Potential for diminished F-35 benefits to industry a time bomb for Conservatives

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In this photo taken on April 23, 2009 and released by U.S. Air Force, an F-35 Lightning II flies overhead for the first time at Eglin Air Force Base, FL. (AP Photo/U.S. Air Force, Senior Airman Julianne Showalter)

OTTAWA - Amid the avalanche of figures, statistics, estimates and soothing political assurances coming this week on the Conservative government's troubled stealth fighter program, one report will warn about the lagging benefit for Canada's aerospace sector.

And it could prove more damaging in the long run than the bruising debate about the eye-popping cost of the multi-role fighter, say some experts.

"What we're talking about here is pork," said Winslow Wheeler, a U.S. aviation expert and long-standing critic of the F-35.

"The government has been promising the world, but that's going to be very different than what's in hand."

When the Harper government announced its intention to buy the Lockheed Martin-built F-35 Lightning II in 2010, government ministers trumpeted the benefits to Canadian aerospace companies.

The air force's research, largely based on information from the U.S. manufacturer, suggested Canadian industry would be in line for as much as US $12 billion in manufacturing or spare parts contracts over the lifetime of the project.

Industry Canada quietly lowered those expectations last spring, to US $9.85 billion, following a blistering report from the auditor general on how the program has been managed.

Government sources say a benefits analysis coming this week as part of a Public Works agency report to Parliament suggests Canadian companies will struggle to reach the US $9 billion mark, thanks to stiff competition from other nations whose participation in the F-35's development has given them preferential access to the U.S. manufacturer's supply chain.

The F-35 project is unlike traditional military procurements, in which the winning contractor is required to spend the equivalent of the contract value in Canada, either directly through subsidiaries, or by placing work elsewhere in the economy.

The system established for the F-35 sees countries that participated in the development given the chance to bid on supply and sustainment contracts without any guarantee, thereby bypassing the regular system.

To date, 70 Canadian companies have secured more than US $435 million in contracts on the development and initial production of the fighter.

But retired air force colonel Paul Maillet, who worked on the acquisition of the current CF-18 fleet, said reaping only $9 billion from the expenditure of more than $40 billion in public funds could come back to haunt the government.

"The way they structured the industrial benefits package, it wasn't to our benefit," Maillet said. "I think in the long run we wouldn't realize what we think we would, or what Mr. Harper thinks we would."

The ongoing financial crisis in the U.S. also has industrial implications the government likely hasn't considered, he added.

"I think most of this stuff is going back to the United States. They're going to reap the big benefit on this one."

After days of leaks and simmering speculation, both opposition parties opened up with both barrels on the Conservatives during question period Monday, dredging up a laundry list of quotes from Prime Minister Stephen Harper and Defence Minister Peter MacKay about the economic advantages of the deal.

"This is the largest procurement contract for the air force since the Second World War," said NDP Leader Tom Mulcair.

"Contrary to every other major military contract, where we obtained guarantees for regional economic and industrial benefits, there are none here. Zero dollars. Zero cents. They can talk all they want about no money spent on acquisition, the reality is this has been a fiasco and a debacle from Day 1."

Mulcair, who hails from Montreal, demanded the government call for open bids to replace the current fighters, which are entering their fourth decade of service.

Harper was quick to correct Mulcair.

"Canada has been involved in the development of new fighter aircraft; Canadian companies, actually based in his city, actually have hundreds of millions of dollars in contracts for that work," Harper said during a heated exchange in the House of Commons.

"This government has no intention of ripping up those contracts. If he does, he can go explain that to the workers of Montreal."

The Aerospace Industries Association of Canada said it was reluctant to comment until the industrial analysis is released.

The latest political meltdown over the F-35 comes at time of general uncertainty in the once-vibrant aerospace sector.

A review of the country’s aerospace industry recently called for drastic improvements and suggested that Toronto become the hub of a re-developed sector.