Business

The chopper war

Politics and controversy dog Ottawa’s $2.9-billion helicopter plum

JULIAN BELTRAME September 10 2001
Business

The chopper war

Politics and controversy dog Ottawa’s $2.9-billion helicopter plum

JULIAN BELTRAME September 10 2001

The chopper war

Business

Politics and controversy dog Ottawa’s $2.9-billion helicopter plum

JULIAN BELTRAME

Government purchases, particularly big-ticket items, often attract controversy and charges of political bias. But for sheer suspicion, fingerpointing, accusations of skulduggery— and entertainment value—few can match the Liberal governments Maritime Helicopter Project to replace Canadas creaky fleet of Sea Kings. Already, the government has been dragged before an Ottawa trade tribunal and the Federal Court to defend its procurement process. One potential bidder is threatening a multimilliondollar lawsuit; two others have challenged the rules for entering the competition. All four opposition parties accuse the government of plotting to give Canadas military an inferior helicopter to put aboard its topdrawer frigates. And the bidding process hasn’t even begun yet. “It’s a scandal,” says Walter Robinson, federal director of the Canadian Taxpayers Federation. “Instead of a process based on technical merit, we have one mired in politics.”

Why all the fuss? The simplest answer is money. At $2.9 billion, the program to buy 28 helicopters for the Canadian navy is the biggest government plum in more than a decade, so the competition is understandably cutthroat. Then there’s the bad political blood at the heart of the project. In 1993, Liberal Leader Jean Chrétien made campaign hay of the Conservative government’s $4.4-billion purchase of the so-called Cadillac of helicopters, the EH101, then cancelled the contract within hours of taking office. He took a hammering when the government was forced to pay $487 million in cancellation penalties, and was treated to a chorus of I-told-you-

sos when the Cormorant, a scaled-down version of the EH-101, was chosen in 1998 for Canadas search and rescue needs. Add to that the natural interest Canadians have in ensuring the men and women who defend them are properly equipped, and the government has handed itself a tricky task. It must do more than reach the right decision, it must be seen to do so for the right reasons.

Neither objective will be easy, even assuming the best intentions. The three key expected bidders—the French-German group Eurocopter SA, putting up its Cougar Mark II or updated version, the EC-725; U.S.-based Sikorsky Aircraft Corp. with its H-92; and the British-Italian EH Industries Ltd., makers of the Cormorant—are offering starkly different aircraft. In broad brushes, the Cormorant is still top of the line, the largest, most powerful and priciest. The Cougar is the least expensive, but also the smallest. It was ruled inadequate for the search and rescue program three years ago. Sikorsky is neatly in the middle in all the major categories. A fourth entry—NH Industries’ next generation chopper, the NH-90—is the dark horse because it’s still in development and may not be ready in time.

There isn’t much doubt which bird the navy would choose. Tim Fotheringham, the senior adviser to the commander of the Maritime Air Group when he retired from the armed forces in 1994, says the threeengine Cormorant is still the top choice of Canada’s naval pilots. That’s not surprising. EH Industries specifically designed the Cormorant to replace the Sea Kings operating in Canada, as well as in Britain and Italy. And like the Sea King, it was built to serve the multipurpose role Canada desires, anything from hunting down enemy submarines, to transporting troops and equipment, to search and rescue missions off two coasts. Fotheringham says it’s critical that Canada land the best chopper because of the many tasks required of it. “The United States has at least half a dozen different helicopters at sea that collectively do all the things we try to do with just one,” he says.

The question is whether Canada needs to buy the Cadillac, as Chrétien dubbed the EH-101, or if a Chevrolet can do the job. Bruce McKinney, Sikorsky’s regional manager for business development, insists his company’s H-92 meets all the performance standards called for in the basic vehicle requirement specifications, the 140-page document that sets out the performance parameters for the helicopter. They include the craft’s minimum endurance (two hours, 50 minutes), cruise speed (120 knots) and general aircraft characteristics, such as folding rotors. Sikorsky’s main problem is time. The government wants the winning helicopter certified by military authorities before the contract is awarded, something not required in 1993. But McKinney believes delays in the program should allow the H92 to fly in under the wire. The bidding process is now expected to open next spring at the earliest, with delivery of the first helicopter in late 2005.

Finally, there’s the bargain-basement entry, Eurocopter’s Cougar. Developed in the 1970s, it is already certified and boasts 1.9 million hours of flying experience. But Donald Turrentine, Eurocopter’s Canadian spokesman, won’t say if his craft meets current vehicle specifications. Eurocopter has asked for “clarifications” to the requirement specifications because, says Turrentine, they are incompatible with the government’s statement of operational requirement, the bible of what the chopper is expected to do. “We can do the job that’s required,” says Turrentine. “But if Canada wants a large, expensive helicopter with excess capacity, that’s what it’ll get.”

If the technical merits issue leaves Chrétien vulnerable to second-guessing, the politics of the program puts him into a no-win quandary. Since August, 2000, when the government announced its procurement policy, EH Industries has amassed a roomful of documents attempting to prove government bias against the Cormorant. Its key claim is that the government “dumbeddown” the aircraft requirement to favour less capable helicopters, such as the Cougar. The company struck pay dirt with a December, 1998, document from Maj. Richard Bouchard of the 1 Canadian Air Division. In it, Bouchard quotes Maj.Gen. L. C. Campbell, the commander of the air division, as calling the Cormorant “political suicide.” And last week, Macleans and other news outlets obtained copies of an April 23 in-house evaluation criticizing the military’s own specifications for the new helicopters. Noting that the requirements do not ensure a safe landing in all cases involving failure of one engine, among other flaws, Maj. Sam Michaud of the Sea King Wing at the Shearwater base near Halifax, warned of the “unacceptable risk” to maritime helicopter operations and crews. The current specifications, he said, “fall grossly short of ensuring a minimum acceptable level” of performance.

For many, the entire process has been tainted by politics. There’s no other way to account for the government’s unusual procurement strategy, says Lee Myrhaugen, former deputy commander of the military’s Maritime Air Group and now co-ordinator of the Friends of Maritime Aviation, a watchdog group for the helicopter program. Defending the strategy, Chrétien told Parliament in June that his only interest is for a helicopter “that can do the job at the lowest price possible.” Few can argue with the objective. But what the government is actually doing, says Myrhaugen, who has 4,000 flying hours experience with the Sea King, is “trying to make sure the Cormorant doesn’t win.”

Myrhaugen sees two telltale signs of political interference. The first is the decision to break with normal practice in complex procurements by asking for the lowest sticker price rather than best value. That means the cheapest helicopter meeting the specifications wins the race, even if a nominally more costly aircraft is far superior. Think of buying a Chevrolet for $30,000 when the dealer will sell you a Cadillac for $31,000. The emphasis on price is designed to eliminate the Cormorant from serious consideration, Myrhaugen contends.

The second indicator is even more egregious, he adds, although the actual cost may not be evident until many years after the helicopters are in service. In a surprise move, the government decided to split the contract between the basic aircraft and the missions systems, such as radar and sonar. This was not done when it tendered for the search and rescue helicopters in 1997, and it disregards the navy’s specific request for a single manufacturer. Public Works Minister Alfonso Gagliano said a split procurement opens the door for more Canadian companies to bid on the missions suite, which is worth $925 million. But a defence document has put the cost of splitting the contract at $400 million, mostly due to lost economies of scale and in greater contingency costs. Myrhaugen equates it to buying a car from one company and its electronic gadgetry from another. Compatibility hitches could arise, and then, who do you blame? he asks. So far, the critics have enjoyed a clear run of the media play. But Defence Minister Art Eggleton says when the decision is made, Canadians will know the government held a fair and open competition. Defending the procurement process, the minister points out that it’s unlikely Canada could buy a far superior helicopter for a few dollars more. However, by asking for the lowest price bid, the government puts in place a fail-safe measure ensuring it won’t be paying tens of millions more for bells and whistles Canada no longer needs. “The Cold War is over,” Eggleton told Macleans. “Before, we felt we had to protect ourselves against open-water submarine warfare right into the deepest parts of the ocean. Now, we’re operating mainly within 200 or 300 miles of the coast.”

EH Industries has attempted to prove government bias against the Cormorant

With so much turbulence swirling around the helicopter decision, the best news the government has heard lately may be that all three major contractors have gone public with their beefs. “We must be doing something right if they’re all complaining,” says Eggleton. The government knows there will be howls as soon as the decision comes down—if it’s the Cormorant, Chrétien will be asked why so much money and time was wasted in cancelling the EH-101 the first time around; if it’s one of the others, critics will charge an inferior craft was chosen to save Chrétien political embarrassment. But the government’s trump card may be the very complexity of the contract. For regardless which bird winds up flying over Canada’s skies, the hard part will be figuring out whether it was the right choice, at the right price, and for the right reasons. 03