ARCHIVED—Summary Report – The Evaluation of Options for the Replacement of the CF-18 Fighter Fleet

The Seven-Point Plan and the Evaluation of Options

As part of the Government's Seven-Point Plan, the Department of National Defence and the Canadian Armed Forces conducted an evaluation of options to sustain a Canadian Forces fighter capability well into the 21st century. This evaluation assessed fighter aircraft from companies that agreed to participate in the market analysis against the roles and missions outlined in the Canada First Defence Strategy. The outcome was a risk-based assessment of each aircraft's ability to successfully complete Canada First Defence Strategy missions.

This report is being released in accordance with the terms of reference for the evaluation of options. It is intended to provide the unclassified findings of the assessment, respecting applicable non-disclosure agreements with other governments and industry. It provides a high-level description of the key findings with respect to the capabilities of fighter aircraft participating in the evaluation since, to respect commercial sensitivities, aircraft cannot be explicitly identified. A classified report that contains more detailed findings for each fighter aircraft has been provided to Ministers to inform a decision on the path forward.

Roles, Responsibilities and Oversight

The Royal Canadian Air Force (RCAF) was responsible for the overall leadership and coordination of the evaluation of options. It followed a methodology that produced a risk-based assessment of four available fighter aircraft.

An Independent Review Panel was established to oversee the evaluation process, and to participate at key milestones in the work. The mandate of the Panel was to ensure that the work performed was both rigorous and impartial and that the findings were comprehensive and understandable.

The Panel members were:

• Keith Coulter, a former fighter pilot and Deputy Minister
• Philippe Lagassé, Associate Professor researching Canadian national defence at the University of Ottawa
• James Mitchell, founding partner of Sussex Circle, an Ottawa consulting firm, and a former senior federal official; and
• Rod Monette, Fellow Chartered Accountant and former Comptroller General of Canada

The Independent Review Panel met with representatives from the Royal Canadian Air Force and the Department of National Defence on a regular basis over a period of 14 months to assess the methodology used and the analysis performed.

Description of Work

The evaluation of options was implemented through a work plan based on six tasks. Three tasks were carried out under the direction of the Commander of the Royal Canadian Air Force and the remainder by organizations independent of the Royal Canadian Air Force. Task 1 was led by the Chief of Defence Intelligence, Task 2 by the Chief of Force Development and Task 4 by the Director General of Aerospace Equipment and Program Management.

The six tasks were as follows:

Canada First Defence Strategy: A Policy Foundation

The Canada First Defence Strategy, announced in May 2008, articulates the Government's defence policy and direction to the Canadian Armed Forces. It provides a detailed road map for the creation of a first-class, modern military that is well trained, well equipped and ready to take on the challenges of the 21st century. The Strategy also outlines the roles and missions that the Canadian military must fulfil in order to respond effectively to Canada's current and future security challenges. The Strategy therefore represents the policy foundation for the roles and missions expected of a replacement fighter fleet.

Challenges to Canadian Defence and Security

The main challenges facing Canada's defence and security now and in the future cover a wide range of issues - from climate change to failed and failing states, to international terrorism and the proliferation of advanced technology into dangerous hands.

Together, these domestic and international challenges require the Canadian Armed Forces to operate across the entire spectrum of conflict, from humanitarian operations and disaster relief up to combat operations. Flexibility is therefore an important consideration in equipping the Forces. A fighter is one of the capabilities that can be used to fulfil the roles and missions outlined in the Strategy in the current and future security environment.

Future Technological Trends

The threat from foreign military weapons to Canada or its deployed forces will grow in direct correlation with technological improvements made by potential adversaries, both state and non-state. Future aircraft will have the ability to fly further, faster and higher than current aircraft as well as having an increased weapons payload potential and weapons capabilities. Missiles will be more capable of higher speeds and more capable of being launched from land, air and maritime platforms.

Two Time Horizons: 2020-2030 and Beyond 2030

Canada's next fighter is expected to be in operation for at least 40 years. As a result, the evaluation of options analysis included a threat assessment covering two time horizons: 2020 to 2030 and beyond 2030.

Determining Mission Needs: A Systems-Based Approach

The previous section examined the new and enduring challenges facing Canadian defence and security, as well as the military roles and missions needed to meet those challenges. This section examines the overall mission needs that the CF-18 replacement must be able to fulfil in order to meet these challenges.

In order to determine Canada's mission needs in terms of a fighter aircraft, the Canadian Armed Forces employed a methodology known as capability-based planning. This methodology, which is described in the next section, was used to determine the mission needs of the Canadian Armed Forces five to 30 years into the future, to assess the ability of the Armed Forces to meet those needs at the present time, and to forecast the capabilities required to meet them in the future relative to a range of evolving threats.

Canada's Mission Needs

Historical Background

The CF-18, a multi-role high-performance twin-engine combat aircraft also called the CF-18 Hornet, entered into Canadian service in 1982. It replaced three fleets—the CF-5 Freedom Fighter, the CF-101 Voodoo and the CF-104 Starfighter.

For nearly three decades, the fleet of CF-18 aircraft has been the backbone of Canada's air defence forces. It has been a fundamental part of the defence of Canada and its contribution to the defence of North America.

Canada's CF-18 fleet is a tangible example of the Government's commitment to the defence of the continent. Since 1958, Canadian Armed Forces aircraft have participated in the collective aerospace defence of North America through the North American Aerospace Defense (NORAD) Command agreement. As the only Canadian aircraft assigned to that role, CF-18s are on continuous alert to respond to potential aerial threats to the safety of Canadians and the security of Canada and the continent.

Together with the United States Air Force, Canada's CF-18s have been ready, on a daily and hourly basis, to undertake any missions to respond to potential threats to North America. In response to the 9/11 attacks, CF-18s conducted 24/7 airborne combat air patrol over vital Canadian points for a significant amount of time. Under NORAD, the Canadian fighter force conducts approximately 200 missions against potential threats each year. CF-18s have been deployed numerous times in response to activities by unwanted or unidentified aircraft approaching Canada's far north.

As Canada's primary air combat capability, the fleet has been a valuable component of Canadian support to international missions, an integral part of Canadian Armed Forces operations around the world.

In the early 1990s, the fleet participated in operations Desert Shield and Desert Storm in the Middle East, flying over 5,700 hours in approximately 2,700 sorties. The CF-18s were deployed twice in response to ongoing violence in the former Yugoslavia between 1997 and 2000. The fleet conducted air patrols in support of NATO peacekeepers in Bosnia-Herzegovina and participated in the 1999 air campaign over Kosovo. The CF-18s conducted 10% of the NATO missions during this campaign. They did so despite being a much smaller percentage of the total force.

Most recently, CF-18s were deployed in 2011 to southern Italy to participate in Operation Mobile/Operation Unified Protector, a multinational response to the crisis in Libya. The CF-18 was the only Canadian Armed Forces asset able to help enforce the no-fly zone over Libya to protect civilians.

Canada's CF-18 Fleet Extension Requirements

Estimated life expectancy identifies the latest date on which a fleet is expected to be able to continue flying. During a pre-defined period prior to that date, the fleet will be progressively reduced in numbers as individual aircraft are retired to a point (estimated life expectancy) where fleet operations cease. This is often called a ramp-down or transition window, and is the period when the retiring fleet is progressively replaced by a new one and during which time every effort must be made to sustain as much fighter capability as possible. A fleet's estimated life expectancy plan defines a transition window by taking into account replacement aircraft, spares, and support equipment delivery schedules as well as the fleet's personnel training capacity.

Unless otherwise specified, estimated life expectancy is based on the calendar year. An estimated life expectancy of 2003 assumes that the operations of the fleet will cease no later than December 31, 2003. Similarly, an estimated life expectancy of 2020 would mean that operations cease on December 31, 2020.

The original estimated life expectancy of the CF-18 was 2003. When the manufacturer initially set the estimated life expectancy of the CF-18 fleet at 2003, this estimate represented a service life of 20 years or a structural fatigue safe life of 6,000 hours. These calculations were based on anticipated usage by the original users, the United States Navy and the United States Marine Corps.

Proactive fatigue management and structural repair programs have extended the estimated life expectancy of the CF-18 to 2020. Similarly, a comprehensive program to modernize the avionics—the aircraft's electronic systems and devices—and its components has ensured that the aircraft will retain the ability to survive expected enemy threats. These steps enabled the aircraft to remain operationally relevant throughout this extended lifetime.

There are four important aspects to the estimated life expectancy of an aircraft. The first is that, as the term suggests, estimated life expectancy is an estimate. An individual aircraft may last a shorter or longer period of time than indicated by an initial or a subsequent estimate.

The second point is that an estimated life expectancy is calculated on the basis of a number of management assumptions. There are options that the Commander of the Royal Canadian Air Force, can initiate, mandate and/or leverage that can have an impact on the longevity of the aircraft. Reducing yearly flying rates, addressed later in this section, and increasingly using simulations, instead of actual aircraft, for training are two examples of this use of managerial flexibility.

Thirdly, estimated life expectancy is similar to the business concept of "useful life". Useful life is more than the physical or even the economic life of an asset. It refers to the period of time that an asset is expected to be usable for the purpose for which it was acquired. A fighter fleet that is physically in mint condition but can no longer fulfill its operational roles and missions has, for all practical purposes, come to the end of its useful life.

The fourth point is that the CF-18 aircraft's remaining safe life is measured by what is called its Fatigue Life Expenditure Index. Like a fleet of motor vehicles, an aircraft fleet's expected usefulness is impacted by the severity of usage as well as the duration. With more severe usage, structural elements of the aircraft wear out faster or "fatigue".

A series of actions, starting only a few years after Canada's CF-18 went into service, led to the extension of the CF-18 Hornet's estimated life expectancy to 2020. That new estimated life expectancy represented a service life of 38 years, almost twice the initial estimate.

That significant extension of the estimated life expectancy can be explained by the following five factors:

• Comprehensive management: In 1988, early in the life of the CF-18 fleet, there were concerns that certain structural problems would lead to limitations in the airworthiness of the aircraft. These concerns led to the implementation of a structural Fatigue Life Management Program
• Testing and re-certification: The Royal Canadian Air Force and the Royal Australian Air Force undertook a full-scale structural fatigue test on a CF-18 aircraft. This test was based on Canadian and Australian flying and maintenance practices and circumstances. This new collaborative effort, known as the International Follow-on Structural Test Program (IFOSTP), was completed in 2006. IFOSTP re-certified the design life of the CF-18 to measure the fatigue life of the platform, and in this way replaced the use of flight hours as a measure of fatigue life. This new monitoring method extended the allowable and safe useful life of the platform
• Life Extension Program: Data generated by IFOSTP formed the basis for the development of the CF-18 Hornet's Life Extension Program (LEP). The LEP was a structural refurbishment effort conducted in three stages. Refurbishments included the replacement of a key section of the centre fuselage of the aircraft (centre barrel replacement) where the wing attachment points are located since this area is prone to cracking in its original configuration. The third stage is currently being conducted on selected CF-18 aircraft
• Changes in the way the aircraft are flown: In 1997, the CF-18 was certified to use precision-guided munitions, which are typically employed from higher altitudes. As a result, low-level flying and low-level flight training were no longer considered necessary. That type of flying, historically done by Canadian ground-attack fighter aircraft, demanded intense manoeuvring, frequently in turbulent conditions, which increased the strain on aircraft loaded with weapons. Not surprisingly, the cessation of low-level flying reduced the fatigue usage on the aircraft, thereby saving structural life of the fleet; and
• Changed management assumptions: The 2004 estimated life expectancy report, which extended the CF-18 estimated life expectancy to 2020, was based on known facts, some of which have been outlined above. However, the extension was also based on variations to a number of key assumptions. These included a lower projected yearly flying rate, which is the total number of hours flown each year by the aircraft in a fleet. This measurement is important in relation to overall cost, but also in terms of overall usage and total fatigue consumption. Other variations to the 2004 assumptions are related to fatigue rates, structural modification requirements, continued US Navy support, the cost-benefit implications of proceeding with an extensive avionics modification effort, and the timelines associated with the projected introduction of a replacement fleet

Options for Extending Estimated Life Expectancy

The evaluation of options process required a consideration of whether the CF-18 estimated life expectancy, having already been extended to 2020, could and should be extended even further. The analysis included an assessment of the capability of the fleet to contribute to operations for time frames beyond 2020. It also included calculations of the cost of upgrades that would be needed to maintain safe and efficient operations beyond 2020.

Two options for further extension in the fleet's estimated life expectancy were considered as part of this analysis.

Key Considerations and Sensitivity Analysis

Any estimated life expectancy extension is based on three variables: technical feasibility; operational relevance; and cost-effectiveness.

Estimated Life Expectancy Incremental Cost Considerations

Aging considerations were also factored into the estimated life expectancy extension assessment. Experience has shown that, as is the case with an automobile, aging aircraft fleets become increasingly expensive to maintain. The maintenance burden of the aircraft is likely to increase, and the reliability of their key systems and components to decrease, as the aircraft age. This aging process increases the demand for spare parts, and so drives up sustainment costs. Moreover, serviceability rates generally decline, unless there is an increase in maintenance personnel and funding resources.

Flying the CF-18 past the current estimated life expectancy of 2020 will impose additional costs on the Department. Total rough order of magnitude incremental costs (costs over and above planned investments to continue operating the CF-18 fleet until 2020) associated with an estimated life expectancy extension decision amount to approximately $400 million for an estimated life expectancy of 2025. Rough order of magnitude incremental costs for an estimated life expectancy of 2030 are just over $1.5 billion and are primarily due to the requirement for a new structural life extension program needed to enable the CF-18 to be flown beyond its current safe life.

Some cost avoidance could be realized for structural upgrade costs by decreasing the yearly flying rate. However these savings are dependent on the number of hours flown and the actual fatigue life consumed. The only costs that are potentially avoidable are some avionics upgrade costs and associated development costs. Even in these cases, however, there would be some limited impact on operational capabilities if these upgrades were not pursued.

Operational Impact of Estimated Life Expectancy Extension

The steps in the transition to a new fleet will not all occur at the same time. The old fleet will gradually be drawn down as new aircraft are received. This is currently planned to occur over a period of five years. As a result, by the end of the estimated life expectancy period, all CF-18s will have been retired from service.

During the five-year transition period, the CF-18 will experience a gradually decreasing level of operational availability until the transition to the new fleet is well underway and the new fleet has achieved an adequate measure of operational capability. Depending on the option selected, there could be four to nine years of reduction in the operational capability of the Royal Canadian Air Force's fighter force.

Summary of CF-18 Estimated Life Expectancy Findings

An estimated life expectancy of 2025 represents low to medium technical and operational risk. On the other hand, an estimated life expectancy target beyond 2025 would require unique structural investments to maintain the fleet's airworthiness. A 2025 extension mirrors the US Navy and Marine Corps' planned withdrawal date for their F/A-18 fleet. That fleet comprises approximately 630 aircraft, almost ten times the size of the Canadian Hornet fleet and almost two-thirds of all the original model F/A-18s still in use around the world. Once the US drawdown begins in earnest, Canada's sustainment of its fleet will become more difficult and costly with less access to repair and overhaul facilities or to US-produced spare parts for purchase.

An estimated life expectancy of 2030 is technically feasible. However, it represents a far more risky endeavour. This option would require the entire fleet to undergo significant structural refurbishment investments and procurement of wings and flight controls. This option is a high-risk one. There would also be increasing uncertainty from a cost perspective. From an operational point of view, the fleet would be exposed to a more lethal threat environment, leading to decreasing operational effectiveness and survivability. In addition, there would be decreased interoperability with newer aircraft flown by Canada's allies.

Terminology

Bridging and mixed fleet options are two distinct concepts. A bridging option is a short-term solution to ensure that there is no gap in fighter capability as Canada makes the transition from the CF-18 fighter fleet to the replacement fleet.

A mixed fleet option, on the other hand, is concerned with the acquisition, operation and support of two new fleets of aircraft, one more capable than the other, to replace the CF-18 before the CF-18 reaches its estimated life expectancy.

Bridging to a Replacement Fighter: The CF-18

In April 2012, when the Government announced the Seven-Point Plan, it was anticipated that after 2020, the CF-18 would no longer be able to fulfil the tasks assigned by the Government of Canada. Further, it was assumed that a replacement fighter would not be in place until 2025. A possible result would be a capability gap and, consequently, the need for an interim capability to bridge that gap. However, as the Commander of the Air Force indicated to the Standing Senate Committee on National Security and Defence on March 25, 2013, the Royal Canadian Air Force determined that it was possible to fly the CF-18 through 2020 with upgrades already in place and using management tools at the commander's disposal. In this context, there was no need to pursue a bridging option. In addition, as noted in the previous section, the work done on CF-18 estimated life expectancy has shown that it is possible, with certain investments, to fly the CF-18 to 2025 and even beyond.

Mixed Fleet Analysis

The idea of a mixed fleet is not new to Canada. Prior to the introduction of the current CF-18 fleet, the Royal Canadian Air Force operated three separate fighter aircraft: the McDonnell Douglas CF-101 Voodoo, the Canadair CF-104 Starfighter, and the Canadair CF-5 Freedom Fighter. With the introduction of multi-role fighters like the CF-18, nations such as Canada have moved away from the operation of mixed fleets towards the operation of a single multi-purpose fleet, capable of fulfilling a number of fighter aircraft functions at a reduced cost associated with training and maintenance support.

That said, there are still countries that operate mixed fleets of fighter aircraft by choice. In particular, some countries with large air forces have chosen to employ a "high-low" mix that include a larger number of cheaper, less capable aircraft along with a smaller number of more expensive, more capable aircraft. The US Air Force, for example, has long employed this model with the McDonnell Douglas F-15 Eagle and the General Dynamics F-16 Falcon.

Australia initially acquired its F/A-18 Super Hornets as a "bridge" between the retirement of its F-111 Aardvarks and the planned procurement of up to 100 F-35 Lightning-II Joint Strike Fighters. It has since decided to operate a mixed fleet of 24 F/A-18 Super Hornets and 12 E/A-18 Growlers (specialized for electronic warfare) alongside its F-35s.

Summary of Bridging and Mixed Fleet Analysis Findings

The analysis found that a mixed fleet of higher capability aircraft able to fulfil the most challenging NATO missions and lower capability aircraft able to fulfil Canada's NORAD obligations totalling more than 65 aircraft could not provide the same overall capability as the single fleet of 65 higher capability aircraft. Moreover, there was strong evidence that unless the purchase cost of the fleet of lower-capability aircraft was half the purchase cost of the fleet of higher-capability aircraft, a mixed fleet would provide less capability at a higher cost.

Market Analysis: Objective

A key element of the evaluation of options was a market analysis. A market analysis is a standard tool to assess rough and non-binding market price and availability. The activities conducted during a market analysis are considered an initial step in any procurement process. Such an analysis surveys companies, both through formal consultations and using open-source information, to determine what these companies are able to provide and how much the procurement may cost. Information received from a market analysis is considered preliminary, since that information cannot be fully verified or validated and is not subject to a contractual agreement.

The market analysis was undertaken to obtain the most comprehensive and up-to-date information on each available aircraft. It was driven by the principles of fairness, openness and transparency to ensure that companies were given the opportunity to present the best available information on their respective fighter aircraft.

The Royal Canadian Air Force used the information provided by the participating aircraft manufacturers in the market analysis for its assessment of each fighter aircraft against each of the missions outlined in the Canada First Defence Strategy over a full life period expected to be at about 40 years. This information was augmented with open source and government-to-government information.

Industry Engagement

Ongoing engagement with the aircraft manufacturing industry through the National Fighter Procurement Secretariat was a key aspect of the Seven-Point Plan's principle of transparency.

A major part of the market analysis was three questionnaires referred to as Industry Engagement Requests (IERs). The first pertained to platform capability and to the manufacturer's production and supportability of the aircraft. This information was used in the Royal Canadian Air Force's evaluation of options. The second Industry Engagement Request asked questions pertaining to pricing. The third dealt with benefits to Canadian industry. All the questionnaires as well as other information related to industry engagement were made available publicly on the National Fighter Procurement Secretariat's website.

Companies were given the opportunity to help shape the information-gathering methodology. They were invited to provide comments on draft questionnaires and briefed on the methodology that would be used to assess the company's inputs. On the basis of the comments and questions they posed, the questionnaires were revised before being sent out in final form.

The Secretariat submitted requests for additional information to clarify industry inputs and to ensure a consistent level of information from companies. The companies were assured that they would be briefed at the end of the process on the assessment of their respective aircraft. They were also assured that information of a commercially sensitive or a classified nature would not be released publicly.

Participating Fighters

Companies with fighter aircraft currently in production, or scheduled to be in production, were invited to participate in the market analysis. Fighters that were not compatible with weapons systems used by Canadian allies, principally the United States and other NATO countries, were not considered suitable for consideration in the market analysis.

On December 27, 2012, on the basis of the foregoing criteria, an introductory letter was sent to five companies.

Four companies agreed to participate in the market analysis and provided responses to the Industry Engagement Requests:

• The Boeing Company - with the F/A-18 Super Hornet
• Dassault Aviation - with the Rafale
• Eurofighter - with the Typhoon; and
• Lockheed Martin - with the F-35 Lightning II Joint Strike Fighter

The fifth company, SAAB, made a business decision not to participate in the market analysis and as a result of that decision, information on the SAAB Gripen did not form part of the assessment.

Evaluation Framework

A foundational element for the methodology was the mission needs analysis. This analysis was based on previous Department of National Defence analyses of overall Canadian Armed Forces capability, and resulted in fighter mission scenarios, aerospace capabilities, and Measures of Effectiveness that are consistent with existing Department of National Defence guidance and documentation.

The methodology was applied to fighter operations occurring in two timeframes. The first is 2020-2030, the period during which the Royal Canadian Air Force will transition its fighter force from the CF-18 to its new aircraft. The second is beyond 2030, when it is expected that there will be increased proliferation of existing threats in addition to the introduction of new and upgraded threats. Both sets of threats make operating within this latter period more challenging. The feasibility and expected costs of safely operating the CF-18 beyond 2020 were carefully analyzed as part of the overall assessment.

Subject-Matter Expertise

In the absence of being able to fly the aircraft under the conditions specified in the fighter-mission scenarios, the expert judgment of subject-matter experts was a critical component of the assessment process. Breaking down Canada First Defence Strategy missions into components helped ensure that appropriate subject-matter experts could be identified and that these experts were never asked to evaluate anything outside of their area of specialty. Multiple assessment teams were also used whenever feasible. This added a variety of opinions and helped reduce the possibility of groupthink. Also, subject-matter experts were required to provide substantiation to validate each of their assessments and their findings were scrutinized by the Independent Review Panel.

For a more detailed description of the methodology, please see the Royal Canadian Air Force report A Method for Evaluating Mission Risk.

Operational Capabilities Assessment

During the first part of this process the assessment team of senior Royal Canadian Air Force officers focused on assessing risk for each of the four aircraft in relation to the roles expected of a Royal Canadian Air Force fighter aircraft, as identified in the Canada First Defence Strategy mission scenarios.

Each fighter was assessed in the areas of:

• Awareness: The ability to gather, assimilate and display, to the pilot, real-time information from onboard sensors. Awareness is largely dependent on the fidelity of the information and the capability of the sensors. In addition, the capability to automatically combine and display comprehensive information, derived from separate inputs, produced from multiple sensors, is beneficial
• Survivability: The ability to operate within the operational battle space by denying or countering the enemy's application of force. Survivability can be increased by detecting, classifying, and locating threats and subsequently evading them or negating their effectiveness. Once alerted to a threat (by the use of onboard detection and warning systems), the pilot can counter threats by a variety of active or passive means. "Active" includes but is not limited to the use of electronic attack measures, jammers and decoys. "Passive" includes but is not limited to the employment of aircraft signature reduction measures, aircraft manoeuvre, and the use of chaff/flares
• Reach and Persistence: The distance and duration across which a fighter aircraft can successfully conduct the mission. Factors such as speed, endurance, range, and the ability to carry additional fuel (external fuel tanks and/or the ability to refuel in the air) also contribute to reach and persistence
• Responsiveness: The timely application of air power, including the ability to shift from one target to another while prosecuting multiple targets within the same mission; the ability to seamlessly change from one mission to another; and the ability to conduct more than one function simultaneously. For example, while conducting a Defensive Counter Air mission, can a given aircraft also contribute to the intelligence, surveillance and reconnaissance situational awareness of participants within the overall mission? Also, the speed at which an aircraft can re-target, re-role, and re-position within the area of operations should be considered
• Lethality: The ability to negate/prosecute a target or threat via a variety of kinetic (the use of weapons) or non-kinetic (the use of electronic warfare systems) means. This may include the support and use of other onboard sensors and systems. This area includes the assessment of aircraft sensor and weapons capabilities
• Interoperability: The ability to operate with and exchange information with friendly forces in order to contribute to mission success. Interoperability with national and coalition ground, sea and air assets is critical. As an example, this interaction can include, but is not limited to, the use of secure, jam resistant data and voice communications system

Each aircraft's capabilities were assessed over the two timeframes, 2020-2030 and beyond 2030. The assessment used both current and planned capabilities of the aircraft and assumed that planned technological improvements would be in place as outlined by the manufacturers. The risk ratings took into consideration potential mitigation measures, such as changing the way in which a particular aircraft is employed during the course of the mission. Where risk mitigation was within the control of the Royal Canadian Air Force and/or the Department of National Defence, the mitigation was applied and the ratings reflected the residual risk. For mitigating measures outside of Royal Canadian Air Force and/or Department of National Defence control, potential mitigations were identified but were not applied, leaving the risk ratings unchanged.

Critical Enabling Factors Assessment

For the second step of the process, the same senior team that conducted the operational level assessment assessed mission risks through the lens of four high level critical enablers: acquisition, supportability and force management, integration and growth potential. During this stage of the assessment, the focus shifted to the various risk factors associated with maintaining a fighter's full operational capabilities over its entire life cycle.

Professional military judgement played a greater role at this stage of the process due to the uncertainty involved with future aircraft production, supportability and upgrade plans as well as the challenges in quantifying these risks. Assessors applied measures to mitigate risks when deemed to be within the control of the Royal Canadian Air Force and/or Department of National Defence. Some factors, such as other countries' fighter acquisition plans or the manufacturer's plans for technological improvements, were not within the Royal Canadian Air Force's ability to influence.

The assessment of risks associated with the procurement and sustainment of the aircraft during the 2020-2030 and beyond 2030 timeframes revealed a number of risks that must be considered when acquiring a replacement fighter for the CF-18. It is expected that a replacement fighter will be in service well past 2030; therefore, the second time period will represent the majority of the next fighter's service life. During the second time period the future is far less certain from the perspective of potential threats employing advanced technologies that will need to be countered with a credible and operationally relevant Canadian fighter. Nonetheless, given the steady advancement of technology and continued likely proliferation of weapons systems, representative threat scenarios were used for the evaluation in the second timeframe.

Summary of Critical Enabling Factors Assessment Findings

In the first time period, 2020-2030, there was a range of risk ratings assigned to different aircraft related to their respective delivery schedules, growth potential, developmental forecast as well as time to resolve integration issues and to accommodate Canada-unique requirements. The risks assessed for each aircraft varied according to when the aircraft would be available for delivery as well as the time necessary to resolve long lead-time issues such as cold weather testing and integration of Canadian-specific requirements in addition to the normal time required for aircraft assembly. This risk could be partially mitigated by a CF-18 life extension, but the technical and schedule risks of the life extension program itself become high at a certain point.

The assessed risk in the second time period, beyond 2030, generally increased for most fighters due to current expectations regarding the overall number of each aircraft being operated on a global basis, which had an impact on the serviceability rates related to access to spare parts and support, as well as growth potential related to planned or expected technological improvement plans. Economies of scale affect the shared risk, resources and expertise required for the resolution of aircraft engineering deficiencies and management of obsolescence issues. Economies of scale also affect development of improved capabilities and software reprogramming in response to a changing threat environment. Without the ability to effectively support and sustain a fighter's relative capabilities over the life of the aircraft, there is increased risk to its ability to successfully complete assigned Canada First Defence Strategy missions.

This table illustrates the range of risk obtained by the Critical Enabling Factors assessment for each mission for 2 periods: 2020 to 2030 and Beyond 2030.

Integrated Mission Risk Assessment

During the third and final part of the process, the assessment team combined the operational and critical enabling factors risk assessments into a single overall mission risk for each aircraft, over the two timeframes and for each of the six Canada First Defence Strategy missions. This stage was informed by guidelines provided to Royal Canadian Air Force assessors as well as by their own professional military judgement.

Assessors applied measures to mitigate risks when deemed to be within the control of the Royal Canadian Air Force and/or Department of National Defence. During the assessment it was assumed that two issues beyond the control of the Royal Canadian Air Force - namely, the replacement of aircraft lost in the course of non-combat use (attrition) and the ability to integrate alliance intelligence data on the aircraft - would be dealt with successfully by the Government. If these assumptions had not been made, the two issues would have increased some of the risk assessments.

Objective

The Government commissioned KPMG to develop a Life-Cycle Cost Framework based on international and Government of Canada best practices, which was used as a basis to develop the cost estimates for acquiring 65 F-35A jets presented in Annual Updates by the Department of National Defence. The Framework divided life-cycle costs into broad cost categories: development, acquisition, sustainment, operating, disposal and attrition.

This Framework was used to inform the market analysis conducted as part of the evaluation of options. In particular, the market analysis included an Industry Engagement Request on price (pricing questionnaire) that sought information from companies in five broad cost categories: acquisition, sustainment, operating, disposal and attrition. Consistent with the Framework's recognition of the need to base cost estimates on the purpose for which it will be used, the pricing questionnaire sought rough order of magnitude, non-binding cost information, as appropriate for a market analysis.

Companies were asked to provide comments on the contents and scope of a draft pricing questionnaire prior to its finalization. Early engagement allowed companies to put forward all information relevant to the fair representation of pricing information, and supported a full and fair assessment of all options.

Assumptions

To ensure consistency, the pricing questionnaire provided companies with a number of identical assumptions so that they could generate estimates that were broadly comparable.

These assumptions were:

• Acquisition: 65 aircraft to be delivered in 2020
• Sustainment (e.g. repair and maintenance): aircraft would be maintained for 30 years (2020-2050) and that the 65 aircraft would be flown 11,700 hours per year
• Operating: the Department of National Defence provided fixed operating costs common to any aircraft fleet, such as pilot salaries and base support; companies were also asked to assume an annual flying rate of 11,700 hours
• Disposal: Department of National Defence provided a fixed cost estimate to dispose of 65 aircraft in 2050
• Attrition (replacement of aircraft lost during non-combat use): no assumptions were provided by the Department of National Defence in this category

Methodology - Cost and Pricing

Based on the assumptions provided to them by the Department of National Defence, companies then calculated the rough order of magnitude life-cycle cost estimates with inputs on their respective aircraft for each of the cost categories as follows:

• Acquisition: unit costs per aircraft - i.e. "unit recurring flyaway" (URF) costs
• Sustainment: cost of spare parts, maintenance and labour
• Operating: aircraft fuel consumption rate ("burn rate")
• Disposal: no aircraft-unique costs in this category
• Attrition: historical attrition rate and cost per replacement aircraft

In addition to this information, companies were asked to explain their assumptions regarding inflation and were provided a foreign exchange rate based on Bank of Canada historical rates. Companies were also asked whether the estimates were based on historical data (i.e. actual costs), or projections based on the best information available at the time. The pricing questionnaire requested estimates in Current Year (CY) 2013 Canadian dollars and nominal 2020 Canadian dollars - that is, future year dollars adjusted for inflation.

Once received from companies, cost information was reviewed to ensure that it was broadly comparable and consistent with what was requested in the price questionnaire. To ensure consistency, the cost estimate used for Lockheed Martin followed the same parameters provided to the other companies rather than the estimate provided in the Department of National Defence Annual Update, which is more detailed than what would normally be expected as part of a market analysis.

Summary of Cost and Pricing Findings

For fighter aircraft in general, the largest share of the costs over the life cycle of the fleet lies in operations and sustainment, even more so than acquisition. As with any long-range life-cycle cost estimates, these cost estimates are subject to further refinement as requirements are better defined. While there was a variance in the cost estimates provided by companies, the specific figures provided by each company cannot be identified due to commercial sensitivity. As these cost variances could be material to decision makers, more detailed cost information has been presented to the Government to inform a decision on the way forward.