The US Commerce Department decision to slap up to 213% tariffs on Canadian aircraft manufacturer Bombardier gives new life to Canada's original plan to procure 65 F-35As from Lockheed Martin in a decades-long deal worth at least $9B in upfront procurement and billions more in long term sustainment support.
Canadian backlash will almost certainly result in the cancellation of a State Dept- approved deal made with Boeing last November worth $5.23B for 18 F/A-18E/Fs and associated weapons/equipment. A decision to cancel must be seen as a blow to BA, GE and RTN, primary vendors on the F/A-18E/F.
Tuesday's Commerce Department decision was a result of Boeing's complaint that Bombardier was benefiting unfairly from government subsidies. Prime Ministers Trudeau of Canada and May of the UK (5,000 Bombardier employees in Northern Ireland) had raised the issue with President Trump. Trudeau had already put last November's decision for the 18 Boeing jets on hold to emphasize his nation's concern. He will now have to follow through and cancel the agreement.
The embarassment for Trudeau is particularly acute since the 18 F/A-18E/Fs were part of his specific campaign promise to cancel the previous Canadian government's 2010 decision to procure 65 F-35s to replace its decrepit fleet of 138 F/A-18s. Those jets were purchased in the 1980s and are now approaching block obsolescence.
The November 2016 decision to buy 18 F/A-18E/Fs was to be an interim step to allow the Government to hold a new competition for the larger buy. Given the $5.23B that would have already been invested in 18 F/A-18E/Fs, a future competition was viewed as unlikely to be winnable by anyone other than BA. Thus, the Canadian backlash that we now expect has much larger long term negative financial consequences from Canada for the Boeing team than just the $5.23B.
While the back to the future selection of the F-35 as Canada's fighter now looks to be much more probable, it is not certain. Canada is likely to take a hard look at the Eurofighter given its currently fraught relationship with its southern neighbor and the Prime Minister's difficult position. However, with the F-35A unit cost now on track to be $85M or less by 2019, the aircraft is now actually significantly cheaper than the notoriously expensive Eurofighter. Even more importantly, Canada's participation as a Level 3 partner since 2002 has yielded industrial participation contracts currently worth ~$900M which should grow to ~$8B over time if Canada buys the F-35.