For a number of reasons, it wasn’t surprising to see Canada’s incoming government announce its intention of revisiting the former government’s decision to buy the F-35A Joint Strike fighter for the Royal Canadian Air Force. It’s not academic for Australia—if Canada decides to pull out, it could cost Australia and other partners about a million dollars extra per aircraft as economies of scale are reduced, or about A$100 million in total for the RAAF’s fleet of 72.

As in Australia, the proposed Canadian F-35 purchase has been controversial and has found itself repeatedly in the papers. Unlike in Australia, the Canadian debate has been cost rather than the capability of the aircraft. And it hasn’t been a debate in the margins: a 2011 Parliamentary Budget Officer report that highlighted the budgetary impacts of both the acquisition and through-life support costs of the F-35 led to a vote of no confidence in the House, and ultimately the dissolution of the then minority conservative government.

It’s no surprise that the cost of the F-35 is problematic for Canada. It’s the world’s second most expensive tactical aircraft after its F-22 stablemate. At a projected flyaway price of US$82 million in 2020, it compares to US$61 million flyaway for a new build Super Hornet (prices in 2015 dollars). Supporters of the F-35 would argue that you get a lot more capability for your money, but that doesn’t help if you’re broke. And when you look at its defence budget, Canada has been heading for the wall for a while now.

As I pointed out in a comparative analysis a few months ago, Canada’s armed forces are uncannily similar to Australia’s in size, while the defence budget is a whopping 40% smaller. Even if our northern mates are doing things smarter than we are, that’s an implausibly large amount of efficiency to find. It’s more likely that they’re expending a much greater proportion of their budget on keeping the extant forces going than we are. That’s OK until it comes time to recapitalise major assets, when you’re faced with the option of letting capabilities go or finding extra money.

Canada may have already made some tacit decisions. I’ve talked with Canadian civilian and military defence folks about the replacement of our Collins and their Upholder class submarines. The timing and requirements of the two countries actually mesh quite nicely (even if Canada extends the life of its boats it could still work), and a collaborative approach would make good sense, giving both sides some economy of scale. The response is usually an uncomfortable silence—the inference I draw being that Canada isn’t planning another generation of submarines.

But in the F-35 case it’s far from clear what options Canada has. It could go the New Zealand path of 0% fast jet force, confident that its border with the US would let it avoid being ‘100% there for the taking‘, but that would abrogate its responsibility for northern air defence and weaken it substantially as a NATO contributor. So eventually it’s going to have to replace its 1980s vintage Hornets with something. The problem is that the something won’t cost that much less than the F-35, will offer less capability and—perhaps worst of all from a Canadian point of view—might require earlier expenditure.

The most likely alternative for Canada is the Super Hornet. European options would require new supply chains and integration of new weapons into the inventory. As Australia found, the transition from Hornet to Super Hornet is easy, with training and logistics being similar enough to significantly reduce overheads. Canada’s also attracted to the Super Hornet because of its twin engines. There was a school of thought in Australia that we need two engines to operate safely over water; the Canadian equivalent is the vast northern expanses. The argument fails to appreciate the reliability of modern American jet engines (it might make sense if you had to use Chinese engines) but it still seems to have some currency up north.

But the Super Hornet production line mightn’t be open much longer, and Canada would have to buy new aircraft now, as opposed to sometime next decade as it currently plans. It would probably pay more for the aircraft than the USN did when production was in full swing. So in net present value terms, a Super Hornet buy mightn’t be the value proposition it first appears.

The list of pros for the F-35 also includes the preference of the RCAF for the highest tech platform it can get (air forces are like that) and Canadian industry involvement in the program—always politically tough to walk away from. Canada will get some work regardless, but future opportunities for construction and support work would be highly constrained. I wouldn’t mind a small wager that Canada eventually settles on the F-35 after all.

The F-35 Joint Strike Fighter will be the most technically advanced fighter jet in the world—and one of the most expensive. If we want to be sure we’re getting our money’s worth, it’s important to understand the factors that determine jet fighter costs.

The most recent US Air Force budget estimates a flyaway unit cost for the F-35A of US$92.3 million (2014 dollars) by 2018. Assuming that price to be roughly accurate, the F-35 would still be the second most expensive fighter jet anyone has ever produced—after the F-22, which was so expensive that production stopped after just 187 units out of a planned 750.

At present, Australia has committed to purchasing at least 72 of the air force variant of the F-35, with the first four aircraft due to be shipped to Australia in 2018. The A$12.4 billion project amounts to over A$175 million apiece, including spares, facilities and training for RAAF personnel.

Let’s compare that with Australia’s purchase of the F/A-18 Hornet, delivered between 1985 and 1990. The total project cost for 75 aircraft was A$8.62 billion (2014 dollars), or A$115 million each. The greater than 50% unit price increase is consistent with a trend that has seen jet fighter costs increase at an exponential rate over the years since the 1950s (see graph below).

There are a number of factors that contribute to the increasing cost of jet fighters, which interact in non-linear ways. But the cost climb has resulted in two consequential trends. First, the service life of fighter aircraft has steadily increased. For example, by the time Australia receives its first batch of F-35s, the most recent of our F/A-18s will be 28 years old. That compares with the 23 year service life of the Mirages they replaced, which in turn replaced Sabres that served for around 17 years. Second, the number of fighters being procured each year has decreased over time as budgets failed to grow as fast as unit costs.

One major factor in unit cost is the price of labour. Even if the manufacturing processes for jet aircraft were exactly the same today as they were in the 1950s, the labour would cost more per hour of work. Cheap labour in Asia has resulted in a great deal of manufacturing work moving to the region in recent years, but most of the aerospace industry remains concentrated in countries with higher labour costs. It’s unlikely that the US would ever outsource F-35 manufacturing to China, for obvious political reasons.

Material costs are also a factor, and not just for raw inputs. Titanium is a useful example: it’s lighter than steel but stronger than aluminium, and has other properties that make it useful in airframes. It’s already relatively expensive, but the same properties that make it useful can make it a more complicated material to work with. Synthetic and composite materials are also growing in use. Each has its own properties and manufacturing processes. A linear relationship between cost and material is nearly impossible to establish, because each added step in production requires additional engineering and labour that may or may not be affected by the specific material used.

Politics can play a role in increasing costs, too. In a rational market, manufacturing would be distributed to maximise efficiency. However, large military acquisitions can be good for domestic employment. The effect of production on jobs can be more newsworthy than efficiency. A RAND study into the costs to the UK MoD for domestic assembly of the F-35 showed a premium of up to 40%. The UK decided against this option, but Italy and Japan have committed to costly domestic assembly of the F-35. Australia’s decision to assemble the F/A-18 Hornet domestically resulted in a 17% premium.

Fifth-generation jet fighters like the F-35 and F-22 have incredibly complex avionics integrated into their systems. In addition to radar and sensor packages, the F-35 includes fly-by-wire, electronic warfare and high speed data-link technologies. These require additional computing power to manage and software to operate. The F-35 software supposedly comprises some 20-25 million lines of code—over 10 times more than the F-22—and roughly half the length of Windows XP. Software contributes zero additional weight to an aircraft, and yet the labour costs for the F-35 software are likely to be substantial.

Here I invoke the words of the immortal Norman Augustine: ‘The last 10 percent of performance generates one third of the cost and two thirds of the problems.’ In the F-35, it’s likely that we’re paying a huge premium for the capability edge we’re hoping for. It’s not clear how good a return on investment we can expect. The F-35 is so expensive, it’ll have to last until 2045 to be anywhere near as cost efficient as previous platforms. And there’s a big gamble in assuming that the strategic landscape of 2045 will even remotely resemble that of today.

Sources: US DoD Budget Requests, US Secretary of Defense Annual Reports, USAF Historical Support Division Annual Stat Digest, Knaack, MS 1978. Encyclopedia of US Air Force Aircraft and Missile Systems. Volume 1. Post-World War II Fighters 1945-1973 OFFICE OF AIR FORCE HISTORY WASHINGTONDC

While the Australian Government has already made its decision to go ahead with procuring a total of 72 F-35 Joint Strike Fighters, there’s still cause to watch the progress of the development program. Australia will most likely take delivery of the bulk of its aircraft about five years from now, which given the lead times for major components, means we’ll start paying for them around 2017 or so. But at the moment we don’t know what the final bill will be, so ASPI will continue to monitor the F-35 cost data.

I’ve reported on F-35 costs and schedules a few times before on The Strategist—most recently after the release of this year’s USAF budget papers. That contained some good news, pointing towards stability in program costs over the past few years. But the USAF is far from being a dispassionate observer of the F-35 program, as it’s in desperate need of new aircraft to recapitalise its tactical fleet. So it’s worth looking at the data provided by the Government Accountability Office (GAO) as well. Read more

Defence watchers have been surprised by recent suggestions emerging from the Abbott Government that Australia could consider acquiring the Lockheed-Martin F-35B Joint Strike Fighter to complement the 72 F-35A JSFs already ordered. What might initially have been attributed to Prime Minister Tony Abbott being a bit vague in his message about the type of aircraft being considered, has now been clarified by the Defence Minister David Johnston, reinforcing that the F-35B is under consideration, and in fact that the writing team for the 2015 Defence White Paper has been ‘instructed’ to examine the possibility of acquiring such aircraft.

The assumption in considering the short-take-off and vertical-landing (STOVL) version of the JSF is that they would operate from the Royal Australian Navy’s two Canberra class LHD vessels, thus providing Navy with what many would see as a ‘mini-aircraft carrier’ capability for the first time since the disposal of HMAS Melbourne to China in the early 1980s. Read more