12/12/2012 03:29 EST | Updated 02/11/2013 05:12 EST

Tories Hit Reset Button On F-35 As Report Finds Program's Cost Will Be $45.8 Billion

OTTAWA - The Harper government insisted it's committed to looking at all the options to replace the country's CF-18s, but a detailed analysis of the cascading multi-billion-dollar cost of the F-35 could very well be the death knell for the stealth fighter program.

Defence Minister Peter MacKay took pains to emphasize the government's commitment to spending no more than $9 billion on the purchase of new multi-role jets.

But the accounting firm KPMG noted that National Defence has not built in enough contingency funds to account for the wild swings in sticker price of the radar-evading plane.

The skimpy financial cushion puts the government on a collision course with the air force, which has used a series of reports to underlined the fact that it needs 65 fighters to fulfil everything the government expects of it.

Under the current cost equation, National Defence estimates will spend $8.3 billion to buy the jets and has $660 million in reserve, but KPMG says uncertainties in the program mean the contingency should be more like $2.5 billion.

That would be $1.9 billion over the government's cast-in-stone figure.

MacKay and senior government officials insisted they can get the jets they want within the budget envelope.

"The estimate of $9 billion stands," MacKay said. "It's been sound."

The other alternative would be to slash the number of planes and that is the alternative the air force is expecting swallow, according to its annual update written on Nov. 26, 2012.

"DND has advised that their risk mitigation strategy for acquisition costs, to remain within a $9 billion ceiling, is to reduce the number of aircraft acquired," said the KPMG analysis.

"As a result, based on their own calculations of potential contingency required, this could reduce the initial fleet to as low as 55 aircraft, which is below DND's current stated requirement."

Yet, the air force's ability to defend the nation's skies and operate overseas at the same time would be in peril if the Harper government buys fewer stealth fighters than planned, a series of previously-released internal air force documents have said.

Paul Maillet, a retired air force colonel who worked on the CF-18 purchase in the 1980s, said the KPMG report demonstrates that $9 billion will clearly not suffice if the government wants to buy F-35s and cheaper alternatives will have to be explored.

"We're not a superpower like the U.S. and Britain," said Maillet. "This may be the golden bridge the government was looking for in some ways. How to get out of this? And now they have something that at one level is going to help."

Defence and Public Works officials say competitors to the F-35, including Boeing' Super Hornet and the European-built Eurofighter, will be asked for pricing and other details about what they can offer.

But they emphasized the Lockheed Martin-built F-35 is still in the running and no decision has been made on a procurement strategy. The statement stops just short of taking the country into a full-blown competition, which is what opposition parties and critics have been demanding for two years.

"The next step is a full review of options," Public Works Minister Rona Ambrose told a news conference following the release of the report, which came after a question period

Both MacKay and Ambrose went to lengths to repeat the government's catchphrase that it was "hitting the reset button" on the troubled program.

The KPMG report confirmed leaks last week that "cradle to the grave" price tag would be $45.8 billion over 42 years.

The figures have fluctuated wildly, partly because of the way National Defence, the auditor general and KPMG have crunched their numbers. But with looming defence budget cuts in the U.S., experts have warned the overall price tag could go even higher.

The deputy minister in charge of the Public Works secretariat overseeing the troubled program dismissed the U.S. fiscal cliff warnings, saying it's too soon to speculate what impact it might have.

MacKay said the government would ensure "that balance is maintained between the military needs and taxpayer interests."

"Ultimately, our government will get the best plane for the armed forces, for our pilots and for Canadian taxpayers."

The NDP's opposition critics were unmoved, however, insisting the government was steadfastly refusing to admit the whole process has been fumbled.

"You can't move on, you can't move forward until you've admitted that you've got a problem and that you've made mistakes,"said Matthew Kellway, the party's procurement critic.

"What we've heard today is that the minimum price for this plane is three times higher than anything that this government has publicly disclosed to date. That's tens of billions of dollars higher.

"What we haven't heard today is what we wanted to hear, that there will be an open competition for a replacement for the CF-18."

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