Canada seeks to buy Boeing jets as interim defense measure

OTTAWA (Reuters) - Canada on Thursday unveiled plans to buy 18 Boeing Corp Super Hornets as a stop-gap measure while it prepared an open five-year competition to replace its aging fleet of fighter jets.

A Canadian Armed Forces CF-18 Fighter jet arrives at the Canadian Air Task Force Flight Operations Area in Kuwait on October 28, 2014 in this Canadian Forces handout photo received October 29, 2014. REUTERS/Canadian Forces Combat Camera, DND/Handout

Procurement Minister Judy Foote told a news conference the government would launch immediate talks with Boeing for the Super Hornets, in a victory for the U.S. plane maker if the order goes ahead.

One defense contractor said the choice could be interpreted as giving Boeing a long-term advantage but Foote, speaking in a phone interview, later said Ottawa would run “a real, open, transparent competition” where any firm could compete.

The language of Canada’s announcement prompted speculation about whether it was buying the Boeing jets outright, leasing them or purchasing with a buyback provision.

An outright purchase of the Super Hornets would make it harder for Canada to later justify acquiring other jets as it would be more costly to operate both programs, said U.S. aerospace industry analyst Richard Aboulafia of the Teal Group.

Spokespeople for Foote and Defense Minister Harjit Sajjan did not immediately respond to requests for comment. A Boeing Defense spokesman declined to comment.

The decision on how to replace Canada’s CF-18 jets - some of which have been flying for 35 years - is politically sensitive and has been repeatedly put off.

Sajjan said the CF-18s could no longer meet Canada’s international military commitments.

“Because they were not replaced, we now have a capability gap ... we need additional planes as soon as possible for an interim period,” he told the news conference.

The former Conservative administration said in 2010 it would buy 65 Lockheed Martin Corp F-35 jets for C$9 billion ($6.7 billion). During last year’s successful election campaign, the Liberals vowed not to buy the planes on the grounds they were too costly.

Sajjan said Canada would remain a member of the nine-nation consortium that helped fund development of the F-35.

Lockheed Martin said that while it was disappointed with the choice of an interim fighter it was “confident the F-35 is the best solution”, according to a statement.

Ottawa insists the winner of the open competition must provide industrial benefits to Canadian firms. It also wants the companies to have a chance of getting work from the interim order with Boeing, Foote said.

Boeing is committed to giving Canadian companies contracts that would equal the total amount Ottawa pays for the 18 Super Hornets, said Scott Day, spokesman at Boeing Defense.

Foote said talks would start immediately with Boeing though a final decision would only be made once the discussions were over. Sajjan, though, said he was confident the Boeing plane met Canada’s requirements.

The government declined to answer any questions on cost, in particular whether the money set aside for the interim order would come out of the initial budget for the planes.

Boeing’s stock rose after the announcement and closed up 1.7 percent at $149.52, while Lockheed Martin shares pared gains to end the day at $264.66, up 0.5 percent.

Additional reporting by Allison Lampert in Montreal and Mike Stone in Washington; Editing by Bernard Orr and Alan Crosby