B.C.’s aerospace sector, which has benefited from lucrative Lockheed Martin Corp. (NYSE:LMT) F-35 fighter jet contracts, warns that it stands to lose jobs and hundreds of millions of dollars’ worth of contracts if the Liberal Party forms the next government.
To date, Canadian aerospace companies have landed $750 million worth of contracts on the F-35 program, according to the Canadian Joint Industry Group.
The aerospace industry group warns that $11 billion worth of future contracts could be lost under a Liberal government. Liberal Leader Justin Trudeau has stated that he would cancel Canada’s participation in the F-35 program.
Although the F-35 has been an embarrassment for the Conservative government, which was found to have miscalculated the full cost of the F-35 project, Canada’s participation in it so far has been a boon for B.C. aerospace companies like Asco Aerospace Canada Ltd. and Avcorp Industries Inc. (TSX:AVP).
In 2012, Avcorp won a contract valued at $500 million (over 10 to 15 years) to build the folding wing assemblies for the C variant of the F-35, which is designed for aircraft carriers. The contract is responsible for 75 jobs at Avcorp.
Asco has won $40 million worth of contracts to build titanium and aluminum bulkheads for the F-35 stealth fighter jet. The contracts account for between 5% and 10% of Asco’s business and employ 20 people.
Canada is one of a dozen countries that have participated in the F-35 fighter project. In 2010, Canada decided it would replace Canada’s CF-18 fighter jets with 65 F-35s, fifth-generation stealth fighters.
But in 2012, it put the F-35 procurement program under review after Canada’s auditor general raised concerns about the project’s cost.
While National Defence had capped the budget for buying and operating the plane over 20 years at $25 billion, the auditor general’s analysis put the full lifetime budget at $45 billion.
Participating countries have ordered 229 F-35s, 150 of which have been built. In the coming years, Asco had expected to win more contracts with Lockheed Martin.
“We have a lot of opportunities because we have a lot of bid activity right now with Lockheed, but it’s all kind of in a holding pattern,” said Asco Aerospace vice-president Kevin Russell.
Russell said Lockheed Martin has multiple suppliers, and there’s no guarantee Asco will win future contracts if Canada pulls out of the F-35 program.
“If Canada ends its participation, then there’s a lot of pressure on Lockheed to award those contracts to participating countries,” Russell said. “For us it would mean loss of future opportunities.”
Avcorp might be on safer ground because it is the only company currently building the parts of the wing that fold up on the C variant.
The Liberal platform states a Liberal government would reallocate funds from the F-35 project to the Royal Canadian Navy. By replacing the F-35 with a cheaper fighter jet, the Liberals plan to free up more money for the Canadian Navy’s fleet of ships.
Based on the expectation that Canada would eventually buy F-35s, companies like Asco have made investments and developed innovations tailored to the F-35.
“We’re invested heavily for this program,” Russell said. “All of a sudden the revenue stream you’re expecting can disappear overnight.”
