Forum: Program and politics

geogen wrote:

My guess would be RCAF procuring 40, maybe 45x F-35

Not enough to sustain operational tempo. Hell, 65 won't be enough.

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geogen wrote:

pushoksti wrote:

delvo wrote:

A That calls for lots of range and speed, both of which an F-15 delivers more of for a lower price.

The Flyaway cost a new Strike Eagle is more than a new JSF.

I'm going to agree with many of delvo's arguments there, 'if' an alternative is warranted in the near-term for RCAF's replacement program. In such case, a modern F-15E+ class (which will hopefully still be a option a year from now in terms of the line being open for orders) would arguably be the closest alternative to the F-35 in a broad strategic and capabilities sense. That is, the F-15E+ is and would be far more comparable to the F-35 than the Super Hornet.

Price comparison wise? For an initial FY14 order?? I'm not convinced with that claim..

Who knows for sure, Canada could need an IMF loan if they want to procure just 50x F-35A, too.

There's unfortunately some confusion at large on F-35's 'affordable' Procurement being floated around in Canadian media though, with respect to RCAF's potential acquisition. There would unfortunately be no evidence to support a $65m or $75m F-35 Procurement tag for an FY14 order (not even for the REC flyaway portion), let alone promise that the currently expected FY14 and on production rates and hence unit cost estimates will remain intact. Moreover, given the unfolding uncertainties with future buy rates and FRP commencement and even what an FRP will look like by FY17, or FY18, etc, reality will dictate that 'Total Procurement Cost' estimates will be revised accordingly.

No, the unit costs have always been the average for the entire buy. I doubt the Canadian media would even care about that distinction; almost every single defence journalist has the knives out for the program.

geogen wrote:

And some would assess a significant revision to the upside at that, especially when taking into account the already miscalculated and underestimated cost estimate increases to date. Expect some major surprises cost-wise, re F-35 procurement.

Yadayadayada. No real analysis from you, just "its going to be ALOT WORSE."

Honestly Geogen, your baseless assertions are starting to get tiresome. Oh look, one more:

geogen wrote:

My guess would be RCAF procuring 40, maybe 45x F-35, staying the course.

You have absolutely no basis whatsoever to make such a claim, and yet you do. Frankly, its more likely the Government will buy MORE F-35s given what's been said over the past week than buy less. Cost overruns? The government doesn't really care... see the Cyclones. The F-35 was the centerpiece of the Liberal and NDP attacks on the Conservatives for the past two elections. Somehow, they won an majority despite that. IF they have to spend even 100~200 million more... they will do it. It won't be nearly as bad as the money they poured into the Cyclone project.

geogen wrote:

RCAF could however supplement with VLO UCAV for first-day deterrence and long-range patrol. It's reasonable to keep a flexible next-gen recapitalization strategy when emerging capabilities are just around the corner.

Oh really? With what platform? What experience does the RCAF have with UCAVs? Very very little. Its ludicrous to think that we will be seeing any UCAVs before the 2025 at the extreme earliest.

Last edited by m on Nov 06, 2011 - 10:41 PM; edited 1 time in total

Geogen. I can be wrong, but as far as I see, pro or anti in Canada, some aspects, to some extend, are also relevant for Canada

Not always is realized, US taxpayers mainly did pay development costs of the F35.
In fact level partners will get a F35 - concerning these costs - cheap and not really have that much to complain.

Levelpartners invested in development, but don’t pay extra development costs when ordering the F35.
Even compared with level 1 (UK) and 2 partners, Canada will get the F35 in fact a lot cheaper than these levelpartners.
As well as for instance the Dutch will get the F35 cheaper than the UK probably will get.

In comparison: levelpartner 1 (UK), 2 (NL) and 3 (Canada)

Invested in development per F35: 65
o Canada invested $150 million: $2.3 million per F35 (65)
o Netherlands invested $800 million: $9.4 million (85), $12.3 million (65)
o UK invested $2.5 billion: $16.6 million (150), $18.1 million (138), $38.4 million (65)

Development costs Dutch, rated in 2011 dollars:
o The Dutch invested $800 million = €858 million in 2002
o €858 million = $1.18 billion (rate: 2011, nov. 6)
o Development costs per F35: $13.8 million (85), $18.1 million (65)

* How much will be paid by the industry or taxpayers are national agreements and will differ by country

Dropping out and ordering another jet

Although costs will be lower for Canada, as an example, a comparison when dropping out and how these costs will influence ordering another jet type, as well as will influence the industrial factor:

Dutch National Audit Office (Rekenkamer) came with these figures:
o Costs fully leaving the F35 project: €872.8 million (2009) = $1.2 billion (Rate: 5 nov 2011)
o Total Dutch investment, till so far: ± €1.58 billion = US $2.18 billion
o “ Full” drop out: Less royalties (Dutch: 1,74% / +$200,000 per F35, not lvelpartners)
o FMS (when the F35 on the shelf): 4.4747% per F35, royalties included

- In case another jet: development and production costs will have to be paid as well for another jet type
- The invested F35 money will have been lost and will lower the budget for another jet
- A percentage FMS costs in case of another jet
- The two ordered F35’s will have to be sold (second hand)
- Expected, within a few years, Dutch industry will hardly play any role in the F35 project anymore

A full drop out will not be that easy for levelpartners:

Signed MOU, all partners, updated 2010

PRODUCTION, SUSTAINMENT, AND FOLLOW-ON DEVELOPMENT OF THE
JOINT STRIKE FIGHTER

http://www.jsf.mil/downloads/documents/ ... 4_2010.PDF

19.4 Any Participant may withdraw from this MOU upon 90 days written notification of its intent to withdraw to the other Participants. Such notice will be the subject of immediate consultation by the JESB to decide upon the appropriate course of action. In the event of such withdrawal, the following rules apply:

19.4.1 The withdrawing Participant will continue participation, financial or otherwise, up to the effective date of withdrawal.

19.4.2 In accordance with paragraph 5.13 of Section V (Financial Provisions), if a Participant’s withdrawal occurs prior to production Line Shutdown, the withdrawing Participant will pay its share of the Line Shutdown costs upon its withdrawal. However, if a Participant withdraws

19.10 This MOU will remain in effect for forty-five (45) years, and may be extended by the written concurrence of the Participants.

Concerning The Netherlands

The government assured the US this year they will stay in the F35 project

The next government has to the decide what the “ Total budget” will be, as well as the “ Total number” F35’s will be ordered.

Invested till so far ±€1.58 billion (=$2.18 billion). This year the government declared another
€4.5 billion (=$6.2 billion) will be reserved for ordering the F35 (Buying dollars?)

Till that time the government will still use, coming years, 85 as a official number for measuring how many F35’s can be bought and what budget will be needed. Any number, ordering F35’s, could not be answered by the government to Members of Parliament, because the total budget, ordering the F35 or any other decision concerns the next government. (Till 2014: From the western front no news)

Although it could have seemed (internationally) last years it was a main issue in the Netherlands, this was not really the case. The really main issue was in 2006.
How much of an issue it is now? The last government did spend only a few lines on the F35, forming the new government (2010).
Buying a second F35 or not this year, was nothing more than a political (voter) fight. Every political party knew there was a commitment buying a second F35 (IOT&E phase).
After this incident the F35 hardly got any attention anymore.

To m:

Thanks for your detailed comments, that was some serious effort and analysis made there.... My response would be that we need to differentiate between 'development' costs and actual unit 'Procurement' costs. One can argue that development costs can be written off. Sunk costs, as we say in english. With respect to what a foreign - or US - customer has to pay to BUY an F-35 is a totally separate issue though and is referred to as a total Unit Procurement cost as a baseline expense. Then, add to this Procurement cost whichever extra long-term packages and extra equipment packages and extra weapons + infrastructure + MILCON, yadayadayada package a customer wishes to include as extra cost to the baseline Procurement.

However, the total unit 'Procurement' price paid by foreign customers is an interesting point for further investigation I think. Note various customers stating their respective desire to buy from USAF contracts? What I read from this, is the possibility that likely procurement cost overruns will be evenly split between US govt and LM. If this is true, then it raises an interesting possibility that foreign customers might be able to buy an F-35 at a designated price also quoted to the USAF, but when cost overruns kick in, a foreign customer buying direct from the US Air Force might not have to pay for the cost increase. That share would might be covered by the USG + LM?

geogen wrote:

If this is true, then it raises an interesting possibility that foreign customers might be able to buy an F-35 at a designated price also quoted to the USAF, but when cost overruns kick in, a foreign customer buying direct from the US Air Force might not have to pay for the cost increase. That share would might be covered by the USG + LM?

I take it you are thinking of "concurrency type" cost overruns? Since no foreign customer can buy directly from a US vendor and only through DoD, this would be an issue for any export sale of any defence product, thus practices should be in place. I have not heard that it is practice for the DoD to pick up the bill for cost overruns for the export customer!

Anyhoo, a F-15K costs $125M in todays dollars and a lrip-4-5 F-35A is the same ($126, including engines). The curves are crossing today. At a build rate of 70/yr it should hit $90M. 65-75 is not impossible at all. F-35A is just cheaper, no contest.

hb, I truly respect whomever you are in your profession and in your mission. I won't ask if it's an official position statement, or just your informed opinions.

I simply disagree with your assessments however.

If you are claiming that the supposed $65-$75m quoted Procurement cost (REC flyaway, not Total Unit Procurement Cost) is an average for Canada... and Canada is buying her initial lot in FY14 which will be MUCH higher than $65-$75m (recurring flyaway) per unit... then one can deduce that later Canadian purchases will come in MUCH lower than $65-$75m per unit to average out. That is impossible! Do the math, sir. You are implying that a later year buy in FY18 would be $50m? I'm sorry, but that is the very flawed reasoning behind this entire marketed 'average cost' issue to begin with.

Regarding Canada and potential future UCAV procurement... why not? Why punch the throttle full speed now on a fixed next-gen recapitalization plan, when so much additional 'next-gen' 'game-changing' technology will be on the market in just 10 years from now? Why rush it, when Canada could have a more capable and cost-effective mix of capabilities over the Life Cycle Cost? And regarding the claim: UCAV will not be a viable platform by 2025?? Do you realize that the US will not likely be the first military to operate a LO UCAV and before 2020? Sputnik moment perhaps? I'm sorry but such assumptions are indicative of the serious miscalculations on par with those made back in 2005 thinking that F-35 would be affordable, mature and IOC by 2012-2014.

Believe me, I'm probably one of the few critics you'll ever exchange debates with that is actually wanting the F-35 to succeed. I've given proposals on how both US and Partners can actually afford the F-35 during LRIP and increase the Program's chances of sustainability and success. I have not heard one proposal by anyone on this site to come up with a proposal to better the chances of F-35s sustainability or improved affordability during the most vulnerable stages of the Program. How about trying to replace some group-think, with some Think-tank. You might just come out the other side with a better outcome. Respects-

geogen wrote:

To m:

Thanks for your detailed comments, that was some serious effort and analysis made there.... My response would be that we need to differentiate between 'development' costs and actual unit 'Procurement' costs. One can argue that development costs can be written off. Sunk costs, as we say in english. With respect to what a foreign - or US - customer has to pay to BUY an F-35 is a totally separate issue though and is referred to as a total Unit Procurement cost as a baseline expense.

As I've explained to you in depth before, its not total unit procurement as the baseline expense, as those costs do not scale properly and may not be representative of Canada's costs.

You must start with the REC, and then figure out the extra expenses on top of that SPECIFIC to the number of aircraft purchased and their operational tempo. For example Canada may buy 85 aircraft, but with only 60 or even 40 operational at any one time. The rest may sit as an attrition reserve or maintained at a lower status than alert aircraft. Thus it does not need the MILCON/Training/Support package for 65 aircraft, rather the number actually in service and the level they will be employed. This is why I've been telling you that PUC is not an illustrative figure and needs to be separated out and discussed separately. Technically, Canada could have a PUC of the REC + the rental space of a warehouse in Cold Lake if it just stored the fighter and never used it. Then again if utilized at a higher operational tempo than US fighters, it could have a higher PUC. Its really dependent on the Canadian context. This is what you continually fail to grasp when you argue for transferring the US PUC to the CAnadian context.

geogen wrote:

However, the total unit 'Procurement' price paid by foreign customers is an interesting point for further investigation I think. Note various customers stating their respective desire to buy from USAF contracts? What I read from this, is the possibility that likely procurement cost overruns will be evenly split between US govt and LM. If this is true, then it raises an interesting possibility that foreign customers might be able to buy an F-35 at a designated price also quoted to the USAF, but when cost overruns kick in, a foreign customer buying direct from the US Air Force might not have to pay for the cost increase. That share would might be covered by the USG + LM?

Partner Companies do not buy their fighters from the USAF; they buy them directly from the LM as part of the MOU agreement. FMS however would go through that route.

hb_pencil wrote:

Partner Companies do not buy their fighters from the USAF; they buy them directly from the LM as part of the MOU agreement. FMS however would go through that route.

Huh? I was of the definite impression that partner buys went through DoD, i.e. negotiated as part of the USAF/USN contract, though not as FMS.

Do you know of any reading material on this? (or care to elaborate?)

Geogen...... Canada can afford to spend $134.4 million per airplane which is what you get when you divide 9 billion by 65 aircraft. Also why buy UCAV's when you can use satellites? UCAV's are great for filling in the information Gaps where you don't have Satellite coverage like Afganistan. Also contrary to popular belief the F-35 is not as at risk as many defense analysts would have you believe. In fact a lot of things in the US defense budget would be cut first before the F-35 because with out the F-35 the United States looses its ability to use Gun Boat Dipomacy. See wiki on Gunboat Diplomacy:

http://en.wikipedia.org/wiki/Gunboat_diplomacy

Last edited by hb_pencil on Nov 07, 2011 - 04:18 AM; edited 3 times in total

geogen wrote:

hb, I truly respect whomever you are in your profession and in your mission. I won't ask if it's an official position statement, or just your informed opinions.

I simply disagree with your assessments however.

If you are claiming that the supposed $65-$75m quoted Procurement cost (REC flyaway, not Total Unit Procurement Cost) is an average for Canada... and Canada is buying her initial lot in FY14 which will be MUCH higher than $65-$75m (recurring flyaway) per unit... then one can deduce that later Canadian purchases will come in MUCH lower than $65-$75m per unit to average out. That is impossible! Do the math, sir. You are implying that a later year buy in FY18 would be $50m? I'm sorry, but that is the very flawed reasoning behind this entire marketed 'average cost' issue to begin with.

Canada's purchase schedule starts in 2016, not 2014. Furthermore the schedule will likely be 1, 3, 9, 13, 13, 13, 13 according to the department. Currently I've estimated the 2016 unit cost (using a revised learning curve due to LRIP cuts) at about $80~85 million a copy. This should drop to $80~$75 million by 2018 or 19, when full production commences, which is within the Government's estimates.

So as you can see, the effects of the 2016~2017 lots being higher than expected is minimal as they represent less than 10% of the entire buy. If the 2019 lot are around $75 million, then they will average out the higher costs of the few earlier aircraft. (the Estimated REC for Canada is 75~80 Million)

Furthermore Canada could decide to back end the production buys to ensure they avoid the effects of the LRIP cutbacks too.

geogen wrote:

Regarding Canada and potential future UCAV procurement... why not? Why punch the throttle full speed now on a fixed next-gen recapitalization plan, when so much additional 'next-gen' 'game-changing' technology will be on the market in just 10 years from now? Why rush it, when Canada could have a more capable and cost-effective mix of capabilities over the Life Cycle Cost? And regarding the claim: UCAV will not be a viable platform by 2025?? Do you realize that the US will not likely be the first military to operate a LO UCAV and before 2020? Sputnik moment perhaps? I'm sorry but such assumptions are indicative of the serious miscalculations on par with those made back in 2005 thinking that F-35 would be affordable, mature and IOC by 2012-2014.

Why not? The institutional groundwork isn't there, the organizational interest isn't there, and the political capital isn't there. I actually have some insight into the CF's future force concepts thinking. Saying "why not?" is to me akin to saying why can't the US congress just agree increase the top end tax rate by 10% to cut its budget deficit or change medicare and social security into a voucher system. Its out of the realm of possibility.

geogen wrote:

Believe me, I'm probably one of the few critics you'll ever exchange debates with that is actually wanting the F-35 to succeed. I've given proposals on how both US and Partners can actually afford the F-35 during LRIP and increase the Program's chances of sustainability and success. I have not heard one proposal by anyone on this site to come up with a proposal to better the chances of F-35s sustainability or improved affordability during the most vulnerable stages of the Program. How about trying to replace some group-think, with some Think-tank. You might just come out the other side with a better outcome. Respects-

I'm going to be absolutely blunt here. I find your posting often poorly resourced and misleading. I thank you for being calm in your tone and tenor. However there have been several instances that you have been proved wrong or questioned(F-15E Costs, PUC vs REC, or stating higher costs estimates with no grounding for example), yet you just blindly ignore others arguments and continue to argue something incorrect. Its dismaying to say the least.

I'm hardly a blind supporter the program, though its hard to seem unbiased when faced with some of the arguments presented on here. I really am trying to find the most accurate understanding of program. Certainly I think DND's figures are more credible than most figures put out there... but I think that at this point DND is at the limit of their estimates and it may even exceed them once the LRIP 4 and 5 contracts are run to completion. However, I also have the experience to understand that defence projects have cost overruns and almost always exceed their goals. Furthermore other programs are no better.... the F-15E/SE is certainly not cheaper than the F-35 nor are its capabilities that superior for the RCAF's defence needs.

All of this won't matter however as the government has staked its political capital on this program and will see it through.

bumtish wrote:

hb_pencil wrote:

Partner Companies do not buy their fighters from the USAF; they buy them directly from the LM as part of the MOU agreement. FMS however would go through that route.

Huh? I was of the definite impression that partner buys went through DoD, i.e. negotiated as part of the USAF/USN contract, though not as FMS.

Do you know of any reading material on this? (or care to elaborate?)

You're possibly right on the first part (partner buys through DoD), but possibly not on the second (as part of the USAF/USN contract)

My reading is based on the MOU and bits and pieces of various statements and discussions I have. I should be a bit more exact. Buying "from the USAF" to me means going the FMS, which is not how it works. Partner countries buy through the Program office and the JSF Executive Steering Board. This is the JESB's responsibilities as stated in the MOU.

4.4.2 Approving JSF PEO-recommended annual or multiyear Consolidated Procurement Requests (CPRs) for JSF Air System articles and services.

Now this might be a technicality, but that sounds to me as if the contracts are actually separately signed by the partner countries and the contractor, then consolidated as an single order. That would make sense, Canada, and other partners have different versions of their fighters which would need to be constructed differently (Adding a probe and drogue system to a F-35A for example.) Also the entire structure as outlined by the MOU suggests that the partners are basically equal though the US runs the program for them.

That's just my reading of it... I don't have definite proof of how it works in practice (its actual effects are minimal how the program is run.)

Calculated REC from the 2010 SAR to illustrate effects of learning curve and production rates.

Code:

year   Qty   BY2002$M   REC$M

2007   2   411.6   205.8

2008   6   949.2   158.2

2009   7   988.2   141.2

2010   10   1229.7   123.0

2011   22   2383.4   108.3

2012   19   1941.5   102.2

2013   24   2137.8   89.1

2014   40   3023   75.6

2015   50   3502   70.0

2016   70   4260.9   60.9

2017   80   5041.8   63.0

2018   80   4730.7   59.1

2019   80   4650.1   58.1

2020   80   4624   57.8

2021   80   4648.3   58.1

2022   80   4700.4   58.8

2023   80   4698.8   58.7

2024   80   4741.1   59.3

2025   80   4745.4   59.3

2026   80   4742.6   59.3

2027   80   4842.4   60.5

2028   80   4957   62.0

2029   80   4993.3   62.4

2030   80   5031.1   62.9

2031   80   5068.6   63.4

2032   80   5111.1   63.9

2033   80   5152.4   64.4

2034   80   5154.6   64.4

2035   73   4327.1   59.3

http://www.fas.org/man/eprint/F-35-SAR.pdf

From 2016 onwards the REC BY$2002 doesn't change much - it flatlines. I can't find the official defence inflation rates (which the USGov is obliged to use) to convert to CY2008 or CY2011, the former the year of the famous $65M REC quote, however using 2.5% pro annum it tracks between $65-70M REC CY2008, or $72-77M Total Flyaway. It seems lrip-5 is to be cut so crudely, the bottom price will be from 2017 onwards.

But it is obvious that partner cost is not dependent on total production, but on when the order is placed.

hb_pencil,

Thanks, I'll be sharp the next time I read material on this topic. However, on Geogens question - the US DoD are not allowed to subsidize exports, so this detail may be moot anyway.

bumtish wrote:

Calculated REC from the 2010 SAR to illustrate effects of learning curve and production rates.

http://www.fas.org/man/eprint/F-35-SAR.pdf

From 2016 onwards the REC BY$2002 doesn't change much - it flatlines. I can't find the corresponding defence inflation rates to convert to CY2008 or CY2011, the former the year of the famous $65M REC quote, however using 2.5% pro annum it tracks between $65-70M REC CY2008, or $72-77M Total Flyaway. It seems lrip-5 is to be cut so crudely, the bottom price will be from 2017 onwards.

Just google up westegg. They use the US gov's Labour statistics numbers which I believe are the official figures. Its been a little while since I did this but I think these are FY2002. Canadian figures are FY2008... If I remember correctly. Also these costs are estimated using common learning curve formulas (when I did the calcs originally they tracked almost perfectly.) Learning curves and prices can be affected by a lot of things, so the SAR estimates will not reflect reality. I have some guesses how the costs will end up based on some of the information out there. I suspect that lots after LRIP 5 is where the costs get driven down as risk sharing among subcontractors comes into effect, design maturity occurs and production rates start ramping up. I don't think however they will reach the bottom until 2018 or 2019 due to LRIP cutbacks.

bumtish wrote:

hb_pencil,

Thanks, I'll be sharp the next time I read material on this topic. However, on Geogens question - the US DoD are not allowed to subsidize exports, so this detail may be moot anyway.

Its actually the opposite problem: DoD can drive up the costs of a purchase through FMS. The structure of the JSF program made it that all the countries are partners and bought their units at the same cost as the USAF.

[quote="hb_pencil"]

geogen wrote:

All of this won't matter however as the government has staked its political capital on this program and will see it through.

Does this page have a like button? Because I'd press it when I see quotes like this.

This is the one issue the critics (and once again I'm referring to those vocal Australian critics) have demonstrated time and time again that they do not adequately comprehend and will never overcome.

The partner nations, politically and defence-wise support the F-35. Not blindly, but in the full knowledge (which the critics don't have) that it will do what they want it to do.

Most recognise that the F-35 is not perfect for every single possible contingency but unlike the slack cut for most other programs, the critics expect it to be perfect in every role or it's labelled a "failure".

And it will be cheaper than most. If countries had the budget available, sure they could build supercruising LO F-15's armed with air launched ESSM's and 2000+ T/R module AESA radars and they'd probably be absolutely awesome air to air machines.

But they don't. They have the budget and supporting resources to introduce a single fighter type. Some might look at adding very small numbers of UCAV's to expand their capabilities in years to come. They are unlikely to do so at the expense of manned fighter capability for decades yet however...

Forum: Program and politics

Canada set to spend $9-billion on 65 US Fighter Jets - F35