Friday, May 10, 2019

LOCKMART THROWS TANTRUM... GETS RULES CHANGED... SLIGHTLY.



We are now approaching the end of the beginning of Canada's meandering quest to replace the CF-18 Hornet.  Later this month, the Government of Canada will finally release an official RFP (Request for Proposals) to the fighter manufacturers.  

Lockheed Martin, Boeing, Airbus (representing Eurofighter), and Saab will then have until the end of the year to submit their bid to replace the RCAF's aging fleet of CF-18s.  Dassault respectfully declined to offer its Rafale due to compatibility reasons.  

Once the RFP is released, the decision should be (mostly) out of the politicians' hands.  Even if the government changes in the upcoming election, restarting the process yet again would be politically catastrophic.  

In short...



Of course, Canada's fighter jet replacement program has to put up with at least one more hurdle before it can get on to business.  In this case, its Lockheed Martin and the Trump administration crying foul.  

A report released earlier this week takes umbrage with Canada's fighter selection criteria, stating that it is "fundamentally and structurally prejudicial to any F-35 bid."  Why?  Because it forces Lockheed Martin to abide by the same rules that Canada has had in place for any major military purchase for the last several decades.

At issue is Canada's stipulation for manufacturers to guarantee industrial offsets for Canada.  If Canada is going to spend billions of dollars on equipment and services, it seems only fair that the manufacturer commit to investing some of that money back into Canada.

Unfortunately, that is not how the JSF program works. 

In the convoluted Joint Strike Fighter program, potential customers join up as a "partner".  Partner nations are allowed to bid on F-35 related work.  The more a partner pays into the program, the more work they are allowed to bid on in order to make that money back.  While not technically a pyramid scheme...  It does share some characteristics:  While there is a potential to come out ahead, there are no guarantees.  There is also a competitive nature inherent in the program.  Potential JSF contractors have little choice but to provide their services at the thinnest of margins in order to stay competitive. Others might be tempted to go even further and cut corners.  


In short, the F-35 is a supersonic collection of parts, each of which was supplied by the lowest bidder and cobbled together by the world's largest defence contractor.  What could possibly go wrong?

They're gonna need to scratch a few of those flags off...

So far, Canada has invested enough into the JSF program that it is considered a "Level 3" partner.  This has paid off somewhat, with $1.3 billion worth of F-35 contracts being rewarded to Canada's aerospace sector.  It also means Canada will be able to bid on future F-35 work.  

Moving forward, Canada may very well come out ahead on the F-35.  With plans to build thousands of the stealth fighters, combined with Canada's strong aerospace infrastructure, we have a good chance of being one of the "winners" in the JSF program...  Or we might see nothing else at all.  It is a complete gamble.  

That is the sticking point.  

Needless to say, Canada's requirement for guaranteed industrial offsets do not sit well with Lockheed Martin, who prefer to promote the F-35 on potential industrial offsets.  

Even The Pentagon has gotten involved, threatening to withdraw the F-35 if Canada did not waive its Industrial and Technological Benefits (ITB) policy.  

Claims its the best fighter...  But demands special treatment.
So what does Canada do?  

We cave in...  Sort of.  

The Federal Government has decided to allow a "flexible approach" when it comes to determining industrial benefits.  With nearly $20 billion being spent, you can be assured that there is going a be a large emphasis on seeing substantial return on our investment.  A European manufacturer promising a guaranteed industrial offset is going to be at a huge advantage over a potential industrial offset.  

At this point in the game, the European manufacturers seem to be in the stronger position than ever.  Neither Airbus or Saab have made many waves, and seem to be simply happy to supply Canada with a fighter bid.  At the same time both American manufacturers have seemingly tried to bully us into buying their wares.  One wonders if this a is wise move given the current political climate.  

Five years ago, it seemed an almost certainty that the F-35 would replace the CF-18.  If not, the Super Hornet would have been the next logical choice; with the "Eurocanards" a distant long-shot.  Now, Boeing and Lockheed Martin seem to have snatched defeat from the jaws of victory.  

This could very well end up being a two-way race between the Gripen and the Typhoon.  Strange times indeed.  









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