Let's talk about the economics of the F-35 review

The F-35 review has been one of the chief summer topics for defence discussion. When first announced by then Minister of National Defence Bill Blair in March, many of us were a bit caught off guard. While it certainly had been a hot topic during the election, pushed by President Trump's hostile rhetoric towards Canada, there was little indication beforehand that such a choice on the F-35 had been made.

While concerns about being cut off and on potential 'Kill Switches' were chattered about in media, there was little to believe that the plans had been discussed in the background. The RCAF still kept up the posture, as has most of CAF, that the security relationship between Canada and the United States remained unchanged.

Tension certainly existed, and we discussed the need to diversify. That didn’t reflect upon the day-to-day relationship, at least as everyone had previously presented. That’s where I think some previous commentary had gotten confused about the review. This was never a security discussion.

The review was never presented as a security issue, though, instead focusing on the economic. This review was merely looking at the economic value of the F-35 and whether alternatives provided enough economic benefit to justify ordering it over the F-35. All of which was tied to the Carney government's desire to expand Canada’s defence industrial base, in turn an effort to support the economy at a time of tariff and relations insecurity with our closest partner.

And to everyone's credit, at least going around the circles, the common theme was that this was primarily economically driven. That isn’t just some clever excuse. There was an active belief that there might be a better package out there. That isn’t to excuse the security, nor relationship factors that such a shift could provide, but to those who constantly ask about it: yes. This isn't just because of Trump. It's been a question circled around since before him in some Liberal factions.

We are slowly approaching the end of said review, and soon we will know its results. That is coming sooner rather than later, and it occurred to me that I had never given this topic its own dedicated post. Certainly, I didn’t want to speculate on results. My opinion stands that I expect things to more or less remain the same in the end.

However, this is an important discussion. One that deserves some attention before the results are out. I won't be spending time contemplating what people are offering and what has been discussed. I don't know it. The most I can say will be presented here, and it isn't much. So those looking for an inside track will sadly have to forgive me. This is one that I just don't know the background on, save for some crumbs.

However, that doesn't prevent us from looking at a few key parts of the review, the economic side of things, and speculating a bit on what has taken place.

The Review itself

As said before, the review, to me at least, came out of nowhere. Announced almost immediately after the election had been called, or more so leaked by Bill Blair, the review seemed to have come from the inner circle of the Prime Minister. This isn't terribly shocking. It’s quite frequent that these things happen, and such large projects are oftentimes reviewed multiple times in their lifespan.

The primary reasoning for this review has always been under the guise of finding the best deal, the one that provided Canada the most benefit while still being cost-effective for our national defence. That is the primary factor. It is the one question that the review is asking. Certainly, if the concern was to diversify away from an American jet, then we wouldn't be giving both Lockheed and Boeing our time here.

One can argue that it’s in the name of fairness. Certainly. One can argue it's to avoid further straining our relationship with the United States. I have not seen that, at least in the limited interactions I've had with those in government. If you want to understand the crux of the thinking, you need to dive deeper into the current government's philosophy regarding the defence industry.

To the federal government, National Defence is an easy avenue to both win favour on the diplomatic stage and try to support an unstable economy hit by tariffs and uncertainty. It helps greatly that key industries targeted by tariffs like steel, aluminum, and automotive all tie closely into the defence industry.

There is little the defence industry doesn’t touch, from critical minerals and processed materials to things like electronics and emerging technologies like AI. The defence industry is encompassing, and to the federal government, that makes it a versatile tool to support others.

And with NATO pushing for billions of dollars in more spending, there is certainly a desire to find ways to use that money to support the struggling economy in whatever way it can. We collectively won on the 1.5% carve-out for defence and security-related investments, funds that will certainly go to the government's list of big projects that they're developing.

It’s so open-ended that you could justify just about whatever you wish, so long as you can make the proper argument. That's one side of the government's interest, to help prop up others that are struggling or to quickly inject funds into 'nation-building' projects. It isn't the only one though.

On the flip side, there is another desire to help develop certain high-end industries by leveraging National Defence as a tool. That is where the F-35 review comes in. It isn’t so much about what is and isn’t capable but the federal government's belief that someone else will come in and help develop Canada's higher-end industries like aerospace through leveraging domestic production.

Of course, that isn’t a shock. It’s been openly touted by the federal government that they expect the Canadian aerospace industry to play a role in not only bolstering our defence but creating new jobs and opportunities in the Canadian economy. That, of course, goes both ways.

Industry needs orders. Industry needs financing, and what better way to do that than by awarding them contracts to equip the Canadian Armed Forces. A tale as old as time. Go and pick any decade and you will find numerous such examples from the Griffons to the LSVW. It's a common mentality that we have always had.

To those in government, National Defence is an economic engine. It is an easy way to help prop up industries and give some funding to struggling areas in an attempt to bolster the local economy. That is now especially a concern given the current climate and how well our National Defence needs tie into the industries hit hardest by the Trumpian chaos of the last six months.

There are security factors, those who worry or believe that the F-35 is financially irresponsible. There are also those who might see this sort of deal as an avenue to dangle a bone to European partners in hopes of securing a better deal with them down the road on other things. It certainly is a factor in other places, where I've seen people discussing using CPSP as a bargaining tool to allies to get them to invest more into the Canadian economy.

I haven't seen that much here, but I am confident it is a mentality that some in the upper levels of government have at least discussed. All of these factors come together to at the least push the federal government to evaluate the feasibility of acquiring another fighter jet in lieu of the full 88-order of the F-35.

The review has involved a wide range of consultations with allies, CAF, industry and officials who had worked on the Future Fighter Capability Project. Every manufacturer, save for KAI who had previously denied being contacted, has been in discussions as part of the review.

That includes European companies like Saab, Dassault and Eurofighter, but also Lockheed, who has apparently thrown out some package to the federal government already, and previously outcast Boeing. There have also been at least some discussions with allies about their own future plans with the Sixth-Generation that have come up.

So all the bases are being covered, and the review is being taken very seriously. The time being taken isn’t just to drag things out. This is a fairly top-to-bottom review of everything regarding the F-35, including the effects of cancelling further orders.

Beating the F-35 economically over the long term will be a challenge.

I have not been one to promote the theory that cancelling the F-35 will lead to massive American retaliation. While the current administration is unpredictable and odds are never zero, I haven’t bought into the hype that cancelling the F-35 will lead to the Americans, say, withholding the Spy-7 radars from the River-class.

That isn't to say they couldn't react negatively. You are dealing with a group of people not known for rational thoughts. In fact, quite the opposite. So the odds will never be zero, even if I think they are minimal for the most part.

It is enough that some, such as Éric Martel, CEO of Bombardier, have raised concerns that canceling the F-35 could lead to the United States retaliating against companies like them in a tit-for-tat move.

That, though, is another area of discussion. At this second, I want to dive into the economic side of things. This is, after all, the primary area of concern for the federal government, and so it must be ours as well. We can't dictate what the ones in authority rank as their priorities, sadly. So whenever we discuss these things, we need to look at it from their perspective.

As of now, over 100 Canadian companies have participated in the F-35 program. This includes over \$2.5 billion USD in contracts already. Every F-35, according to Lockheed, comes out with around 2.5 million dollars in Canadian-made parts. An estimated 5,000+ jobs are supported by the F-35.

Over its lifetime, the F-35 is expected to contribute at least \$17 billion to the Canadian economy. Of course, discussing the future is difficult. We are not guaranteed contracts in the global F-35 supply chain. We do have to compete for them, and as such, that can make it difficult for someone like me to predict where things will go.

These numbers are good for a general snapshot. They provide something to go off of. That isn't the same as potential, though. That is a much more ill-defined and difficult area to provide concrete facts on. However, we shouldn't just ignore it.

That is where the F-35 has the biggest economic advantage. It has a wide user base of over 20 countries and growing. Over 3,000 F-35s are expected to be produced over the jet’s production life, and the jets themselves are expected to be in service globally until the 2080s. Needless to say, there is a lot of F-35, a lot of room for cooperation, and a lot of avenues to increase Canadian market share in the supply chain.

No other jet can compete with that potential, at least on the surface. We're talking about a jet in service with a large chunk of NATO and regional allies—a jet that will almost certainly receive new orders over the medium term. Concerns about the U.S. cancelling the remaining F-35s are currently unfounded and unlikely to happen. So far, no other country has cancelled their own F-35 orders. That global fleet is still going strong.

Even if, hypothetically, we could build a jet here in its entirety—100% Canadian—there are still concerns about orders joining up over the medium term, potentially with little space for that built-up industry to transition to new production or to match the economic benefits compared to the vast quantity of F-35s.

In other words, there is the potential for a boom and bust to happen here, one that carries large risk. There is a future where we are propping up a domestic jet industry that we are unable to properly support with new orders, either from us or others abroad. That is especially a concern as someone who believes that the public mentality of defence spending won't last, and that we could be staring at a future where a government might decide that subsidizing that, let alone investing more into that domestic jet industry, isn't worth it.

Like, let's look at Rafale as one example. How big will demand be in the future? Say a decade or two from now? When it comes down to supplying parts for a limited number of customers in the Middle East and Europe, all for a global fleet of \~600 airframes, where will Canada rank in importance? Does it match the potential that a 3,000+ F-35 fleet offers? Even a 2,000+ fleet?

Obviously, those questions are difficult to answer. Potential always is. You're playing a large guessing game of future-thinking and hypothesizing. No matter what, we will be getting 16 F-35s—very likely more in any scenario where we did decide to cut F-35 numbers. So perhaps there is a happy future where we can fully benefit from the F-35 program and another fighter.

That is still a large risk. One that the review needs to acknowledge. That uncertainty goes both ways here in the risk of the current administration messing with our ability to use our F-35 fleet as we desire, and in them retaliating to any cancellation, even if it isn't as much as stopping at 16.

No one likes uncertainty like that. You can’t predict the actions of the irrational, especially ones who take it to a near-sociopathic level of operating. It's one of the reasons why I find a lot of the debate too caught up. It almost all focuses on the actions of the Trump administration to whatever choice we make, and what they might do when, inherently, that same administration has proven to be nonsensical, deceitful, and uncommitted to almost every choice they've made.

But Noah, what about the Sixth-Generation programs?

Take note of how I've avoided them, and for good reason. There is a very good chance that, if we are looking at this from an economic side of things, the ship for programs like FCAS and GCAP might have passed us by already.

GCAP already has its partnership firmly stated and defined. They have a tight 2035 timeline, and the Japanese have spoken repeatedly against adding new partners that might delay that date for introduction. While I am certain we could buy some if desired, it would be likely difficult—if not impossible—to extract the full economic potential of the program with how it is currently set up, unless someone else is willing to sacrifice.

FCAS is currently a mess of disputes between the various partner companies involved, and while at one point I was supportive of investigating FCAS as a possibility, I am less certain now among the chaos unfolding in the program. We don't need to be dragged down by yet another Europrogram going up in flames over workshare disputes and government feuds.

Without those two, you are either looking at the F-47, to which I'm sure many will point out presents most of the same political issues as the F-35, or taking your chances with the Koreans, which itself carries a huge risk as we are still to see how well the KF-21 development goes to plan.

Needless to say, this is one area where we might have missed our chance. Perhaps things will stabilize or new opportunities will open up, but those are far from guaranteed. If we are looking at cutting orders now based on that hope? I would have many questions.

However, any offer will likely come with more than just jets in mind.

In this discussion so far, and most others I've seen online, a lot of the economic debate comes from the jets themselves—comparing their cost, the economic benefit, the potential within a vacuum of the fighter jets themselves. While it’s understandable—this is a jet review, after all—it’s highly likely that any sort of 'package' will come with benefits beyond them.

It's not about how much value the jet itself provides but what each company can offer economically. While companies like Saab and Dassault might not be able to compete jet-to-jet, they can supplement that in other ways that provide benefits to Canada.

That was something that Saab leveraged heavily in their bid for FFCP. While Saab did offer to build jets in Canada, they also threw in a number of other goodies into their bid to hit the 100% offsets mark. That included multiple research and development facilities in Montreal, Vancouver, and Toronto. They also offered Canada full access to the Gripen IP to be used domestically.

It’s often ignored that companies can and will leverage additional benefits beyond their fighters to sweeten the deal here. It is likely that Lockheed will do this to try and encourage the Canadian government to stick with the full 88-order.

One possible avenue is to tie such a package with FLIT, where Lockheed is working with KAI to offer the TF-50. Lockheed, for example, can try to tie in the TF-50 into a wider economic package that would see increased domestic production done on the trainers here as a way to supplement what they can offer with the F-35.

So, at an extreme extent, they could partner with someone here to offer to build them locally, or at least offer significant domestic manufacturing. I don't think they would build them locally here, mind you, but it is a hypothetical option they could explore offering—one that is far easier to offer than a full jet, even if it does run into similar issues.

Lockheed has that advantage of already being very well established with significant Canadian operations they can leverage as part of said broader package. That isn't to stop others, though, like a Saab or Boeing from doing similar with something like the T-7 Red Hawk. (I dismiss the French here because I'll believe that when they show me it.)

This is probably the only real way that others could compete economically with the F-35, and that’s great if this review spurs companies to make these kinds of packages. In fact, for everyone but Lockheed, you almost have to offer more beyond the jet to match.

Of course, Lockheed still has the advantage of just being so much more involved in our defence ecosystem than others. It's an uphill fight there for everyone else, but not an impossibility that someone else could craft a package that makes the government pull the trigger.

But Noah, what about combat capability? Or CAF? Or Financials?

I purposefully avoided those topics for a few reasons. For one, the RCAF does not want this. They want the F-35. Everyone I've spoken to wants the F-35. It is the best fighter jet available on the market. That is a universally accepted fact among RCAF and CAF leadership.

Certainly, combat capabilities play a role in any review being done. That is part of the cost-benefit analysis. No one I've met has denied that the F-35 is superior to the fourth-generation competition. It's a matter of if that capability is worth the cost and potential loss of economic benefit—at least to the government's eyes.

And that’s the key thing to remember. At the end of the day, this choice is not up to CAF. While they certainly have a major stake in things, and their opinion is valued extremely, they won’t have the final decision on this matter, nor will they have control on what the review says.

If the federal government decides that the economic benefit of a new platform is worth the loss of capability and the risk of losing out on future F-35 contracts, then there is little the RCAF can do to prevent that choice from being made.

And if you read the rumors page of the newsletter, you will remember that some allegedly do lean this way. Some have always leaned this way since the beginning and have been quite open about it, like current Secretary of State for Defence Production Stephen Fuhr, who famously was against the F-35, though I don't know what his current opinions are on the subject.

And with what is seen as an ever-increasing cost, which I discussed during the Auditor General report, I am sure there are some that are debating whether the economic potential outweighs the cost the F-35 is imposing.

What I'm trying to point out here is that this isn't a CAF decision, and despite me believing that nothing will change, that doesn’t mean it’s set in stone. There are people, with concrete reasons, who believe the F-35 isn't the best choice. This isn't as cut and dry as some think.

Most of all, the final decision rests chiefly in Cabinet. This isn't a capability question, as I've said probably a dozen times now, primarily because it keeps coming up. This is an economic question, with the only ones able to give the final answer being outside CAF.

The review will be here soon, very soon. It will likely be nothing, at least in my heart I believe so, but that isn't guaranteed, and we should be prepared for it to say just about anything. We don't know what companies are promising. We don't know what has been discussed in private. Right now, we're collectively in the dark.

I've made my opinions known many times. If there must be a dual fleet, then I want a Sixth-Gen of some sort. That's my armchair, personal desire. I don't think that will happen, though. I would be shocked by now if it did.

There are many factors that will go into the final results of this. Economic, financial, political, in terms of sovereignty, the complexity of running a two-fighter fleet. I could probably double the length talking about the political side of things alone, but others have done it better than me, so I stick to the economic side.

Admittedly, I don't think this is my best work, but given how close we are to the review’s release, I wanted to get something out. I am sure someone will come along to tell me all the things I missed! Until the review is released, though, I am content with this as it is.