At the time Canada was tasked with four primary military duties; air defense of North America as part of NORAD, anti-submarine and related duties in the North Atlantic as part of NATO, a small role within the overall land-force structure of NATO in Western Europe, and the specialist role of reinforcing Norway with one brigade and all required air, sea and other support that might be needed for that mission (collectively known as "CAST"). With the exception of air transport, equipment for all of these groups was lacking.
Six systems became the focus of the upgrade process. For Maritime Command a new "Long Range Patrol Aircraft" (LRPA) would dramatically increase their anti-submarine capabilities, while a new patrol frigate program would supplement the new and capable Iroquois class destroyer with much larger numbers. Mobile Command needed a new main battle tank to replace their outdated Centurions, new command and logistics vehicles, and a new tactical aircraft for supporting their forces in Europe, while Air Command needed a new aircraft to replace their somewhat motley collection of increasingly dated aircraft. Inter-service priorities were quickly decided.
First up was the Long Range Patrol Aircraft, eventually filled by the CP-140 Aurora, a modified version of the P-3 Orion. Problems that arose during the LRPA program were particularly worrying for the following programs. LRPA had initially settled on the Orion in November 1975, but the program was cancelled in May 1976, before being re-instated once again. In 1978 the Minister of Supply and Services, Jean-Pierre Goyer, stated that he had been deliberately misled on the topic, a claim that led to a slander lawsuit. A breakdown in communications between the various departments led to the budget request being $300 million smaller than was needed in startup costs, delaying service entry. Adding to the program's woes, the procurement procedure resulted in the addition of various "required features" that led to the aircraft's sensor suite being modified at considerable expense, a problem that is all-too-common in military circles known as "gold plating".
In order to avoid these possibilities, the DND put into place a number of new policies for the NFA program aimed at ensuring the budget would come out as predicted. For one, NFA demanded that whatever aircraft was selected would have to be completely "off the shelf", in order to avoid "gold plating" problems that had driven up the price of the CP-140. Additionally, the NFA project would request a budget that included all costs; training, spares, even the 12% import taxes that would have to be paid to the Canadian Department of Finance and any similar fees that might have to be paid to the foreign government to offset research and development they had spent on the program.
Finally, the NFA program office was set up to ensure that all three stakeholders would have their requirements fairly presented in the final proposal. Under LRPA the various departments reported to the DND, but under NFA they all co-managed a new NFA Program Office (NFA/PO). This ensured that the technical requirements of the DND would not override the budgetary ones of the Department of Supply and Services (DSS) or the industrial benefits package required by the Department of Industry, Trade and Commerce (DITC). All three would be considered peers, and their work would be overseen by a similar group of deputy ministers from External Affairs, the Treasury Board and the Privy Council Office.
NFA's goal was to select a single multi-purpose aircraft that could fill all of the roles of the existing fleet, while also reducing operational costs and improving availability and capability. In the fifteen years since the F-104s had been purchased the advancements in engines, aerodynamics and especially mission electronics allowed for these roles to be combined in multi-role aircraft. A number of such designs were in the process of being introduced by air forces around the world. Of particular interest was the recent Lightweight Fighter (LWF) program in the United States that had produced the F-16 Fighting Falcon, an aircraft of such versatility that it had rapidly generated orders from around the world in what PBS described as "The Sale of the Century.
In September 1977 the NFA office published a four-volume Request For Proposals (RFP), each volume outlining one area of interest. These included the technical specifications, risk mitigation, costs, the industrial benefit program and contractual obligations. In a subsequent decision, the budget was limited to around $2.34 billion Canadian dollars to purchase between 130 and 150 of the winner of the competition. It should be noted that this represented a significant decrease in fleet numbers; there were 132 Voodoos and 200 Starfighters being replaced by less than half that number of aircraft. Cabinet officially approved the NFA purchases on 27 November 1977.
The RFP was sent to six companies who had aircraft that might fit the requirements; Grumman's F-14 Tomcat, McDonnell Douglas' (McD) F-15 Eagle and F/A-18 Hornet, Northrop's version of the F-18, the F-18L, General Dynamics' F-16, Dassault-Breguet's Mirage F1 and the Panavia Tornado. The NFA quickly eliminated the F-14, F-15, and the Tornado due to the high purchase prices. The F1 was withdrawn as it could not compete with the others in performance terms, but Dassault instead proposed the Mirage 2000 in its place. However their proposal was not received by the 1 February 1978 cutoff date. So, by 1978, the New Fighter Aircraft competitors were short listed to just two aircraft; the F-16 and two versions of the F-18.
The F-18 had started life as the Northrop F-17 Cobra, a direct competitor to the F-16 during the LWF competition. When the US Navy expressed an interest in a new multirole fighter under their VFAX program, Congress instead cancelled VFAX and demanded that the Navy use one of the LWF aircraft under a new program called the "Navy Air Combat Fighter" (NACF). Accordingly, the Navy asked for proposals for versions of the two aircraft with various carrier-based features, including arrestor hooks, catapult bars, folding wings and dramatically strengthened landing gear and fuselage. Another requirement was that the entries would have to be built by companies with recent naval aircraft experience, but neither General Dynamics nor Northrop had a production carrier aircraft for some time. Both partnered with other companies for the modified design; General Dynamics with Ling-Temco-Vought for the F-16N, and Northrop with McDonnell for the F-18. The Navy favored the two-engine layout of the F-18 from the start, and selected it as the winner of NACF in 1976.
When the two companies joined forces for the F-18, part of the agreement was that Northrop would develop a land-based version of the F-18 that removed the naval equipment and lightened the airframe. The resulting F-18L was about 30% lighter than the F-18A, about 27,400 lbs (~12,500 kg) take-off weight as opposed to 33,700 lbs (15,300 kg) and as a result had considerably better performance and range. The aircraft was over 80% similar otherwise, and would be built on the same production lines. Naval versions would be built 60% by McDonnell and 40% by Northrop, while the land versions would reverse this arrangement.
Like the US Navy, the upper upper echelons of Air Command also demanded two engines. Additionally, Air Command was adamant about having the ability to fire the AIM-7 Sparrow missile. Neither the F-16 or F-17 supported the Sparrow, in keeping with their short-range "dogfighter" role as originally envisioned. The US Navy had also demanded support for the Sparrow, as they were less interested in fighter combat as they were in long-range interception of both aircraft and anti-shipping missiles. Both LWF's studied supporting longer-range radar as part of their naval modifications, but as the F-16 modification never proceeded beyond the mockup stage, only the F-18 actually had AIM-7 support. This put the two F-18 variants in the lead from the start.
From a strict technical point of view the F-18L was the best aircraft for the NFA program, with performance roughly equal to the F-16, Sparrow capability, and the twin-engine design the DND favored. Compared to the F-18A, its lower weight and resulting better range would also be very useful in the air defense role over Canada. The F-18L was also offered with a lucrative industrial program; Northrop agreed to move major portions of the F-18L project to Canada, including investing in carbon composite construction techniques to build the wings and tail sections. If accepted, Canada would become the primary construction site for all of these components, which meant that any additional orders for the F-18L from other countries would result in major export contracts for Canadian companies.
Unsurprisingly, DITC strongly favored the F-18L offer. However, contrary to the original conception of the NFA/PO, DITC had only two full-time staff in the office compared to dozens from DND and DSS. Both of the other groups expressed concerns about the offer. As there appeared to be no orders within the USA for the aircraft, any production run would be based on the potential Canadian order and any other exports. Several other countries had expressed a similar interest, notably Greece, Turkey, Spain and Australia, but none of these were a "sure thing." If these deals did not go through, Canada would be the only operator of the aircraft, something the DND considered completely unacceptable. Likewise, the DSS's primary interest was iron-clad contracts with predictable timeframes and budgets, and strongly supported the "off the shelf" requirement. Therefore in October 1978 the NFA office overrode the DITC's concerns and reduced the list to only the F-16 and F-18A, a decision that cabinet accepted on 23 November 1978.
At the time there was some talk of going ahead with the F-18L based on the potential Canadian order alone. Several other forces were in the process of looking at similar aircraft, and the upgrades carried out during the conversion from the F-17 to the F-18 made the F-18L a much more worthy competitor to the F-16 in the export market. However, Northrop found themselves constantly being outmaneuvered by McDonnell's sales team, who would make counteroffers whenever the F-18L was proposed for foreign sales. This eventually led to a lawsuit between the companies, which was settled in 1985 with McDonnell Douglas agreeing to pay Northrop $50 million for complete rights to the design without admitting wrongdoing. By then Northrop had ended work on F-18L.
Douglas (prior to the formation of McDonnell Douglas) had been building tail assemblies for the DC-9 at the former Avro Canada factories at the Toronto International Airport for some time. Their industrial offset program would include modernizing the plants and moving in additional work to include KC-10 and MD-11 wings, MD-80 wings, empennage and cabin floors, and F/A-18 side panels and pylons.
This proposal was greatly worrying to the DITC, and they became much more active in the negotiations. Their concern was based on existing Defence Production Sharing Agreement (DPSA) between the US and Canada that was put in place to balance the amount of trade in military goods between the countries. A major purchase like the NFA meant the US either had to buy a similar amount of military equipment from Canada, or alternately offset the purchase though military production in Canada. A program like Northop's was purely military in nature, so any production in Canada would be counted against this balance, but McD's offer was primarily in civilian goods, which had to be accounted separately. The DITC was concerned that the US government would have to be convinced to re-negotiate the agreement in this case, or make a large military purchase. Neither option seemed straightforward, and would have placed a burden on the DITC's dealings in the future.
While the negotiations with McD were continuing, Air Canada announced it was purchasing the Lockheed L-1011 to add to its wide-body fleet. This greatly angered McD CEO James Smith McDonnell, who personally threatened to cancel the entire agreement up to that point. Neither DND and DSS wanted this to happen, and wanted both aircraft to remain in contention. However, their concerns were later muted when a report was leaked that suggested the F-18 was favored to win the NFA, and it appeared that the DITC's concerns were going to be overridden. The company became much less vocal in the following proceedings.
Contract negotiations went on throughout 1978 and 1979, continuing through the federal elections. The proposed contracts were finalized by June, when then new Progressive Conservative minority government took power. A lengthy review of the contracts followed, and was completed in early December. These were tabled to be signed off on 14 December, but on the 13th the Conservatives failed a vote of non-confidence and the issue was put aside. The Liberals regained power in the ensuing elections, and on 19 February 1980 formal negotiations started again.
Rumors that the F-18 was the winner had surfaced by this point, and General Dynamics started a campaign to have the selection discarded. As part of their industrial program, the Pratt & Whitney F100 engines used in the F-16 would be built at Pratt & Whitney Canada in Quebec, a major windfall. In late March René Lévesque of the governing Parti Québécois publicly announced that the F-16 should be selected because it would provide Quebec with considerably more than the competing McDonnell Douglas offer. This led to a meeting between several interested parties on 9 April 1980, and after transferring several million dollars from Ontario to Quebec the objections disappeared.
The following day the F-18A was officially announced as the winner of the NFA program. On 16 April the contracts were signed, with a ceiling of $2.369 billion US dollars for 137 aircraft, and an industrial package of $2.453 billion Canadian invested by McDonnell Douglas in Canada over the period up to 1995.
In spite of outward appearances, the NFA selection was not a "sure thing". The contract had been left open to the very last minute and continued to see changes even in the weeks immediately before the selection was announced. Additionally, the F-14 almost ended up being purchased from Iran, as their fleet was facing the prospect of falling into disuse due to a lack of spares in the aftermath of the Iranian Revolution. Canadian diplomats tried to convince the Iranians to sell its fleet of eighty almost-new fighters at cut-rate prices. However, the negotiations fell through in the aftermath of the Canadian caper in which six American diplomats were smuggled out of Iran from the Canadian embassy.
A total of 138 CF-18 Hornets were delivered to Canada from 1982 to 1988.
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