Lockheed Martin takes big step toward winning Canada jet race

2/2 © Reuters. A sign at the new Lockheed Martin Manufacturing Centre of Excellence is seen at the company's headquarters in Ampthill near Bedford, Britain June 9, 2016. REUTERS/Peter Nicholls/File Photo 2/2

By David Ljunggren

OTTAWA (Reuters) -Canada has picked Lockheed Martin Corp (NYSE:LMT) as the preferred bidder to supply 88 new fighter jets, Procurement Minister Filomena Tassi said Monday, in a clear sign the U.S. company is set to win the multibillion-dollar contract.

The move indicates Canada - under pressure to boost defense spending as the war in Ukraine rages - is closer to making a decision that has dragged out for more than a decade.

"This announcement marks another important milestone in Canada's competitive process to purchase modern fighter jets for the Royal Canadian Air Force," Tassi said.

Canada has been trying unsuccessfully for more than a decade to replace its aging F-18 fighters. The former Conservative administration said in 2010 that it would buy 65 F-35 jets but later scrapped the decision, triggering years of delays and reviews.

"The F-35 is in operational use by NORAD and NATO partners in missions around the globe. It has proven to be a mature, capable and interoperable aircraft and that is why we are moving to the finalization phase of this procurement," Defense Minister Anita Anand, speaking alongside Tassi, told reporters.

The federal government of Prime Minister Justin Trudeau will now only hold detailed talks with Lockheed Martin. Ottawa says it hopes to award the contract this year and take first deliveries in 2025.

Defense sources had long bet on the U.S. company, given Canada belongs to the consortium that developed its F-35 jet and the fact the plane is the military's first choice. Ottawa says the contract could be worth up to C$19 billion ($15.10 billion).

"We look forward to continuing our partnership with Canadian industry to deliver and sustain the F-35 for the Royal Canadian Air Force," Lockheed Martin Canada Chief Executive Lorraine Ben said in a statement.

If the negotiations for some reason fail, the government will turn to Sweden's Saab, the other contender.

"While we maintain our position that Saab presented the best offer for the Future Fighter Capability Project, we respect the decision of the government of Canada," the Swedish company said in a statement, adding that it would continue to collaborate with Canada in current and future programs.

Canada though has a long history of using U.S. military equipment and, unlike Sweden, belongs to both NATO and NORAD, the North American defense organization.

Trudeau came to power in 2015 vowing not to buy the F-35 as too expensive but has shifted his position.

The obvious alternative would have been Boeing (NYSE:BA) Co but it fell out of favor after taking trade action against Canadian rival Bombardier (OTC:BDRBF) Inc and was excluded from the competition last December.

($1 = 1.2586 Canadian dollars)