Title: Report on Atlantic Canada
Sub-title: Eastern Canada is emerging as a surprising pole in Canada’s defence industry, spawning a range of entrepreneurial talent.
Howard Nash is a busy guy. Among his many responsibilities, he is president of Northstar Networks, co-chair of the Atlantic Alliance of Aerospace Defence Associations (AAADA), co-chair of CADSI’s SME committee and has roles in several related organizations.
Although Northstar Networks is small by defence industry standards, boasting sales in the $4 million to $5 million range with about 20 full-time employees, Nash’s ambitions are not. The company bills itself as a “single point of contact for defence, aerospace, marine and homeland security solutions in Atlantic Canada.”
“We have in-house capabilities in design engineering, systems integration, build-to-print and project management,” explains Nash. “But while we do a lot of work in-house, we are also part of a network of more than 25 affiliated companies with capabilities ranging from composite manufacturing to precision machining.”
Northstar Network’s modest size, innovative approach and can-do entrepreneurial spirit are in many ways a reflection of the Eastern Canada region. “Our sector has been growing by leaps and bounds,” says Nash. “But we have to fight hard for every advance we make.”
Bolstered by IRBs, but starting to gain traction
While Atlantic Canada often gets short thrift in the corporate and political worlds, the region’s considerable defence and armed forces sector prowess is hard to ignore. According to the AAADA, the sector comprises more than 200 businesses, which more than 10,000 people that generate close to $1 billion in annual revenues.
Atlantic Canada is also home to Irving Shipbuilding, one of the country’s largest shipyards, and benefits from the close to $1.25 billion that AAADA estimates that the Department of National Defence and the Canadian Forces spend there and the related 24,000 regular, civilian and reserve assets that it employs.
That said, a quick look at the map and productivity tables show few signs why the region’s defence sector’s clout should be so large. For one, the four Atlantic provinces, Newfoundland, Nova Scotia, Prince Edward Island, are all relatively isolated from the key central Canadian financial and political decision-making establishments. Furthermore, at first glance, the region’s industrial and electoral prowess is not overly impressive. In 2008, the four provinces’ $114 billion gross domestic product compared only 5.79 percent of Canada’s total output and he region’s 2.34 million inhabitants comprise a mere 6.9 percent of the country’s population.
“Much of the region’s success has long been driven by Industry Canada’s Industrial and Regional Benefits Policies, which dictate that imported defence sector purchases must be accompanied by dollar-for-dollar work done here in Canada, much of it on a regional basis,” explains Nash. “However over the years you are seeing a lot of local players that have some solid foundations for future growth.”
It’s all about supply chains
Much of the Atlantic Canada’s strength comes from the key roles that smaller local players have built in the supply chains of international giants, such as Lockheed Martin, L-3 Communications and General Dynamics. One such company is St-John’s Newfoundland based, Marport Deep Sea Technologies, which markets software-defined sonar and undersea robotics for commercial fisheries, offshore energy and ocean science applications.
Marport, which was recently named as one of Canada’s five fastest growing companies, got a major foothold in the defence sector last when it bought out sonar systems designer and manufacturer C-Tech. Since then its revenues, which this year are expected to hit $20 million (more than half of which are defence related) have grown by leaps and bounds. “We could see from the start that our products had excellent defence sector potential,” said Marport chairman Derrick Rowe. “The acquisition really helped us get our feet in the door.”
According Rowe, much of the company’s success has come from its ability to partner with other players, such as General Dynamics Canada, with whom it inked a deal last year to jointly develop and market a suite of next generation underwater acoustic products to support underwater military intelligence. “We are particularly proud of the fact that the supply chain contributions that we are making include a significant amount of intellectual property work, and is not merely assembly related,” said Rowe. “That means both that we add more value, and we create a base from which we can make future advances.”
Major regional advantages
While Atlantic provinces often appear off of the beaten paths of central and western Canadians, according to one aerospace and defence sector veteran, the region has some surprising advantages. “It’s a great place to do business,” says Dave McGrath, director (marketing and strategic development) at Vector Aerospace, which operates a global center of excellence in the somewhat unlikely town of Summerside Prince Edward Island. The facility houses a repair and overhaul capabilities that service three Pratt & Whitney engines, the PT6A, JT15D and PW100. Just over 400 employees work at the 155,000 square foot plant, which also houses personnel that oversea other Vector operations elsewhere in Canada and around the world. “The people on this little island and throughout the region are some of the best in the industry,” says McGrath.
Mike Greenley, vice-president (business development and strategic planning) at General Dynamics, agrees. The company is readying facilities in Dartmouth Nova Scotia, which will provide in-service support for Canada’s recently ordered CH-148 Cyclone marine helicopters, the first of which is expected to be delivered by Sikorsky later this year. An engineering center, high tech labs and crew trainers will also be housed at the facility, which is located right across from the 12 Wing Shearwater Heliport base.
Staffing is expected to shoot up from 30 people to about 150 as operations pick up, and could go even higher, if General Dynamics can pick more work to do there. “We have a very stable platform here to use to bid on international sales,” said Greenley, via a mobile phone call from the Berlin Air Show, where he was trying to drum up some additional export business.
“One of the things we all like about Atlantic Canada is how easy it is to get things done here,” says Greenley. “There is a highly pro-aerospace and defence sector posture at all levels of government. Everyone in the defence community knows each other well, and interactions with public officials, researchers and universities go smoothly.”
One of the most tangible benefits of Atlantic Canada’s defence and aerospace sector’s growing prowess has been the region’s success in building export sales (to close to 180 countries). According to the AAADA, the dollar value of those exports shot up by an impressive 207 percent between 2001 and 2007. One exemplar of the continuing demand is St. John’s Newfoundland-based Rutter Inc., which just inked a USD $6 million deal to supply assemblies to General Dynamics Land Systems that will be used in Stryker vehicles sold to the US Army.
Furthermore, according to Brian Johnston, Rutter’s sales manager, the future looks increasingly bright for these types of alliances. “The defence sector has grown steadily over the past 10 years, with many new companies starting with specialized or niche technologies,” says Johnston. “The future will provide even more opportunities as programs such as the Canadian National Shipbuilding Plan come on-stream. However at Rutter, most of our business development opportunities will be either elsewhere in Canada of international in nature.”
Yet at the end of it all, the inescapable fact is that much of Atlantic Canada’s export successes continue to be inextricable linked to IRB-related initiatives. For example earlier this year IMP Aerospace was awarded a major contract by the Royal Norwegian Air Force to carry out a series of major structural upgrades on six of that country’s P-3 Orion turbo-prop anti-submarine aircraft, which were manufactured by Lockheed Martin.
The Norway deal had its roots in Lockheed Martin’s USD $1.4 billion deal to sell seventeen Hercules C-130J transport aircraft to the Canadian Armed Forces. Since the aircraft will all be made outside of Canada, Lockheed was left with a huge IRB commitment. Its partnership with IMP on the P-3 arrangement provides it with an opportunity to offset some of that responsibility.
According to Nash, the AAAPA, a regional structure formed in 2003 by the presidents of the four provincial associations (Aerospace and Defence Association of Newfoundland and Labrador, Aerospace PEI, Aerospace and Defence Industries Association of Nova Scotia and the New Brunswick Aerospace and Defence Association) ensure that Atlantic Canada will continue to play a major role in Canada’s IRB regime.
“Among of our organization’s primary purposes is to optimize industrial and regional benefit opportunities for Atlantic companies through strategic management and coordination efforts,” says Nash. “One of the best ways we can do that is to facilitate companies across the region working together to identify opportunities and to pursue them. That way we all win.”
Sidebar #1: Atlantic Canada’s Aerospace and Defence Sector at a glance*
Sales: $1 Billion+
Number of companies: 200
Export growth: 207% (between 2001-2007), to 180 countries
Sidebar #2: DEFSEC gears up for record turnout
One of the most visible signs of the Atlantic Canada Aerospace and Defence sector’s growth is the evolution of the DEFSEC Atlantic 2010 trade show, whose progression has paralleled that of many key companies in the region.
According to Colin Stephenson, the show’s director of exhibitions, both attendance and display space at the event which will be held between September 8th and 20th at the Cunard Center in Halifax, are projected to rise by 20 percent this year.
DEFSEC stands out for several reasons says Stephenson. “Our show fits a certain balance in the sense that it is quite large, though it the same time it is intimate enough so that visitors can get access to the most important people at the companies they want to connect with.”
In all, more than 70 companies, including the world’s seven largest aerospace players will set up displays in 50,000 square feel of space, manned by 500 exhibitor personnel. This ranks the tri-service event (land, sea and air) as the country’s second largest show in the sector.
“Atlantic Canada is very important to prime contractors in our industry because the region is so important in helping them fulfill their IRB expectations,” says Stephenson. “Our show provides a perfect vehicle to enable primes to partner up with local companies.”
DEFSEC will feature several new attractions this year says Stephenson, notably presentations by the Canadian armed forces’ chief of defence staff Walter Natynczyk, and assistant deputy minister (material) at the Department of National Defence Dan Ross. The event’s theme - “earth observation from space,” – will form the subject of a panel discussion among key industry leaders, moderated by professor James Ferguson of the University of Manitoba.
The event will host the largest UK defence mission to Canada this year. Close to 30 sector players including BAE, Tavcom Training and several others will be housed in a separate UK pavilion. The Canadian Navy will also dock one of its frigates nearby and conference visitors will get a chance to tour the ship.
To celebrate the Canadian Navy’s centennial, another highlight will be a water tour across Halifax Harbor, to the Shearwater Heliport. Visitors will get a chance to see the $750 million in new infrastructure that has been built up to prepare for the arrival of the CH-148 marine helicopters that will be based there, and to check out the air practice sessions in preparation for the Nova Scotia Air Show.
Peter Diekmeyer (email@example.com) is a Montreal-based freelance business writer.
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