UPDATE 2-Canada to restart fighter search, could buy F-35-source
* Canada's planned purchase of F-35 had hit problems
* F-35 on shortlist with Boeing's F-18, Eurofighter: source
* Panel to study jets, report back by early 2013
OTTAWA, Dec 7 (Reuters) - Canada is restarting its search for new fighter jets but could still choose Lockheed Martin Corp's F-35, which Ottawa had initially said it would buy before losing enthusiasm as cost estimates soared, a government source told Reuters on Friday.
An independent four-person panel will study the F-35, Boeing Co's F-18 Super Hornet and the EADS Eurofighter and report back to Ottawa by early 2013, the source said. The panel, which could also look at other fighters, will not make a recommendation on which jet to buy.
The decision marks a determined effort by the Conservative government to end a series of embarrassments after announcing in July 2010 it intended to buy 65 of the Joint Strike Fighters for C$9 billion. The planes were supposed to replace Canada's veteran CF-18s, which will be retired in 2020.
Canada is one of eight international partners helping to fund development of the new radar-evading warplane, but it has not signed a formal contract to buy the planes from Lockheed Martin. Ottawa had decided to proceed with the purchase without holding an open competition after military officials said the F-35 was the only plane to meet all their needs.
The Pentagon's F-35 office declined to comment, saying it is a Canadian issue.
U.S. officials said Canada remained part of the international group that is funding development of the F-35 and that status remained unchanged. Canada agreed in February 2002 to contribute $150 million to the F-35 development program.
Critics have long complained that the C$9 billion purchase figure was unrealistically low and said the military had opted for the F-35 without looking closely enough at alternatives.
"People said the process was unclear and they don't know how we got to the decision (to buy the F-35s). This time everything will be out in the open. The process will be clear," the government source told Reuters.
"We may end up in the same place," he said, referring to the initial decision to buy the F-35s. "The choice is not predetermined at all."
The government, which long dismissed critics of the F-35 purchase, had to launch a formal review of the project in April after a spending watchdog said the initial decision to buy the jets had been based on bad data from officials who deliberately downplayed the costs and risks.
Television network CTV, citing unnamed sources, said on Thursday the government would next week release an independent study showing the cost of buying and maintaining the jets was in fact around C$40 billion ($40.4 billion), much higher than the initial estimate of C$25 billion for purchase and maintenance.
"The government has consistently misled Canada about the true cost of this aircraft ... all of what the government said has been shown to be completely and totally untrue," said Bob Rae, leader of the opposition Liberals.
The $396 billion F-35 program, the largest in Pentagon history, is already late and well over budget. It has been restructured three times in recent years, although U.S. officials say it is now starting to produce results.
In April, Ottawa responded to the spending watchdog's criticism by stripping the Defense Ministry of responsibility for buying new jets and handing it to the Public Works Ministry.
Lockheed is developing three variants for the U.S. military and eight partner nations: Britain, Canada, Italy, Turkey, Australia, Denmark, Norway and the Netherlands.
In fiscal 2013, which began Oct. 1, the Pentagon expects to buy 43 F-35 jets, including 29 for the U.S. military and 14 for international partners, with each F-35A model slated to cost around $127 million, according to U.S. government data.
Over the life of the program, the Pentagon estimates the average cost of the conventional takeoff and landing (CTOL) variant of the F-35 will be $78.7 million in 2012 dollars.
F-35 spokesman Joe DellaVedova said U.S. cost projections, which factor in 2,443 U.S. purchases and 716 from foreign buyers, have been shared with the international partners.
The F-35 program office is trying to drive down the staggeringly high cost of operating and maintaining the jets over the next decades by opening that part of the program to more competition from U.S. and international firms.
The Canadian government source termed as accurate media speculation that other possible choices to replace the CF-18s were Saab AB's Gripen and Dassault Aviation SA's Rafale jet.
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