Trudeau Snubs Boeing, Unveils Plan to Buy Used Australian Jets

(Bloomberg) -- The Trudeau government is escalating a trade fight with Boeing Co., ditching plans to buy 18 Super Hornets while launching a search for new fighter jets under parameters that could hamper future bids from the U.S. plane maker.

Canada said Tuesday it would instead pursue plans to buy 18 used Australian F-18 fighter jets to supplement its aging fleet, and launched the process to buy 88 new jets as a long-term replacement. Officials didn’t specify a purchase price or maintenance cost for the Australian jets. The purchase needs approval from the U.S. government.

It’s the latest development in a dispute between the U.S. and Canada as Boeing pursues a trade challenge against Montreal-based Bombardier Inc. -- and comes with a potential new wrinkle for the U.S. company. Canada created a new procurement step, saying companies that hurt the country’s economy would be hard pressed to win any contracts, including the lucrative 88-jet order.

“Bidders responsible for harming Canada’s economic interests will be at a distinct disadvantage,” Procurement Minister Carla Qualtrough said at a press conference. “The assessment criteria will be used in future procurements.”

‘Hard Place’

Chicago-based Boeing launched a challenge against Bombardier over commercial planes. President Donald Trump has so far rejected calls to intervene from Prime Minister Justin Trudeau, who ruled out buying new F-18 Super Hornets in September unless Boeing dropped its challenge. Theresa May has also lobbied Trump on the issue, defending Bombardier jobs in Belfast.

The prime minister campaigned in 2015 on not buying Lockheed Martin Corp.’s F-35 fighters due to the cost. Canada will now instead move to buy used jets, something its defense minister ruled out just 10 months ago. The Australian planes are of similar design and vintage to Canada’s aging CF-18s, and Canada expects the first supplemental planes to be ready for service in the early 2020s.

“Looks like Canada is between a rock and a hard place,” said George Ferguson, senior aerospace defense analyst for Bloomberg Intelligence. “They canned the joint strike fighter because it was too expensive,” he said, referring to the F-35. “Now they are going for used rather than new F-18s. Seems like they will need to keep buying used until the memory of this fades.”

Industry Day

Canada said it would engage with stakeholders through 2018 and 2019 as it considers its permanent replacement fleet, holding a fighter plane industry day next month to provide manufacturers with information. It expects to award a contract in 2022 and forecasts delivery of its first permanent replacement plane in 2025.

Boeing “respects the Canadian government’s decision,” Scott Day, a spokesman, said by email, adding the company will “continue to support all efforts to build an environment of free and fair competition marked by compliance with agreed upon rules.”

Ferguson doesn’t expect the U.S. planemaker to drop its Bombardier challenge to appease Canada. "Boeing is not going to back down," he said.

Bombardier Spokesman Simon Letendre said in an email the government’s decision “should come as no surprise given Boeing’s unprincipled opportunistic attack on the Canadian aerospace industry.”

New Jets

The cost of the planned air force equipment purchases including the fighter jet replacement has been estimated at C$26.4 billion ($20.5 billion) over 20 years.

The jet purchase comes in a politically charged environment. Canada and the U.S. are sparring over aerospace and softwood lumber, while also renegotiating the North American Free Trade Agreement. That list now includes approval of the Australian sale.

Transfers to a third party of military equipment originally provided via foreign military sales require U.S. authorization, a U.S. State Department official said, speaking on condition of anonymity ahead of Tuesday’s announcement. The official didn’t indicate whether Canada’s purchase would be approved.

The State Department reviews and approves all proposed transfers of U.S. military equipment, and doesn’t comment on the status of pending sales or transfers until it has completed all necessary consultations, according to a spokesperson for the U.S. Embassy in Ottawa.

‘On Track’

Canada will consider the F-35 as its permanent replacement, Qualtrough told CTV in November. Defense Minister Harjit Sajjan said in February he “will not be buying used aircraft for our air force,” a pledge jettisoned by Tuesday’s announcement.

Ferguson said Canada could buy Dassault Aviation SA’s Rafale or the Eurofighter Typhoon -- produced by a consortium including BAE Systems Plc, Airbus Group SE and Leonardo SpA -- but they would cost as much as F-18s, and would lack commonality with U.S. forces and with the current fleet. “Then I bet they are back for F-18s or F-35s if they’re more concerned with future air combat capabilities,” he said.

The F-35 will be adopted by the U.S. and its allies at an accelerating rate in the coming years, and commonality is key, according to Douglas Rothacker, an analyst at Bloomberg Intelligence. If Canada’s decision to buy the Australian jets eliminates Boeing’s F-18 as an option for the country’s long-term fighter solution, that’s “positive for Lockheed’s F-35 potential in Canada,” said Rothacker, adding Canada is a key manufacturing partner and its tentative 65 F-35 orders are still considered within the program of record.

--With assistance from Tony Capaccio Roxana Tiron and Frederic Tomesco

To contact the reporters on this story: Josh Wingrove in Ottawa at jwingrove4@bloomberg.net, Greg Quinn in Ottawa at gquinn1@bloomberg.net.

To contact the editors responsible for this story: Theophilos Argitis at targitis@bloomberg.net, Chris Fournier, Stephen Wicary

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