Title: Western Canada Report 2011

Sub-title: Big spaces make for big defence sector opportunities in Canada’s western provinces. But is the country’s largest major region getting its share?

 

Those who say that history is a slave to geography only need turn to a map of Canada’s western provinces for proof. British Columbia, Alberta, Saskatchewan and Manitoba encompass vast, though sparsely populated land spaces, beautiful open skies and a long coastline. It should thus not be surprising that a range of defence sector players would spring up to take advantage of those natural assets.

 

The Canadian Armed Forces’ presence in the region ranges from naval bases and deployments along the country’s sizeable western coastline, to air and land-based facilities.

Companies too have joined in. For example, according to Caroline Grover, executive director of the ED Alliance of Southeast Alberta, half of all of Canada’s unmanned vehicle systems industry is in Alberta and close to 25% of all global UVS spending is done there.

 

Alberta’s massive restricted airspace

One of Alberta’s key selling points to defence sector players says Grover, is the province’s vast pool of restricted air space which air force and UVS personnel can use to conduct operations. The Canadian Center for Unmanned Vehicle Systems (CCUVS), a non-profit sector support organization, which provides launcher and other capabilities, is another great recent addition, says Grover.

 

One example of Alberta’s spectacular geographical assets is Canadian Forces Base Suffield, just south of Calgary, which also hosts the British Army Training Unit Suffield (BATUS), as well as police, UN and first responders personnel who train there. According to Grover that base alone offers more restricted air space than is available in all of Great Britain.

 

“Thirty percent of all British troops have trained in Suffield’s 6,500 square kilometres says Grover. “This is great for Alberta’s economy because these troops all spend money here on things like meals, the odd brew and shopping.” One key selling point: parts of the base clearly resemble Afghanistan, where many of the soldiers trained there would later be deployed.

 

But is Western Canada getting its share?

Businesses are also keen to conduct their own internal training requirements in Alberta says Grover. “Many companies have a hard time getting access to restricted air space,” says Grover. “So there is no lack of demand from businesses such as MDA, Dycor and Iunctus Geomatic Corporation that want a presence here.”

 

That said, despite Western Canada’s considerable advantages, questions remain among a variety of sector professionals whether the region is attracting its share of Canada’s military spending and whether it will continue to do so in the future. This is particularly true regarding initiatives such as the Joint Strike Fighter, transport aircraft and helicopter programs, for which the Department of National Defence’s Industrial and Regional Benefits strategy remains unclear.

 

Earlier this year a half dozen senior defence industry players participated in a cabinet working group, in which they expressed concerns about IRB spinoffs in the region to Lynne Yellich, minister of state (western economic diversification). “There is very little transparency into how IRB obligations will play themselves out,” said one participant. “Considering the competition that many Canadian sector players are facing from emerging markets competitors, we are hoping that a coherent strategy will be implemented soon.”

 

Meggitt Training Systems

Canada’s industrial and regional benefits programs have played a key role in the western Canadian defence industry’s growth for many years, says Spencer Fraser, president of Meggitt Training Systems Canada. “Many companies that have presences here, such as Raytheon, Harris and General Dynamics (through Control Data) trace their roots to IRB programs,” says Fraser. “We have to work to make sure that these successes continue.”

 

Meggitt has been doing more than talking, it has been acting too. IRB programs have kept the company’s 50+ western Canada employees busy making naval, air, and ground targets. However in recent years, Meggitt has racked up considerable export successes too, notably in Asia, where it recently inked a deal to sell live fire training systems to a country that Fraser asked not be named. 

 

Viking Air: spinning defence work into export success

Indeed the hope that companies can spin off Canadian defence contracts into export success stories is one of the main reasons that IRB programs exist. One company that typifies that path is Viking Air, a privately held, 500-employee player that produces and supports legacy de Havilland Canada customers around the world.

 

On the defence side, Viking Air, which has had a head office in Victoria, British Columbia, and some assembly facilities in Alberta currently supports two aircraft used by the Canadian Armed Forces; the Twin Otter, of which DND has between eight and ten in service, and the CC-115  Buffalo, a tactical inter-theater airlifter, of which DND currently operates six, mostly in a search and rescue and intermediate airlift roles.

 

Rob Mauracher, the company vice-president (business development) is particularly hopeful that the aging Buffalo aircraft will play a role in DND’s plans to upgrade its SAR capabilities. “We are looking to present a ten-year sustainment plan for the Buffalo, to bridge the gap between now and when they buy new aircraft,” said Mauracher. “More long term, we are hoping to get the Bufflalo back into production and are meeting with governments to see if there is demand. These new planes would provide a good all-Canadian solution, which I am sure would make a lot of people happy.”

 

Avcorp: elbowing its way to JSF work

Lack of clarity in DND’s Joint Strike Fighter purchase plans isn’t stopping all Canadian suppliers from trying to elbow their way in. In fact, for example, Avcorp Industries Inc., an integrated metallic and composite aero-structure design and manufacturer, has been doing quite well at digging up business on its own.

 

According to Paul Kalil, its president, Avcorp is working on building nose cone enclosures for the carrier variant of the aircraft, of which 300-400 are expected to be built. So far Avcorp has contracted for between $30 and $40 million worth of business, but that could increase over time.

 

Manitoba Aerospace Association

In fact many of the 15,000 people employed in Western Canada’s aerospace sector (which generates close to 44 billion in annual revenue) are hopeful of that sub-contract work on the JSF program will be farmed out in their particular provinces.

 

“Our aerospace sector is split between commercial and defence sector players, however many companies on both sides here can contribute,” says Vic Gerden, executive director of the Manitoba Aerospace Association.  “Our province includes the largest cluster of composites manufacturers in the country as well research and development and maintenance repair and overhaul capabilities.”

 

Gerben mentions Bristol Aerospace (aero-structures), which already does considerable work on engines for the F-18, and Standard Aero, Manitoba’s largest aerospace player (ISS work, training publications and engineering support), as having particularly high potential. Bristol is already finalizing a $22 million, 13,000 square meter advanced composite manufacturing facility equipped with the most advanced technology, to produce horizontal tail components for BAE Systems, which will eventually be included in the JSF.

 

General Dynamics Canada: LEISC win keeps facility humming

Another strong booster of the defence sector’s western Canadian presence is David Ibbetson, vice-president (general manager) of General Dynamics. “The Canadian taxpayer indirectly pays for (western defence sector) capabilities and as a sovereign independent nation, has a national interest in ensuring that they remain,” says Ibbetson, an industry veteran who joined the company in 1996.

 

General Dynamics’ 50,000 square foot Calgary facility, part of the company’s 350 employee western presence, which Ibbetson overseas, got a big boost when it won the Land Command Support System Engineering and Integration Support Contract (LEISC) to provide Canadian troops with access to advanced communications services.

 

In the mid-1990s, the Canadian army was one of the first to transition to a fully digital system, for which GD had been providing ISS support. As a result of the new contract win, which was initially valued at $341 million, could run up to $682 million, GD will continue its support role, which will keep 250 employees at the facility busy. According to Ibbetson, GD is currently working to leverage the firm’s Calgary talent to create further export opportunities from the firm, though he declined to provide details.

 

Raytheon Canada

Another company that racked up a sizeable recent contract win was Raytheon Canada, which in 2009, inked a $180 million deal with the Canadian navy to overhaul and convert Phalanx weapons systems. The work will be done at the Raytheon Canada Limited Support Services Division Naval Support Center in Calgary Alberta. “This contract extends our work on the system to 2017, said the Ron Guidinger, the company’s vice-president (general manager). “The decision underscores (the government’s) confidence in our organization, our technology and its people.”

 

However Guidinger stresses that the IRB game is not just about taking – it’s also about giving back. “We work closely with Industry Canada to make sure that we can maximize the benefits we provide to Canadian industry. In particular, we are proud to reach out to other companies in western Canada and across the county.”

 

Washington Marine Group

One particularly promising area for Western Canada defence players is on the naval side, where the government’s National Shipbuilding Procurement Strategy (NSPS) has given the region’s players considerable hope. Canada has tended to split fleet operations between its eastern and western coasts. If that trend continues, mathematics alone dictates that significant contract manna will rain down on western sector players. One of those slated to most benefit would be Washington Marine Group.

 

According John Shaw, the company’s vice-president (program management), the company’s ongoing work on the Victoria In-service Support Contract (VISSC) and Frigate Life Extension (FELEX) programs, position it well to profit from NSPS initiatives. “The future for Canadian shipbuilding looks bright in western Canada,” he concludes.

 

IRB boot camps, jet engine testing facility

Ironically, one of those with most at stake in making sure that British Columbia, Alberta, Saskatchewan and Manitoba get their fair share of defence sector industrial and regional benefits is not an industry player at all. As minister of state for western economic development in the Harper government, Lynne Yelich’s political future rests in large part on how well she can deliver the goods to the region’s constituents.

 

This summer, Yelich went to the Farnborough International Airshow, where she held high level discussions about strengthening western Canada’s aerospace sector, with key global players. “From what I saw, it is clear that there is a lot of potential for us to compete in this sector,” noted Yellich. The minister also participated in four IRB “boot camps” in western Canada for sector players starting in the summer of 2010, where she explained how Canada’s industrial and regional benefits policy works and how companies can take advantage of it.

 

However while Yelich may continue to advocate for the Western defence industry, to promote targeted investments in it and to push initiatives such as the recent establishment of a cold weather jet engine testing facility in Thompson Manitoba (by Rolls Royce and Pratt &Whitney), in the end, defence sector players, will deliver their verdicts on her efforts based how well she brings home the bacon.

 

Peter@peterdiekmeyer.com

 

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