misleading through numbers

[strider3700]

I'm not wanting to get overly political  but up here in canada the big news story of the day is that our planned purchase of a new fleet of of F-35 fighter jets is being reset and they'll start the process again. This is being done because the costs "have sky rocketed"  The original number was 9 billion.  then it was 16 then 25 and the most recent independent report says 45 billion dollars.    So everyone is jumping on board and kicking the crap out of the party in power over a 5 times increase.     I'll be upfront and point out that I'm not overly a fan of the party in power. I'm not however an auto hater of everything they do.

I have major issues with how the media and the opposition is portraying these numbers.   I don't know the details on the 16 billion report but the 9, 25 and 45 billion reports are all the same  just done over different time frames.   9 billion is the cost to buy the planes.   25 billion is the cost to buy the planes and operate them for 20 years.   45 billion is the cost to buy the planes and operate them for 42 years.   the current fleet of jets is roughly 1 billion/year to operate and the new ones are expected to be roughly the same.  so the initial $9 billion number is reasonable.   

It's no different then buying a $300,000 house.    It cost $300,000.   Over the next 50 years it's going to be way more if you include interest on the mortgage, property taxes, maintenance, electric,water,garbage....   this seems obvious to me.   

Is the world really that full of accounting illiterate people that they can't see the same?

[Ben]

We have similar issues in the US when discussing deficit reduction, fiscal cliff, etc. In general, 'savings' from budget reductions and tax breaks are reported over many years, not accounting for inflation (e.g. are we going to 'save' $800 billion or $1.6 trillion?), while increases in deficit are reported over shorter time frame.

[tooqk4u22]

We have similar issues in the US when discussing deficit reduction, fiscal cliff, etc. In general, 'savings' from budget reductions and tax breaks are reported over many years, not accounting for inflation (e.g. are we going to 'save' $800 billion or $1.6 trillion?), while increases in deficit are reported over shorter time frame.

Yep....we are extremely worked up here in the US about the fiscal cliff with the extreme case being $2trillion in a combination of cuts and taxes spread over 10 years, or in non political terms apprxomately $200billion per year......annual deficit currently $1.5 trillion per year.   

So even if the dopes on the republican side concede everything that the dopes on the democrat side want (ignoring any potential for unintended consequences) it doesn't even make a f'in dent. 

[Matt K]

Yea, you pretty much hit the nail on the head.

The original number pushed ($9B) was a pure purchase price, and the "big shock" $25B is a 20 life cycle cost (including fuel!) that the MPs already knew about but someone decided to jump up and down about. Yes, the public really does appear to be that uneducated :(

I have very mixed feelings about the F35 program. On one hand, it was/is a sole-source contract. Normally for a big capital project like this companies need to bid their wares, tests are done, reviews are held, and the best 'value for money' is purchased (see Close Combat Vehicle CCV, and Tactical Armoured Patrol Vehicle TAPV procurements that are also ongoing).

The F35 is different because when the project first started up 20 years ago, Canada commited money to the program. We didn't commit to buy any planes, but we through in a bunch of money so we could get first hand information on the project and, ideally, have some of the construction occur in Canada. If we pull out now, we lose the potential manufacturing jobs that come with us buying the plane (if we don't buy it, the US politicians will have those duties moved to US factories). But with whole financial melt-down, it looks like a lot of the Canadian jobs may end up in the US anyways (The US wants to buy 2400 planes, we want to buy 60, you guess who gets sucked up to).

In addition to the hoo-ha of international politics and jobs, there is the requirements issue. When we purchased the CF-18 it won out against the F-16 because it was dual engine. The premise was that for arctic patrols having a single engine simply wasn't safe enough. If a pilot had an engine failure, s/he could be too far out, in too dangerous conditions, to be rescued in time.
The F-35 has only one engine.

What it does have is fancy stealth capabilities. But with only 60 fighters, we aren't really going to be engaging in standing air battles with other high tech countries. The only times I see us using our air force is in situations like Lybia where we already hold air supperiority. I'm not saying stealth isn't handy (ground launched missiles are a risk), I'm just wondering how often it will actually be of use. And there are all sorts of very effective non-stealth aircraft out there that would meet our other needs (Super Hornets come to mind) for far less money.

The TL;DR version: Politicians are using these numbers to jump and yell and attack the party in power when a) the cost isn't a surprise, and b) they would probably do the same thing for a whole host of national and international political reasons. Skipping the politics of it, Canada buying the F-35 may be like Joe Blow contactor buying a big V8 super-cab pickup to transport his tools when a Ford Ranger would probably do just as well.

[SoftwareGoddess]

Is the world really that full of accounting illiterate people that they can't see the same?

Sadly, I think it is. But that's exactly why the government presented the $9 billion number in the first place rather than any of the others -- to make it sound as reasonable as possible to the uneducated or those not listening closely. The opposition -- meh, it's their job to spin the costs to make them sound worse, just as much as the party in power wants to spin them to make them sound better. SOP for politicians. So I don't have a beef with them, or at least not a new one. :-)

As for the media, the outlets from which I have heard this story have been pretty clear about the reasons why the number got bigger. None of them came right out and said that it's really all the same, and I wouldn't expect them to. But they did play the recording of Peter Mackay saying it.

[Posthumane]

Matt K, I was going to write a post very similar to yours, but you've said pretty much everything that comes to mind, and I am in 100% agreement. F-35 is probably not the best choice for our forces, based on the expected mission profiles, but the life-cycle costs are hardly a surprise to anyone who was actually paying attention.

The only thing I would quibble about is sole-source vs. competitive bid, and how well either work in this case. I assume, based on your knowledge and location, that you are involved in that process somewhere along the line, so if you'd like to discuss we can do so by PM to avoid derailing the thread. :)

[strider3700]

I basically agree with both of you except I believe stealth to be necessary and will become more important in the future.  Missile tech is advancing too fast to not have stealth. 40 years from now when these planes are being retired it's hard to imagine just how good advanced AA is going to be.   Having said that drone tech and cruise missiles are advancing rapidly as well.   I'm not convinced a conventional fighter force is necessary at all.

[marty998]

In Australia the biggest misrepresentation is the NBN (National Broadband Network). It has a capex cost of $35billion, which one side of politics claims is an expense, not a capital asset. And then they add the expected operating costs for the next 10 years on top to call it $50b in "waste" which totally ignores the expected revenue to be generated. A basic level of accounting comprehension would distinguish between balance sheet and P&L but that seems beyond some people.

Project anything out over 4, 6, 10 years and you get stupidly high numbers that tend to frighten people who can't understand it.

[Matt K]

The only thing I would quibble about is sole-source vs. competitive bid, and how well either work in this case. I assume, based on your knowledge and location, that you are involved in that process somewhere along the line, so if you'd like to discuss we can do so by PM to avoid derailing the thread. :)

I am not involved in either this process, or the two vehicle processes I mentioned. If I was, I would not be commenting on it.

As I said, there are advantages to sole-sourcing, especially when you get in early (full knowledge of testing, more say in design requirments, local jobs, etc). And there are advantages to competative bids (in theory a better product for a lower price). But both systems are ripe for political interference. I am aware of projects where the project managers did not agree with the final choice, but were vetoed from higher-ups. Sometimes politics trumps project management.

We'd like to think that the project itself is all that matters, but sometimes the 'wrong' thing is purchased for good reasons: buying the second place bid to keep the bidder in business and prevent a monopoly; purchase an item from an international partner so that nation buys something important from us; etc.

Sometimes those reasons are just plain wrong, "Optics" or "how would it look if we did this?"
Case and point: a private sector friend of mine had a corporate retreat on a cruise ship, paid for by the company because it was cheaper than flying all their out of town employees to Ottawa, putting them up in hotels, and renting a big enough convention area for the various company meetings. Instead they did a huge bulk deal on a cruise ship sailing out of Florida (flights for all, food for all, and the ship provided the meeting/convention space). Regardless of being the more cost effective choice, can you imagine the public out rage if a government organization did that? Front page of the Globe and Mail: Department X spends $1 million to take 1000 employees on one week cruise! Never mind that congregating those same employees in Ottawa costs $1.5 million (all numbers pulled from my hnady-dandy-random-number-generating-butt-hole).

The summary is: It is complicated, and no matter what you chose, or how squeaky clean you run it, someone somewhere will find a way to drag you into the mud over it.

[Jamesqf]

 Err... could someone please explain exactly why Canada needs F-35 fighter jets in the first place?  Even if they were given away free in boxes of cereal?

[strider3700]

Canada has NATO requirements to meet and even though we're good buddies with the biggest military in the world should still take responsibility for defending it's own borders. 

[Posthumane]

Matt, I wasn't implying that you're involved in this purchase process, just in "the process" for purchasing things for DND/GoC. In reading your latest reply, I guess I mostly agree with your stance on sole-source vs. competitive, in that both can be skewed by outside factors. The Globe and Mail test is certainly a biggie, unfortunately.

Regarding whether or not Canada actually needs F-35s, while we should indeed take responsibility for our own sovereignty I don't think this aircraft will actually play a big role in that. The "show of force" flights over the arctic have little to do with the capabilities of the aircraft performing them. If certain nations decided to pose a more serious threat then Canada would be pretty helpless by itself anyway simply due to the size of our force. As far as the NATO commitments, close air support tends to play a much larger role in the conflicts in which we may find ourselves involved in the near future than does pure aerial superiority, so I think Canada should focus more on that. That's just my far-from-expert opinion though.

[Jamesqf]

Canada has NATO requirements to meet and even though we're good buddies with the biggest military in the world should still take responsibility for defending it's own borders.

Defending from whom, exactly?  And when you figure out exactly who you might be defending the borders against, stop and reflect on how those F-35s would contribute to an effective defense.  I think it's arguable that even for the US, the F-35 is an example of a weapon designed to fight the previous war - or maybe still WWII?

[Nords]

Defending from whom, exactly?  And when you figure out exactly who you might be defending the borders against, stop and reflect on how those F-35s would contribute to an effective defense.  I think it's arguable that even for the US, the F-35 is an example of a weapon designed to fight the previous war - or maybe still WWII?

Good grief.

Let me just limit my commentary to observing that the F-35 will be cheaper to maintain/repair and more reliable than its F/A-18 and F-14 predecessors.  It'll also take fewer man-hours of work to keep a squadron flying, which results in lower military training/payroll/benefits. 

You're paying up-front costs (well, not in Canada anymore) for lifecycle savings.  The U.S. military did a crappy job with the A-12 (which is why the program was cancelled) and the submarine force managed to do the same mission pivot by giving up the SEAWOLF in favor of the VIRGINIA class.  The F/A-18 has paid its dues already by kicking the F-14 to static displays, and I suspect that the F-35 (with all its variants) will keep the economy going with (other) foreign military sales.

Having attempted to defend the fighter program management, I'll also mention that it may be a long time before the U.S. designs another manned fighter aircraft.  The U.S. Navy is now conducting at-sea carrier testing of an unmanned aircraft (not just a drone but a fighter) and may automate a substantial degree of the fighter pilot's workload.

I'll leave the missions/last-war debate to someone else.  Whichever mission/war you're fighting, the F-35 is likely to handle it better & cheaper than today's inventory.  It will also cause fear & trembling in the heart of the People's Liberation Army whichever country is competing on air warfare, and that deterrence factor will help them decide that negotiation is cheaper than ordnance.

[Jamesqf]

Let me just limit my commentary to observing that the F-35 will be cheaper to maintain/repair and more reliable than its F/A-18 and F-14 predecessors.  It'll also take fewer man-hours of work to keep a squadron flying, which results in lower military training/payroll/benefits.

I wouldn't necessarily disagree with that, it just seems like a false economy.  Kinda like spending millions to breed a calvary horse that eats less.

[Nords]

I wouldn't necessarily disagree with that, it just seems like a false economy.  Kinda like spending millions to breed a calvary horse that eats less.

Hopefully, every dollar we spend on the military is wasted on a service that's never needed-- except for emergency relief after a natural disaster.  Training is expensive, and we can't just flip a switch to turn on the process and have it go from zero to "ready".  Same for the firefighters, police, EMTs...

During the 1980s I had no trouble being one of the people who could launch ICBMs in the name of deterrence.  Today I have a very difficult time explaining the concept to those who've never lived through it, even with my daughter who's contemplating taking the same job. 

[Jamesqf]

Hopefully, every dollar we spend on the military is wasted on a service that's never needed...

We don't disagree on this at all, just on what's effective - either in action, or as a deterrent.  As for example, prior to WWII, Poland spent a large part of their military budget on what were probably the world's best calvary units.  Germany spent their money building machine guns and tanks.