Diefenbaker and his Minister of National Defence, Major-General George Pearkes, V.C., inherited two thorny defence programs from the Liberals - the Arrow programme and the North American Air Defence Agreement (NORAD). In July 1957, on the advice of Pearkes and the Chiefs of Staff Committee (CSC) and without consulting Cabinet or a stunned Department of External Affairs, Diefenbaker casually signed the agreement. Canada was now formally committed to joint continental air defence an, consequently, the supranational military integration of the RCAF, who unquestioningly accepted US strategic principles, and the USAF. A storm of criticism ensued, which fed the partisan Diefenbaker's mistrust of anyone who had served the previous government - including the military and the top management of A.V. Roe Canada Ltd.
If the Liberals had been frightened by the consequences of terminating the Arrow programme with an election pending, the Conservatives recoiled from the prospect of cancelling it during an economic recession when they did not have a majority in the House of Commons. For political rather than military reasons, the inexperienced Diefenbaker government gave the CSC and a worried Avro the go-ahead to continue development of the Arrow on a restricted basis for one year whereupon the entire project would be reviewed. On October 4, 1957, a proud Avro officially rolled the first prototype, Arrow 201, out of its hanger. However, on the same day the Soviet Union launched into orbit Sputnik, the world's first satellite, shocking a complacent West and , symbolically, driving the Arrow from the headlines. On March 25, 1958, Arrow 201 flew for the first time, proving its airworthiness. Six days later Canadian voters returned the Diefenbaker government to office with the strongest electoral mandate in Canadian history.