Equipment Procurement

Arriving at Canada’s Costs for the F-35A Conventional Takeoff and Landing Variant Joint Strike Fighter

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Arriving at Canada’s costs

As a signatory to the Production, Sustainment and Follow-On Development Memorandum of Understanding (MoU), signed in 2006, Canada is provided with an annual detailed cost estimate by the JSF Program Office (JPO).  Additionally, Canadian project office representatives go over cost estimates specific to Canada with their JSF Program Office counterparts at least once annually.

As a start point, it is important to note that the Joint Strike Fighter program is at an advanced stage of development and has entered the production phase.  The first squadron of Conventional Take-Off and Landing aircraft will be established in the U.S. Air Force this year.  While there are still many challenges ahead, the program has shown success through some of the most difficult phases.  There is an increasing amount of contracted work with known costs, there are many actual costs available and looking ahead, the financial risks are continually decreasing.

The US-led JSF program is not only the largest defence procurement in history; it is arguably also the most scrutinized. The JSF cost estimation process is a continuous, detailed activity involving multiple experts and independent reviews.

Additional checks and balances

In addition to the rigorous cost estimation processes above, JSF costing is also monitored by independent US Government cost review groups: the Joint Estimating Team and the Cost Assessment and Program Evaluation Directorate. The JSF program has also recently undergone a very thorough and detailed Technical Baseline Review.  This involved approximately 120 subject matter experts from across the full spectrum of activities associated with a program of this size and nature (including manufacturing, aircraft production, flight testing, etc.). As a result of that effort, the JSF program has been re-structured to provide an even more solid and realistic foundation for development, production and sustainment.  The General Accountabilities Office (the equivalent of Canada’s Office of the Auditor General) has also added scrutiny and recently issued a report that has been very useful in further understanding Canada’s costs and associated risks.

Real costs and actual data

JPO cost assessments use a bottom-up analysis which incorporates detailed estimates at the assembly and component levels. JPO estimates take into account actual trends in the labour and supplier base including signed contracts and actual costs. They also factor in proven savings associated with the commonality of design of the three JSF variants of aircraft.

To date, actual costs for those Low Rate Initial Production (small lots of aircraft produced to ensure production line peak efficiency) under contract have all come in lower than the JPO estimates.

What Various Numbers mean

There are many costs with different meanings.  It is important to understand what those mean in order to avoid confusion. 

  • Unit Recurring Flyaway Cost (URF):  it is the cost of an aircraft as it rolls out of the production line.  The URF cost varies with time as can be seen in the enclosed graph.  As the production line becomes more efficient and that production capacity increases, the URF costs go down.  Currently, URF costs are high, well over $100M USD per aircraft, given the early stages of production.  However it is important to note that actual costs have been trending below estimates.  The main source of F-35 costs is the Selected Acquisition Report 09 for the URF of the F35A CTOL.
  • Costs of the three F-35 Variants:  The Conventional Take Off and Landing variant is the least costly of the three F-35 Variants.  The Carrier Variant and the Short Take Off and Landing variant are both more expensive.  In many U.S. Government reports, the F-35 costs being reported are an average of the three variants.
  • Average Costs:  Many costs reported by the U.S. Government are averages of the entire production line of over 3000 aircraft, including the very expensive aircraft early in the production phases as shown in the enclosed graph.  Also, these averages often include all three variants.  For example, the enclosed graph shows that the average CTOL URF cost will be approximately $84M per aircraft when considering the entire production line of more than 2400 aircraft.  At the same time, the General Accounting Office has reported that the “Average Procurement Cost” to be $133M USD per aircraft.  These two average costs are both well founded.  The $133M USD average includes the $84M USD CTOL average URF and, in addition, includes the two other more expensive variants average URF as well as initial spares, ancillary equipment, publications, equipment, technical training and technical data for over 3,000.

Canada’s average URF is for only one variant, for only 65 CTOL aircraft and are acquired between 2016 and 2022 at the least expensive time of production.  Canada’s URF is estimated to be in the mid-$70M due to the delivery times that will be at around the peak of production efficiency as shown on the graph.

The costs that Matter to Canada

Canada’s acquisition costs are based on careful analysis of the F-35 program costs and include significant amounts of contingency and flexibility.  

The cost estimates for Canada’s acquisition of 65 F-35 Conventional Take Off and Landing variant is $9B CAD.  It includes the following

  • the cost of 65 CTOL variant F-35s acquired between 2016 and 2022 obtained from the 2009 Selected Acquisition Report. 
  • Potential modifications such as an Air-to-Air Refuelling Probe and a Drag Chute (development, material and installation).
  • Two aircraft block upgrades (Block 4 and Block 5) estimated at 2% of acquisition costs per upgrade.
  • Set-up costs for initial logistics estimated at $1.3B.
  • Project Management costs estimated at $200M
  • Infrastructure costs estimated at $400M.
  • Weapons estimated at $300.M.
  • $800M of contingency funding to manage unforecasted change.

Standing by our numbers

The F-35 program is at an advanced stage.  Aircraft are flying, the production line is open and, as a result, detailed cost estimates are now available for Canada to gain the required confidence to stand behind its estimates.  Significant flexibility exists with contingency funding to deal with cost variations. 

The recent report by the Parliamentary Budget Officer titled “An Estimate of the Fiscal Impact of Canada’s Proposed Acquisition theF-35 Lightning II Joint Strike Fighter” casts serious doubt on DND’s estimates and was taken very seriously.  In order to better understand the PBO’s methodology, two reviews were conducted by experts.  The reports are enclosed.