-03.html

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2006 F-35 JSF Program Schedule2 (Kopp, 2008)

2 http://www.ausairpower.net/APA-2008-03.html

2008 F-35 JSF Program Schedule3

3 http://www.florida-edc.org/Roundtable/MGen%20Davis%20F

3 (Davis, 2008)

edc.org/Roundtable/MGen%20Davis%20F-35%20Sept08.pdf

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Appendix 2. F-35 JSF Procurement Quantities 2012

Country Original Initial Current Procurement Status

Australia 100 144 755 Bought F/A-18 E/F Super Hornet as interim gap measure,

program under audit/review6

Canada 65 ? 65 Government agreed to restructure procurement process after

Auditor General report Spring 20127

Denmark ? ? Delayed selection to 20148

Israel 75 20 ? Through FMS funding9

Italy 131 90 Defense Minister announced cut to order10

Japan 42 411 42 Announced selection in Dec 2011, announced risk of

cancellation if cost increases12

Netherland 85 2 50 ?13 Decision for final order not yet made14

Norway 48 4 52 52 include 6 as options15

Turkey 120 2 100 Placed order for two initial delivery aircraft16

United

Kingdom

138 ? Delayed decision to 2015

United States 1763+680

= 2,443

? Under heavy scrutinizing due to cost and schedule over-runs

4 http://www.defence.pk/forums/military-forum/40004-australia-approves-jsf-purchase-plans-initial-order-14-ctols.html 5 http://defense-studies.blogspot.ca/2012/03/australia-looking-at-average-us70m-per.html 6 http://www.defensenews.com/article/20111027/DEFSECT01/110270305/Australia-Launches-F-35-Review 7 http://www.cbc.ca/news/canada/story/2012/04/02/f-f35-cost-concerns.html 8 http://www.defensenews.com/article/20100324/DEFSECT01/3240310/Denmark-Delays-Fighter-Purchase-up-4-Years 9 http://www.jpost.com/Israel/Article.aspx?id=184007 10 http://www.ft.com/intl/cms/s/0/6fa9b130-57f2-11e1-bf61-00144feabdc0.html 11 http://www.aviationweek.com/aw/generic/story_channel.jsp?channel=defense&id=news/awst/2012/01/02/AW_01_02_2012_p26-409910.xml&headline=null&next=10 12 http://www.cbc.ca/news/canada/story/2012/04/02/f-f35-cost-concerns.html 13 http://www.aviationweek.com/aw/blogs/defense/index.jsp?plckController=Blog&plckScript=blogScript&plckElementId=blogDest&plckBlogPage=BlogViewPost&plckPostId=Blog:27ec4a53-dcc8-42d0-bd3a-01329aef79a7Post:736625a5-954f-473f-a0eb-003a908f4459 14 http://www.thehollandbureau.com/2011/12/18/jsf-hanging-in-there/ 15 http://www.defenseindustrydaily.com/f35-lightning-ii-faces-continued-dogfights-in-norway-03034/ 16 http://www.defenseindustrydaily.com/f35-lightning-ii-faces-continued-dogfights-in-norway-03034/

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Appendix 3. F-35 JSF International Development Contribution17,18

Concept Demonstration

Phase

Systems Development

Demonstration Phase

Total

Australia $150M $150M

Canada $10M $150M $160M

Denmark $10M $125M $135M

Italy $10M $1B $1.01B

UK $200M $2B $2.02B

Norway $10M $125M $135M

Turkey $175M $175M

The Netherland $800M $800M

Total $240M $4.525B $4.765B

17 http://www.dtic.mil/dtic/tr/fulltext/u2/a472774.pdf 18 http://www.jsf.mil/program/prog_intl.htm

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Appendix 4. F-35 JSF Procurement Quantity Forecast 201019

19 http://www.aviationweek.com/aw/blogs/defense/index.jsp?plckController=Blog&plckScript=blogScript&plckElementId=blogDest&plckBlogPage=BlogViewPost&plckPostId=Blog%3A27ec4a53-dcc8-42d0-bd3a-01329aef79a7Post%3A690b140b-f361-40b6-b88e-f06d44f63bcb

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