UPDATE 3-Canada starts new search for fighters, may still buy F-35
* Says to look at all available options to replace CF-18s
* Independent panel to be given guidelines for evaluation
* Cost of F-35s, including operating them, would be C$45.8 bln
* Opposition says government misled Canadians
By David Ljunggren
OTTAWA, Dec 12 (Reuters) - Canada scrapped a controversial sole-source plan to buy F-35 jets from Lockheed Martin Corp on Wednesday, saying it will now evaluate all available options for acquiring new fighters.
The announcement is another challenge for the F-35, which has been hit by cost overruns and delays and at $396 billion is the costliest program in Pentagon procurement history.
Canada's Conservative government - stressing it could still buy the F-35 if it turns out to be the best option - will set up an independent panel to look at replacements for an aging fleet of CF-18 fighters, which are due to go out of service by 2020.
"We are pressing the reset button on this acquisition in order to ensure a balance between military needs and taxpayer interests," Defence Minister Peter MacKay told reporters.
The move marks the government's most far-reaching attempt yet to put an end to a scandal that has grown steadily since the Conservatives announced in July 2010 they would buy 65 F-35 Joint Strike Fighters for C$9 billion ($9 billion) without holding an open competition.
Ottawa said it would give the new independent panel a series of detailed guidelines to help it evaluate the contenders.
It also released a report showing the full cost of buying, equipping, maintaining and operating the 65 F-35 jets would be C$45.8 billion over a 42-year operating life, far higher than earlier estimates.
"We are demonstrating that we are serious about looking at all available options to replace the CF-18s," Public Works Minister Rona Ambrose said in a statement.
Critics complained from the start that the single-source decision was wrong and that Ottawa was not being clear enough about how much it would cost to buy and maintain the planes.
The Conservatives brushed off the criticism for almost two years but launched a review in April after a spending watchdog said the decision to buy the jets had been based on bad data from officials who deliberately downplayed the costs and risks.
"The government misled Canadians ... there is not a whiff of contrition or admission of a problem," said Bob Rae, leader of the opposition Liberal Party.
Government sources said the main contenders now for the Canadian fighter-jet order are the F-35, Boeing Co's F-18 Super Hornet and the EADS Eurofighter.
The Conservatives have a majority of seats in the House of Commons and are in no immediate threat politically as a result of the F-35 debacle, given that the next election is due in late 2015.
Reuters reported the main outlines of the government's revised plan to acquire fighter jets last Friday.
The initial plan called for the F-35s to be delivered between 2017 and 2023. Officials, insisting the F-35 had not been ruled out, declined to say how long it would be before planes would be delivered under the new plan.
Whatever jet is chosen, the cost of acquiring it will remain at C$9 billion. As part of the overall review, the defense ministry will also look at whether the lifespan of the CF-18s can be extended beyond 2020.
Despite announcing in July 2010 it would buy the F-35, Ottawa never signed a binding contract with Lockheed Martin.
Officials said the 42-year operating life used as the basis for the C$45.8 billion cost estimate for the F-35s compares with the 20-year period the government said it had used as a matter of course until now for military purchases.
Lockheed is developing three F-35 variants for the U.S. military and eight partner nations: Britain, Canada, Italy, Turkey, Australia, Denmark, Norway and the Netherlands.
A U.S. Defense Department spokeswoman said Canada remained a partner in the F-35 program.
She said the review Canada was now undertaking was similar to one run by the United States in 2010, which found no alternative fighter that could provide the necessary capability at lower cost.