Canada reaches deal to buy Boeing surveillance aircraft for $5.9 billion

By Ismail Shakil and Allison Lampert

OTTAWA (Reuters) -Canada and the United States reached a deal to buy up to 16 Boeing (NYSE:) aircraft as part of a C$10.4 billion ($7.7 billion) project, the Canadian Defence Ministry said on Thursday, despite calls from business jet maker Bombardier (OTC:) for an open competition.

The investment to replace Canada’s aging fleet of Aurora military surveillance planes includes an up to $5.9 billion sole-sourced deal for P-8A Poseidon aircraft and related equipment. The remaining funds will be used for simulators, infrastructure and weapons, the ministry said in a statement.

The P-8 is designed to find enemy ships and submarines using a suite of advanced electro-optical and acoustic sensors, radar and equipment like sonobuoys.

The announcement ends months of speculation and follows a challenge from Canada’s Bombardier, which wanted to compete with a missionized version of its Global 6500 jet with the backing of politicians in the province of Quebec.

Montreal-based Bombardier said it was “disappointed” with the decision.

Ottawa had reached out to Washington in March about buying Poseidons, arguing that Boeing’s aircraft was the only one to meet all its requirements.

“We believe that it is very much in the public and national interest to acquire the only capability currently available to us,” Defence Minister Bill Blair told a news briefing in Ottawa on Thursday.

“In this case, there is an aircraft in use that is available and currently in production and on the other side, we had the concept,” said Industry Minister François-Philippe Champagne, who added his government still supports Bombardier.

The P-8 is currently operated by Canada’s Five Eyes allies – the United States, United Kingdom, Australia and New Zealand.

Canada will procure 14 of 16 Poseidons approved for sale and keep the option open to buy two more. Deliveries of the aircraft are expected to be completed as early as autumn 2027, with full operational capability anticipated by 2033.

Richard Shimooka, a senior fellow at Macdonald Laurier Institute, said the sole-source decision would allow Canada to get the planes years earlier.

Shimooka, a defense and foreign policy specialist, said a lengthy competition would also risk Boeing needing to end P-8 production due to insufficient demand, which would raise costs if Canada decided to order the plane in the future.

Boeing has said it will continue to make P-8s if there is “sufficient demand to maintain efficient and safe production.”

Excluding Canada, Boeing says the backlog for P-8 orders is 20 planes, with 183 on contract and 163 delivered.

($1 = 1.3582 Canadian dollars)