The U.S. International Traffic in Arms Regulations prohibits employees from more than 20 countries including China, Cuba, Haiti and Vietnam from working on defense contracts in Canadian plants belonging to such U.S. companies as Boeing, the Globe and Mail said. Canada claims that contravenes its own Charter of Rights and refuses to exclude those workers.

That, along with contract delays, is behind soaring costs and late deliveries, Canadian Department of National Defense documents seen by the newspaper said.

Conservative Prime Minister Stephen Harper's minority government announced the acquisitions in 2006 but only the fleet of Boeing C-17 aircraft are operating. Another fleet of Hercules C130J cargo planes remains on order, as is a $2 billion fleet of 16 Chinook helicopters, the newspaper said.

Defense sources told the Globe the government appears to have either the option of absorbing the extra costs or reducing its orders.