The annual statement from United Technologies Corp. (NYSE:UXT), the aircraft maker's parent company, paints a sobering picture of the CH-148 Cyclone program — and provides more details about a nasty and ongoing backroom dispute with the Conservative government over delivery dates and the chopper's final configuration.
The report, filed last week with the New York Stock Exchange, noted protracted negotiations are taking place with the Department of Public Works to "resolve open disputes," including the delivery of interim helicopters.
"If these efforts are unsuccessful and the Canadian government requires the delivery of only final configuration aircraft under current contractual requirements, no deliveries are expected to occur until 2015 at the earliest," says the report, obtained by The Canadian Press.
The contract dispute and development issues with the program have put the Cyclones in a precarious position and "provide substantial uncertainty and risk in regards to the future profitability of the overall program," the report continues.
News of the troubled program comes as Public Works Minister Rona Ambrose is set to receive a report Tuesday with suggestions on how to fix the broken military procurement system.
Answering opposition questions on Monday, Ambrose talked tough.
"Our government expects Sikorsky's obligations under this contract to be met," she told the House of Commons.
"To date, they have not been met. In fact, they have missed every deadline and every timeline. To that end we have already applied millions of dollars in liquidated damages, and we are going to be applying significant additional charges that have begun to accure against this company."
Paul Martin's Liberal government signed a contract with Sikorsky in 2004 to replace the air force's fleet of CH-124 Sea Kings, which this year celebrate 50 years of service flying off the decks of warships.
Paul Jackson, a spokesman for Sikorsky, said the company and the government both want a solution.
"While no aircraft were delivered to Canada last year, there are currently four aircraft at CFB Shearwater, N.S., and the remaining 24 Cyclones on order are in production, assembly or flight testing," Jackson said in an email.
"Sikorsky and the Government of Canada are in discussions to try to reach an agreement that will provide the remaining aircraft to the Canadian Forces as quickly as possible."
The Cyclone program, which originally anticipated the first helicopter being delivered in 2008, was meant to catch up to the 1993 procurement of EH-101 helicopters, ordered by the Mulroney government, but cancelled in 1993 by former prime minister Jean Chretien.
At the time the Liberals committed to the Cyclones, the helicopter was still in the development stage, being upgraded to military specifications from the less rugged civilian variant.
It's an aspect the auditor general harshy criticized in 2010.
The conversion challenges — coupled with changes imposed by the Canadian air force — prompted a thorough redesign of the aircraft. It led Sikorsky to miss several delivery deadlines, including one last year to provide five "interim" helicopters, which would have been used for flight test and training purposes.
United Technologies' year-end statement estimated Sikorsky could lose as much as $14 million for every CH-148 it churns off the assembly line, under the current arrangement. Those losses could mount with the in-service support contract, which charges for maintenance based upon the number of hours the aircraft is flown.
As part of budget reductions, the head of the air force recently said in an interview that he plans to use flight simulators more often in the coming year for training — something that would bite into the value of Sikorsky's support contract.
"With respect to the multi-year (in-service support) contract, the future profitability is dependent upon a number of factors including aircraft flight hours, deployed aircraft availability, aircraft performance, availability of trained pilots and government budgetary pressures," the report said.
Anticipating the hit, Sikorsky booked a US $157-million loss in the fourth quarter of 2012 because the value of the service contract "no longer exceeded the estimated remaining losses on the acquisition contract."
The report comes as an Ottawa-based think-tank urges the Harper government to get tough with the U.S. defence giant, and even look at alternative aircraft, the way its doing with the equally contentious F-35 program.
Michael Byers, a military and political expert at the University of British Columbia, said it's unacceptable that pilots are still flying the old Sea Kings.
"The government of Canada signed a contract for an aircraft that was still in the design phase that had never been built," Byers told a Parliament Hill news conference Monday.
"The Cyclone does not exist in fully operational form. It never has. It may never exist."
No other country has bought or is flying the aircraft and it's time to say "enough is enough," Byers added.Suggest a correction