New and old math

The Defence Minister explains the difference between $25 billion and $15 billion.

“The $10-billion that he has described as not being disclosed was what you pay our current pilots, the gas that you put in the current fleet of CF-18s … if you went out and bought a new mini-van and it was going to cost you $20,000 you wouldn’t calculate the gas, the washer fluid, the oil and give yourself a salary to drive it for the next 15 to 20 years.”

“Now that’s part of the new calculation now,” he said.

The “new calculation” reflects an estimate that the Department of National Defence calculated two years ago. And a calculation that seems to match Treasury Board guidelines. But, again, the Auditor General’s concerns about costing for the F-35 extend beyond that to the “life-cycle costing.”

We have a number of observations regarding the life-cycle costing for the F-35. First, costs have not been fully presented in relation to the life of the aircraft. The estimated life expectancy of the F-35 is about 8,000 flying hours, or about 36 years based on predicted usage. National Defence plans to operate the fleet for at least that long. It is able to estimate costs over 36 years. We recognize that long-term estimates are highly sensitive to assumptions about future costs as well as to currency exchange rates. However, in presenting costs to government decision makers and to Parliament, National Defence estimated life-cycle costs over 20 years. This practice understates operating, personnel, and sustainment costs, as well as some capital costs, because the time period is shorter than the aircraft’s estimated life expectancy. The JSF Program Office provided National Defence with projected sustainment costs over 36 years.

This, again, is what Alan Williams considers the “known distortion.”

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