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High Cost Leads Canada to Study Plans to Buy F-35s

December 13, 2012 by Leave a Comment

The decision was an unusual step back by Stephen Harper, the prime minister, who has been a strident defender of the purchase despite widespread public criticism of the price. Two cabinet ministers said an independent panel would review a variety of options, including a version of Boeing’s Super Hornet fighter as well as sticking with the F-35, made by Lockheed Martin.

“We have hit the reset button and are taking the time to do a complete assessment of all available aircraft,” Rona Ambrose, the public works minister, told reporters in Ottawa.

The announcement came after the auditor, KPMG, estimated that Canada would spend $45.8 billion to buy and operate the planes over 42 years, the expected life span.

When Peter MacKay, the defense minister, first announced Canada’s plan to buy the F-35 in 2010, he said the purchase price was $9 billion, but declined to provide operating cost estimates. The next year during an election campaign, the Conservatives put the total cost over 20 years at $16 billion.

If Canada were to back out of the project, it would be a blow to Lockheed and the Pentagon, which is counting on foreign sales to help reduce the cost of building each of the planes.

The F-35 was conceived as the Chevrolet of the sky, a radar-evading aircraft that could be built relatively cheaply and adapted to the needs of the Air Force, Navy and Marines.

But almost from the start, development of the planes and their sophisticated gear proved far more costly and difficult than anticipated.

The plane is now projected to be the most expensive weapons program in history, with the Pentagon spending $396 billion to buy 2,443 planes by the late 2030s. The United States is counting on 10 allies to buy at least 700 more.

To meet the Pentagon’s targets of $79 million to $106 million a plane, depending on the model, Lockheed needs to increase its economies of scale by spreading the costs across as many planes as possible. Canada’s hesitancy about the project could add to worries among the allies about the plane’s cost.

This year, economically troubled Italy cut its planned F-35 order by 30 percent. Britain and Australia have delayed decisions on how many F-35s to buy. And lawmakers in the Netherlands are also questioning the jet’s cost.

The Pentagon and Lockheed have stepped up their efforts to reassure those countries and persuaded two others, Israel and Japan, to sign on.

“You have to wonder when a slip becomes a slide with this program,” said Richard L. Aboulafia, an analyst with the Teal Group in Fairfax, Va. “This is not a simple question of a fighter from a new generation all by itself in the market. There is price pressure and there’s a growing cost-consciousness among all customers.”

Until recently, the ruling Conservative Party in Canada swiftly rejected any suggestion that the country not buy the F-35s. Two years ago, Mr. Harper said that critics of the acquisition were “playing politics with the lives of our men and women in uniform.”

But after the office of the Auditor General of Canada released a report in March indicating that the planes would cost much more than the $16 billion the government had indicated, Mr. Harper’s aides began edging away from the program and hired KPMG to produce the new cost estimates.

Ms. Ambrose and Mr. MacKay repeatedly used the word “reset” on Wednesday and avoided questions about what that step would mean in evaluating alternatives. The ministers and officials, however, did make it clear that no decision had been made to start a formal competition among aircraft manufacturers and acknowledged that it remained possible that Canada would stick with the F-35.

The review, Mr. MacKay said, would “ensure that a balance is maintained between the military needs and taxpayer interests.”

Canada’s concerns about the costs of the F-35s come as American officials worry that the F-35’s huge price tag could make it a target for budget cutters in Washington as well. The Pentagon has already slowed the program to fix technical problems and reduce the immediate costs.

Pentagon and Lockheed officials sought on Wednesday to play down the developments in Canada.

Lt. Col. Melinda F. Morgan, a Pentagon spokeswoman, said the KPMG cost estimate for Canada was in line with the Pentagon’s current projections for the cost of the planes.

She said that Canada’s decision to review its options seemed similar to a high-level review the Pentagon conducted in 2010 when problems were mounting with the planes. Top Pentagon officials determined then that they had no alternative that could provide the same capability.

Lockheed issued a statement noting it had worked with Canada’s armed forces for 50 years and looked forward to continuing the relationship.

The KPMG study said that if Canada wanted to stick to the original $9 billion price, it would be able to buy only 55 planes.

Possible alternatives to the F-35 include an updated version of Boeing’s F/A-18 Hornet, called the Super Hornet, and several European models. The Royal Canadian Air Force currently flies CF-18s, a version of the Hornet. While some of Canada’s jets date back about 30 years, Mr. MacKay said Wednesday that the fleet could be kept operational for at least another decade.

In the past, Mr. MacKay and others have emphasized the need for Canada’s next generation of fighters to include the radar-evading stealth technology found on the F-35. But several military analysts in Canada have noted that the country’s air force had not been actively involved in first strikes, where stealth would be most crucial. Others have questioned using the single-engine F-35 for patrols in remote Arctic regions, a primary mission for Canada’s military.

Separately on Wednesday, the government also reduced its estimate of business that Canadian companies were likely to win from F-35 contracts to $9.8 billion from $12 billion.

Article source: http://www.nytimes.com/2012/12/13/business/high-cost-leads-canada-to-study-plans-to-buy-f-35s.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Thinking Entrepreneur: Occupy Wall Street? Who Will Occupy Main Street?

October 27, 2011 by Leave a Comment

Thinking Entrepreneur

An owner’s dispatches from the front lines.

Lots of people enjoy saving money by shopping online. The prices are often lower, and in many cases there is no sales tax and little or no shipping charge. But while free market forces prevail, there are growing problems with the after-effects of this market shift to Internet sales.

It is becoming commonplace for customers to go into a store, examine a product, get educated by a sales clerk, and go home to order the product online. Instead of feeling bad for taking the time of someone who is trying to make a living, many people feel righteous about it. They say things like, “I’m not going to get ripped off.” Or they simply don’t think about it at all. I have a friend who owns a shoe store, and he tells me that people come in all of the time, try on some shoes, spend half an hour with a member of the sales staff, and when they have made a choice they announce that they are going to order the shoes online — as if it is something to boast about. Boasting to your friends is one thing; boasting to someone who has just spent time trying to help you is rude at best.

Wasting a sales representative’s time with no intention of buying is a problem that goes back hundreds or thousands of years. I mentioned this to my scholarly friend, Robert — I have only one scholarly friend; if you have two, they argue all the time — and he told me that this is covered in the Talmud. I did a little research and found that, according to the book “Values, Prosperity, and the Talmud: Business Lessons from the Ancient Rabbis,” by Larry Kahaner: “One of the most important rules prohibits customers from showing interest in a product if they have no intention of buying. The practical aspect was that it wasted the sellers time when he could have been spending it with a customer who was truly in the market.”

O.K. I understand that this appeal to guilt — Jewish guilt, Catholic guilt, any brand — is not going to convince a lot of people to behave differently. Many will simply say it’s not their problem, even though they would not like people visiting them on the job and wasting their time. But it is their problem, or it will be.

What happens if your local retail stores become a showroom for online stores to such an extent that it forces them out of business? Are you perfectly happy not touching and trying out products? It has already happened with the closing of hundreds of Borders book stores. This is not a level playing field — and I say this as someone who has both retail outlets and substantial online sales. And it’s not just the retailers that get hurt. Think of all the sales tax that those stores used to generate.

Zappos does about $1 billion in sales every year. If Chicago represents 2 percent of the company’s business, that would be $20 million in annual sales. That represents about $2 million dollars of sales tax that the city no longer gets — and no longer gets to use to pay for police, firefighters, teachers and street repairs (with a few dollars left over for graft and corruption, of course). And Zappos is only one company. How much more is being lost on sales by Amazon (which owns Zappos) and all of the other online retailers?

The loss of sales tax, as well as the loss of the real estate and payroll taxes that those closed stores used to pay, is damaging your city and state. This is a zero-sum game. You may think that if a local store can’t compete with Zappos or Amazon, that’s the store’s problem. And you may be right. But why do the rules favor Zappos and Amazon? Not forcing them to collect sales tax has given them an unfair advantage that ultimately will force all of us to pay higher taxes to local governments.

Right now, the problem is being masked by the fact that we are coming out of a recession (I think! I hope!). There is an assumption that this is the main reason sales tax revenue is off. But I would bet that there is more revenue being lost from the Internet sales tax loophole than from the soft economy. This is a simple problem with no simple solution. But I would like to offer some insight into the beat-the-retailer mentality.

Saving money online can be a pleasure. But these local stores employ your friends and neighbors, spend millions of dollars in your community, and are hardly taking advantage of anyone. Have you ever seen the bottom lines of most large retailers? Five or 6 percent is probably about the average. And the small local store? I laugh when people tell me what a “gold mine” a particular store must be. I always ask, “Are you the store’s accountant?” I talk to small-business groups all of the time. Whether it is the local frame shop, furniture store, luggage store, florist, shoe store, bicycle shop, or eyeglass store, many are struggling. If they are doing well, they are not doing that well. Most stores are not ripping people off. They are trying to make a living, give service, support employees and pay taxes — and they are getting challenged by large companies that can buy cheaper but don’t necessarily provide better value.

Here is the bottom line: The sales tax loophole is going to have to be fixed, whether you like it or not. The cities need the revenue. And people will continue to shop at stores with no intention of buying, whether the store owners like it or not. Perhaps some people will start to think twice about it. At least, they don’t need to rub it in the face of the store staff. It’s nothing to brag about, really.

Jay Goltz owns five small businesses in Chicago.

Article source: http://feeds.nytimes.com/click.phdo?i=de83e825cd58c363eac20ec7345750eb

Filed Under: Small Business Tagged With: , ,

You’re the Boss Blog: Occupy Wall Street? Who Will Occupy Main Street?

October 26, 2011 by Leave a Comment

Thinking Entrepreneur

An owner’s dispatches from the front lines.

Lots of people enjoy saving money by shopping online. The prices are often lower, and in many cases there is no sales tax and little or no shipping charge. But while free market forces prevail, there are growing problems with the after-effects of this market shift to Internet sales.

It is becoming commonplace for customers to go into a store, examine a product, get educated by a sales clerk, and go home to order the product online. Instead of feeling bad for taking the time of someone who is trying to make a living, many people feel righteous about it. They say things like, “I’m not going to get ripped off.” Or they simply don’t think about it at all. I have a friend who owns a shoe store, and he tells me that people come in all of the time, try on some shoes, spend half an hour with a member of the sales staff, and when they have made a choice they announce that they are going to order the shoes online — as if it is something to boast about. Boasting to your friends is one thing; boasting to someone who has just spent time trying to help you is rude at best.

Wasting a sales representative’s time with no intention of buying is a problem that goes back hundreds or thousands of years. I mentioned this to my scholarly friend, Robert — I have only one scholarly friend; if you have two, they argue all the time — and he told me that this is covered in the Talmud. I did a little research and found that, according to the book “Values, Prosperity, and the Talmud: Business Lessons from the Ancient Rabbis,” by Larry Kahaner: “One of the most important rules prohibits customers from showing interest in a product if they have no intention of buying. The practical aspect was that it wasted the sellers time when he could have been spending it with a customer who was truly in the market.”

O.K. I understand that this appeal to guilt — Jewish guilt, Catholic guilt, any brand — is not going to convince a lot of people to behave differently. Many will simply say it’s not their problem, even though they would not like people visiting them on the job and wasting their time. But it is their problem, or it will be.

What happens if your local retail stores become a showroom for online stores to such an extent that it forces them out of business? Are you perfectly happy not touching and trying out products? It has already happened with the closing of hundreds of Borders book stores. This is not a level playing field — and I say this as someone who has both retail outlets and substantial online sales. And it’s not just the retailers that get hurt. Think of all the sales tax that those stores used to generate.

Zappos does about $1 billion in sales every year. If Chicago represents 2 percent of the company’s business, that would be $20 million in annual sales. That represents about $2 million dollars of sales tax that the city no longer gets — and no longer gets to use to pay for police, firefighters, teachers and street repairs (with a few dollars left over for graft and corruption, of course). And Zappos is only one company. How much more is being lost on sales by Amazon (which owns Zappos) and all of the other online retailers?

The loss of sales tax, as well as the loss of the real estate and payroll taxes that those closed stores used to pay, is damaging your city and state. This is a zero-sum game. You may think that if a local store can’t compete with Zappos or Amazon, that’s the store’s problem. And you may be right. But why do the rules favor Zappos and Amazon? Not forcing them to collect sales tax has given them an unfair advantage that ultimately will force all of us to pay higher taxes to local governments.

Right now, the problem is being masked by the fact that we are coming out of a recession (I think! I hope!). There is an assumption that this is the main reason sales tax revenue is off. But I would bet that there is more revenue being lost from the Internet sales tax loophole than from the soft economy. This is a simple problem with no simple solution. But I would like to offer some insight into the beat-the-retailer mentality.

Saving money online can be a pleasure. But these local stores employ your friends and neighbors, spend millions of dollars in your community, and are hardly taking advantage of anyone. Have you ever seen the bottom lines of most large retailers? Five or 6 percent is probably about the average. And the small local store? I laugh when people tell me what a “gold mine” a particular store must be. I always ask, “Are you the store’s accountant?” I talk to small-business groups all of the time. Whether it is the local frame shop, furniture store, luggage store, florist, shoe store, bicycle shop, or eyeglass store, many are struggling. If they are doing well, they are not doing that well. Most stores are not ripping people off. They are trying to make a living, give service, support employees and pay taxes — and they are getting challenged by large companies that can buy cheaper but don’t necessarily provide better value.

Here is the bottom line: The sales tax loophole is going to have to be fixed, whether you like it or not. The cities need the revenue. And people will continue to shop at stores with no intention of buying, whether the store owners like it or not. Perhaps some people will start to think twice about it. At least, they don’t need to rub it in the face of the store staff. It’s nothing to brag about, really.

Jay Goltz owns five small businesses in Chicago.

Article source: http://feeds.nytimes.com/click.phdo?i=de83e825cd58c363eac20ec7345750eb

Filed Under: Small Business Tagged With: , ,

Bucks: Investing Should Be Dull

June 21, 2011 by Leave a Comment

Carl Richards

Carl Richards is a certified financial planner in Park City, Utah. His sketches are archived here on the Bucks blog and on his personal Web site, BehaviorGap.com.

The last few weeks, we’ve seen multiple headlines about initial public offerings. Chatter around LinkedIn, Groupon, Pandora and even Facebook has made people excited about the potential of getting in at the beginning of what might be the next Google.

At the same time there’s been debate about whether we’re in another tech bubble. But it seems to me that everyone is skipping over the biggest question that tripped us up the last time I.P.O.’s were on everybody’s mind: what’s the actual value of the investment?

Let’s be clear from the beginning: real investing is about understanding the value of your investment. And frankly, sorting that out is about as much fun as watching grass grow.

Doing that work is not sexy, and it doesn’t generate big headlines. It’s much more fun to stand around at the neighborhood barbeque and talk about what everyone else is talking about, which happens to be I.P.O.’s right now.

But they can be tricky. Much of what helps you determine the value of an investment is history. And while every company has to file a report with the Securities and Exchange Commission before going public, wading through that report can be time consuming.

I often joke that the only way to get people to read the reports that companies produce is to print them and stick them in envelopes marked “Top Secret.” But instead of taking the time to read the report, people often jump on an I.P.O. because everyone else is doing it.

But come on now. Really? We used that excuse as children. If you end up buying any investment, let alone an I.P.O., just because your neighbor or friend happens to, you’re assuming that at some point you’ll find a bigger fool who also hasn’t done the math yet.

Failing to do the math trips up even the most enthusiastic investor. Just look at what happened to Pandora last week. Now, Pandora may ultimately prove to be a great investment, but here are just a few things that may have contributed to Pandora’s not so positive I.P.O. results:

  • Pandora loses money on every transaction
  • Pandora has no assurance that it can negotiate better terms when its current music royalties agreement expires in 2015
  • Pandora’s revenue growth is slowing

Understanding how issues like these affect the value of your potential investment is critical. But we have a bad habit of pretending that we’re investing when in reality we’re speculating. Remember: investing is about value, while speculating is about price. Pandora did come out strong price-wise, but by the second day of trading, its stock price had dropped below the initial public offering price.

While Pandora is just the most recent example of what can happen if you choose to skip the details, it won’t be the last, nor is the risk limited to I.P.O.’s.

So are you prepared to gamble on whether someone will be a bigger fool after you and buy the investment you didn’t check out carefully? It’s much better to be bored than it is to be broke. The next time you feel the urge to invest, think long and hard, and ask yourself if the math adds up.

Article source: http://feeds.nytimes.com/click.phdo?i=d9e25ca13430ab0aee0c6d7385cfa500

Filed Under: Your Money Tagged With: , ,