This is perhaps the most compelling of the speculations that surround the Arrow’s demise, and is well developed in Palmiro Campagna’s book Storms of Controversy. It wasn’t well-known in the late 1950s that the CIA had already developed the U2, a top-secret plane capable of flying at 70,000 feet, much higher than any plane besides the Arrow. The U-2 was billed as a weather plane but it was already overflying countries around the globe for surveillance and espionage purposes. The technology of the Arrow, were it to fall into the 'wrong' hands, could allow other aircraft to challenge the U-2. If another country acquired, bought or even captured an Arrow, they might have been able to uncover and match the American surveillance game.
Another interesting connection is that the head of the CIA, Allen Dulles, was the brother of John Foster Dulles, the U.S. Secretary of State who advised Defence Minister George Pearkes that the U.S. wouldn’t purchase the Arrow. Palmiro points out that the Secretary of State was privy to all the details concerning the Arrow, and knew full well that because of the antipathy towards the costly program within the Canadian government, the Arrow would collapse without U.S. sales. If it was contrary to U.S. interests for the Arrow to proceed, no ‘pressure’ was necessary to kill the program – the U.S. could simply balk at buying. Indeed, Campagna records that the USAF, perhaps signaled by the CIA, started to cool off just as the first flights were being flawlessly completed.
The Arrow was threatening to the U-2 in more ways than simply as an example of industrial excellence. As mentioned, sales of it could lead to the U-2’s secret mission being disclosed. (This did finally happen in 1960, when a U-2 was shot down over Russia). The Arrow program was also dominating the world’s supply of titanium, a metal in short supply in the late 50’s, and the U.S. was already planning the Blackbird series of high-altitude supersonic reconnaisance craft, which would require a lot of titanium. Plus there was the risk of the Soviets obtaining the secrets of the Arrow, through espionage or by downing one. All in all, there was little advantage to be gained by letting the Canadians develop a supersonic high-flying fighter.
Crawford Gordon v. John Diefenbaker
This theory suggests that Diefenbaker had a problem with Crawford Gordon, the flamboyant and tempestuous head of Avro, and this affected the decision to bring the Arrow down. Crawford Gordon was one of C. D. Howe's "bright young men" who were responsible for the impressive industrialization of Canada during the Second World War. Dief was well known for his dislike of Liberal C. D. Howe and his proteges. There was no shortage of distrust between Avro and the conservatives, mutual on both sides, and it seems that a personal feud over the Arrow did develop between Crawford Gordon and Diefenbaker. There are a variety of stories of stormy meetings between the two (complete with a model of the Arrow being hurled against a wall). Diefenbaker, a small-city lawyer from the prairies suspicious of industrial Ontario, also had a reputation for vindictiveness.
Diefenbaker was personally responsible for the destruction
This seems unlikely. There seems to be a good case that Diefenbaker may not even have known about the destruction. He may have had it in for the Arrow, but the destruction itself seems to have been a matter of Cold War security. It appears that attempts were made to avert total destruction, and photographs and films were saved, discrediting the idea that the destruction was an attempt to obscure the details from future generations.
The idea of total destruction doesn’t appear to have been relished by anyone, with the possible exception the National Aeronautical Establishment, an arm of the National Research Council. The NAE had several high-profile disputes over the Arrow’s performance with Avro, which were resolved in Avro’s favour. According to documents, before destruction was ordered, the NRC was approached and asked if it might house one or two of the completed prototypes. The NRC refused, saying it had neither the budget nor the manpower to house a militarily sensitive craft.
The Quebec Connection
The idea behind this little-known conspiracy theory is that the Diefenbaker government engineered the cancellation of the Arrow as a pay-off to then-premier of Quebec Maurice Duplessis for services rendered during the the 1958 election. Duplessis went to great personal expense to weaken the Liberals in Quebec, paving the way for a conservative landslide. He selected 50 ridings where he felt the Liberals could be defeated, picked Union National candidates, and invested $15,000 per riding. The Conservatives won 50 seats in Quebec. One of the new members was Raymond O'Hurley, who, it is interesting to note, became the new Minister of Defence Production.
The payoff for Duplessis would have been the transfer of the Canadian aircraft manufacturing base from Toronto to Montreal. In 1959 it was decided to replace the F86 Sabre and CF100 in Europe with the supersonic Lockheed 104 Lightning that could be used for interception, tactical bombing and reconnaissance, to be built under license in Canada. The contract to build the engine went to Orenda, but the contract to build the aircraft went to Canadair in Montreal, though allegedly the word on the street was that Avro was the low bidder.