Maritime Helicopter Program
Jan 15, 2014

When governments release news on a Friday afternoon, particularly in a holiday season, it is a sure sign they want as little public discussion as possible. On Friday, January 3, the government of Canada announced that it would negotiate yet another deal with Sikorsky Aircraft Corporation for the purchase of 28 CH-148 Cyclone helicopters. Late last fall, as 2013 was drawing to an end, rumours were swirling that considerable pressure was being exerted on officials to resolve the troubled helicopter procurement by the end of the year. Many in Ottawa expected the government to cancel the contract.

While a number of high-profile defence projects have been fraught with delay and “resets”, former defence minister Peter MacKay (in obvious frustration) called the Maritime Helicopter Program “the worst procurement in the ­history of Canada.” More than ten years after the contract announcement in July 2004, and six years after first delivery was promised, the Royal Canadian Air Force still has no operational CH-148 Cyclones.

A decade of painfully public, thoroughly documented delays and renegotiations has taken the procurement beyond an embarrassment to a political liability. The Conservative government has had almost eight years to get the helicopter program right, and ample justification to cancel the contract. With another election due no later than October 2015, the finger can now point in only one direction. The CH-148 is the Harper government’s helicopter.

CH-148 Cyclone

The cancellation rumours were fuelled by CBC and Canadian Press reports, later officially confirmed, that the government was seriously interested in other helicopters. The government asked potential bidders for technical information, and the news was released that Air Force officers had been sent to the United Kingdom for a closer look at the Merlin helicopter. However, one senior industry executive dismissed the exercise as “slightly disingenuous”, because the government really only looked at three or four pages of technical data about machines it should already have been thoroughly familiar with. If the government was attempting to gain negotiating leverage over Sikorsky, the effort was unconvincing.

The January 3 stealth release announced a Principles of Agreement (POA) to guide formal contract negotiations. “Under the terms of the POA, Canada will see delivery of helicopters with operational capability sufficient to begin retirement of Sea Kings in 2015, and a program to enhance those capabilities culminating in a fully capable CH-148 Cyclone Maritime Helicopter in 2018.”

July 2013 - Canada celebrated the 50th anniversary of it's CH-124 Sea King helicopters in September 2013. Here, shown flying over the picturesque Peggy's Cove, Nova Scotia.

Negotiations to make those things happen under a new management structure are supposed to be concluded by the end of March. Even the casual observer would recognize that the ­government has bought itself some time and, most importantly, that the announced agreement could ­preclude discussion by providing an excuse not to say anything. However, if avoiding an election issue was the point of the exercise, timing could be important, because as an industry executive notes, “By 2015, we will know where the weak points are in the Maritime Helicopter Program.”

According to reporting by Murray Brewster of the Canadian Press, the government has already paid almost $1.7 billion to date – for the aircraft, for the mission systems it will carry, and for the necessary infrastructure on military bases on each coast. The Royal Canadian Navy has spent significant time and resources to modify its ships to support the Cyclone, and military and civilian personnel and defence contractors across the country have career and financial interests tied to the success of the MHP project.

Dec 2012 HMCS Regina's CH-124 Sea King transfers supplies from USNS Patuxent while in the Arabian Sea during OP Artemis

Although there are rarely “penalties” per se when the Government cancels a contract (thanks to protection clauses), costs incurred to date, such as the current $1.7B payout/investment reported by Brewster, would all be lost – an amount that dwarfs the almost $500 million in Progress Payments that was similarly lost (erroneously reported as penalties) when Prime Minister Chretien stopped the first MHP contract in 1995, describing the chosen high performance EH-101 as a “Cadillac” helicopter.

The 2010 Auditor General’s Report on military helicopters was scathing about the government’s handling of the file. National Defence, it stated, failed to develop full life-cycle plans and costs for the helicopters in a complete or timely way. “In addition, total estimated costs were not disclosed to decision makers at key decision points.” Perhaps most significantly, it stated that “National Defence underestimated and understated the complexity and developmental nature of the helicopters that it intended to buy”, and “significant modifications were made to the basic models. For the maritime helicopter, this will result in an aircraft that never existed before.”

Convinced that the requirements are all critical, MacKay has said that Canada would not accept a Cyclone “unless it met the requirements” laid out in the contract.

On the other hand, former ADM(Materiel) Dan Ross,  (May 2005 to December 2012), asserts that “Sikorsky has built a magnificent aircraft with amazing capabilities which it demonstrated over two years ago in sea trials on HMCS Montreal. The RCAF should have been allowed to begin pilot training and initial OT&E over 18 months ago.” So what is the problem? According to Ross, that question calls up the very ­genesis of the project. Looking beyond the 15-year-old specifications, he says the 2004 contract itself became a roadblock. “The MHP contract was set in stone – deliver a perfect fully tested aircraft that meets every letter of the contract – or nothing. I don’t think anyone in DND, at least in the past five years, believed that such a miracle would ever occur.”

Ross further explains that MHP “was largely specified as an off-the-shelf project, [and the contract] was structured in a way that provided zero flexibility to address the development and testing of important ­elements such as software. Normally a weapon system of this complexity would permit an integrated project team (IPT) approach, allowing the aircraft engineers, software engineers, Air Force aircrews, and project managers to incrementally test and deliver capability.” He points to the successful Halifax Class Modernization program as “an excellent example” of an IPT.

Despite the level of customization and complexity required on the MHP, the Government’s January 3 announcement leaned heavily on a report by Hitachi Consulting, accepting its recommendations that the Program could be viable “with a different project structure and governance model.”

 Ross agrees. “Once this project became ‘political’ the necessary contract amendments/restructuring have never occurred.” As elections loom in the not too distant future, it looks like the Hitachi report can be used to bring a solution that will unlock this project.

Public Works and Government Services Canada has refused to release the complete Hitachi report, but CBC News acquired and shared a document which summarizes the consultant’s conclusions. In short, as the Auditor General had concluded in 2010, the Hitachi report suggests that government believed it was buying an OTS product from Sikorsky while, in reality, the Cyclone was a developmental aircraft. The project was never structured to manage a developmental effort and “Government and Sikorsky are therefore misaligned in the most fundamental way.”

However, according to Dan Ross, “no one should have believed the project would be ‘off the shelf’ given the extensive modifications required to fold the tail and rotor plus add a significant number of weapons and sensors. Then all that had to be integrated with software that didn't exist.”

The new agreement with Sikorsky, calling for “delivery of helicopters with operational capability sufficient to begin retirement of Sea Kings in 2015”, appears to mean government will then start accepting non-compliant helicopters, something it has so far resisted doing.

The Hitachi report talks about “trade space” in which government, Sikorsky and mission systems builder General Dynamics Canada negotiate how they will meet RCAF operational needs. “Government will degrade the specifications,” believes an industry observer. “The negotiations will produce a new set of downgrades.”

The Hitachi report, as published, confirms that intent, stating that “Government should recognize that they will be required to sacrifice less important MHRS [Maritime Helicopter Requirement Specifications] requirements to deliver relevant capability to the RCAF.”  The negotiations will presumably attempt to balance production costs, life cycle costs, delivery schedules and aircraft specifications – literally ‘trading’ away operational capability while still delivering something that resembles the Cyclone as originally contracted.

Measured against the contract it signed in 2004, the Sikorsky team has some serious technical challenges to meet. It is not clear if the Cyclone will have sufficient range and endurance to meet the original terms, or if the ‘run dry’ issue has been fixed. A Cougar Helicopters-owned Sikorsky S-92, the civilian version of the Cyclone, crashed off the east coast of Newfoundland in 2009, killing 17 people. This incident highlighted the necessity for helicopters to be able to ‘run dry’ (fly without oil in a main gearbox) for at least 30 minutes. The company has not yet proved it can meet that requirement, however, when asked about the list of technical deficiencies in the Cyclone program, Sikorsky spokesman Paul Jackson responded that: “We are currently in negotiations with the government to determine all requirements, schedules and other details. Commenting at this time would be inappropriate as we are respecting an agreement between Sikorsky and the Canadian government not to discuss program specifics while negotiations are ongoing.”

No other military in the world has ordered the Cyclone helicopter. Many navies around the world need to replace their aging Sea King helicopters in the years ahead, as Canada is attempting to do. A functioning Cyclone would be an excellent candidate for those bids, however, sales are unlikely while Canada is struggling with a late, underperforming machine.

In the government’s January 3rd announcement, Mick Maurer, President of Sikorsky Aircraft Corporation stated, “As the pre-eminent helicopter manufacturer in the world, we regret that we have not executed this program to the satisfaction of the Government of Canada and that no aircraft were delivered in 2013.” Despite those words, and Sikorsky’s agreement to pay Canada $88.6 million in liquidated damages for non-delivery, the company has little or nothing to fear as the Cyclone program lurches forward. Canada has already shown itself willing to accept delays, added expense and degraded capabilities in return for relatively minor financial penalties, to be paid in some unspecified way at some uncertain date in the future. Ironically, as a U.S. newspaper pointed out in late January, not delivering Cyclone helicopters to Canada improved share prices of Sikorsky parent company, United Technologies, by six cents, because the manufacturer did not have to declare a paper loss of $14 million per machine.

When a government does little to explain its actions, the few words it does use assume a greater importance. According to the January release, “Hitachi Consulting will remain engaged in the project to ensure delivery of a fully capable maritime helicopter.” Of course, ‘fully capable’ is different from ‘compliant’ and much easier to deliver, especially when capabilities are still being negotiated. Will the Hitachi report initiate a ‘reset’ that will finally unplug this beleaguered project? Stay tuned.

Richard Bray is the Senior Writer at FrontLine Defence magazine.
©FrontLine 2014