Canadian Defence Review
May 3, 2012
Title: Ontario Report 2012
Sub-title: The province’s defence sector players remain confident, despite uncertainties caused by the recent federal spending cuts, program delays and the JSF controversy.
Last year at this time Ontario’s defence sector stakeholders were teeming with optimism. The election of the new Harper Government, with a Parliamentary majority, was seen by many as a bullish indicator. The new stability, the reasoning went, came as a breath of fresh air, after the procurement halts and uncertainties which accompanied the never-ending election cycles and minority regimes of previous years.
What many forgot, is that while “small c” conservative governments tend to be defence-friendly they are also proponents of fiscal restraint. As a result, the multi-billion dollar cuts and procurement postponements announced in the recent federal budget came as a rude shock. Yet surprisingly, industry stakeholders appear to be taking the policy reversals and the recent controversy related to the Joint Strike Fighter program in stride.
“We are at a critical juncture,” notes Rod Jones, executive director of the Ontario Aerospace Council. “If we do things right, we can win more than our fair share in a growing, but increasingly competitive industry. But if we want to maintain our edge, we need to be proactive and look at things like boosting investments in research and development.”
Jones notes that from an aerospace industry perspective here in Canada, the recession simply did not happen and that things are likely to stay on track. “Commercial aviation is driven by domestic GDP growth,” notes Jones. “And both are projected to increase steadily during the next 20 years. That in turn has positive benefits on the defence side since many industry players leverage skills across divisions.”
Jones cites the highly-controversial Joint Strike Fighter program as being particularly good for his association’s members. “About 80 Canadian companies have won work on it so far, about half of which are in Ontario, so it is a big deal for us,” says Jones. “Some have argued that Canadian companies could get short changed on IRBs, but those are not entitlements. Companies have to compete for their contracts on their own merits and our members can do that.”
In fact CDR's research indicates that the province’s defence contractors are making considerable efforts to succeed in an increasingly turbulent and demanding environment. In this year’s Ontario Report 2012, we will look at some of the more prominent and innovative players (many of whom also pack a big punch on the national scene) and how they are reacting to major industry trends.
Thales Canada: pushing full steam ahead
According to Jerry McLean, director of marketing and sales at Thales Canada, which has just went through a gangbuster year - booking $500 million in new business, and boosting billing by 40 percent, - one major reason for continued industry optimism is the fact that (despite federal spending push-backs) there are few signs that major procurement initiatives are being cut outright. “The programs that we are monitoring are all on track,” says McLean. “There will always be delays in defence sector capital projects, but these are to be expected.”
If McLean is right, that would be good news for Thales’s 1,150 Ontario employees, particularly the 250 defence personnel located in its Ottawa facility (900 people also work at the company’s Toronto urban signalling facility). Thales continues to actively work on the Land Command Support Systems (LCSS) initiative, the Interdepartmental Maritime Integrated Command, Control and Communications (IMIC3) contract (which it booked early last year) as well as a slew of other projects.
The company is also pushing full steam ahead on bids for work on projects ranging from the JSF, the National Shipbuilding Procurement Strategy (NSPS), the Tactical Armored Patrol Vehicle (TAPV), and the upcoming Canadian Surface Combatant (CSC). McLean admits though that competition is tough. “There are slew of international players from Europe and elsewhere, who are coming here to chase the money,” says McLean. “It seems like anyone in the industry who can spell “Canada” is setting up shop. That has a significant impact on our roles.”
HISS: export base helps level out quiet periods
The recent austerity in government defence spending initiatives both in Canada and around the world has created a series of unlikely winners: those small agile players who can tailor their offering to changing needs. “We are growing steadily but are still nimble enough that we can adapt when we need to,” says Roger Smibert, CEO of HISS (Highland Integrated Surveillance Systems), which specializes in the integration of surveillance and mission systems into specialized air and ground operations. “Our export base helps out a lot, because overseas contracts can fill up the quiet periods that often occur here at home during times of austerity or freezes.” One example Smibert points to is the efforts HISS is making to leverage the capabilities the company has built up doing work on the Canadian Special Airborne Mission Installation and Response System (SABIR) contract to market its know-how on the world stage
Twelve of HISS’s 36 employees work in its Ontario facility which hosts its head office, as well as program management, design and administration facilities. The company already has bases in the US, the United Arab Emirates and is now opening one in Europe too, where Smibert is particularly bullish regarding opportunities. “Government austerity measures there are forcing many militaries to hang on to older systems,” says Smibert. “That boosts demand for upgrades and improvements which companies like ours can provide.” HISS is also pursuing opportunities in the Middle East and building on its UAE platform to bid on work in Kuwait and Saudi Arabia.
General Dynamics Canada: innovating to stay ahead
That is not to say that industry players are all completely bullish. Many assess the situation with cold hard realism. “There are increased pressures on defence spending, both domestically and internationally,” admits David Ibbetson, general manager of General Dynamics Canada. “(But that just means) we must continue to strive to be better, smarter and faster.”
General Dynamics Canada has taken several steps in this area says Ibbetson. These include finding new ways to include cheaper COTS technology in its products and systems, developing technology upgrades to extend the life of clients’ assets, and partnering with increasing numbers of players in industry, academia and the end-user community.
The company, which hosts 900 of its 1,300 employees at its Ottawa campus, also took on a slew of new initiatives. These include introduction of a tactical mobile router that services ad hoc mobile networks for the international market; participation in the upgrade of the AN/SQS-510 hull-mounted sonar system, and the release of TrailBlazer, a high-frequency, high-resolution sonar system designed to help navel vessels avoid mines and other obstacles.
General Dynamics Canada is also bidding on new work, to complement the systems integration that it already provides on programs such as the Land Command Support System, the Aurora Incremental Modernization Program, and the CH-148 Cyclone Maritime Helicopter Project. Domestically General Dynamics Canada is targeting the Integrated Soldier Systems Program (ISSP) and the LAV Recce Surveillance Suite (LRSS) upgrade initiative as areas that it can add value. On the international stage, the company sees strong potential demand for its Tactical Integrated Sensor Information System (TISIS) technology and for the UYS-504 Sonobouy Processor.
General Dynamics Land Systems: protecting the troops
The big news at General Dynamics Canada’s sister company General Dynamics Land Systems (GDLS) was its closing of the CND $1.1 billion deal to boost the survivability, mobility and firepower of the Canadian Army’s LAV III combat vehicle fleet. The sheer size of GDLS’s 2,400 employee Ontario workforce, its 400 company supplier base, coupled with the crucial role that the 550 vehicles that it will be upgrading play in supporting DND operations, make it one of the country’s most visible and important defence sector players.
Another sign of GDLS’s importance, relates to the fact that the LAV upgrades that it will be doing, notably the added anti-Improvised Explosive Device (IED) improvements, such as the V-shaped hull and additional armour, have the potential to save more lives and limbs than almost any other industry initiative.
According to Ken Yamashita, the company’s manager of corporate affairs GDLS is bidding to do work on three major land vehicle programs which could enhance its sector presence even further. These include the Tactical Armoured Patrol Vehicle (TAPV) and Medium Support Vehicle Systems (MSVS) programs (through a partnership with Oshkosh Defence), and the Close Combat Vehicle (CCV) initiative, for which it is proposing the Piranha 5. (The Canadian government recently issued a new RFP on the CCV program asking companies to resubmit their bids).
Raytheon Canada: pushing ahead on a variety of fronts
Raytheon Canada made headway in several areas during the past year says Peter Ramjug, a spokesperson with the firm. Ramjug cites the company’s win of a demonstration contract for its Next Generation High Frequency Surface Wave Radar (HFSWR) from the Canadian Department of National Defence (DND) and Defence Research and Development Canada as a key milestone.
Raytheon officials believe that acquisition of top-of-the-line HFSWR capabilities, which it also hopes to export, is crucial if the Canadian government is to effectively monitor the country’s 200 mile Exclusive Economic Zone (EEZ). Raytheon Canada also moved ahead on development of Wind Farm Mitigation Technology which enables Air Traffic Control (ATC) radars to operate in proximity of wind farms, and in its traditional public safety and wireless communications niches.
Kongsberg Protech Systems: London locale and an eye on TAPV
One of the many foreign firms that is looking to get a foot in DND’s procurement door is Kongsberg Protech Systems Canada, which according to its president Jorn Buo, is pushing full speed ahead to build a presence on the ground here. Last year this local subsidiary of the Norway defence contractor held the grand opening of its 30,000 square foot London building. Buo hopes the facility and the company’s 16 Ontario employees will put in a better position to supply its Protector Remote Weapons Station technology for the TAPV program, for which it is partnered on three of the major bid proposals.
According to Buo, Kongsberg’s inputs about 60 percent of the value-added into the Remote Weapon Stations that it markets, which, as the name implies, enable military personnel to operate light and medium calibre weapons without the need to expose themselves in a direct line of fire. Kongsberg provides the system software, electro-mechanical assembly, final assembly, range findings and other systems integration. The firearms and other components are supplied by third parties.
Babcock: keeping its head underwater
One of the Royal Canadian Navy’s most crucial programs is getting and keeping its four Victoria-class submarines in action. According to Michel (Butch) Bouchard, president of Babcock, progress is being made. Babcock is currently doing project management work related to the HMCS Chicoutimi Extended Docking Work Period, as well as on the Windsor and the Victoria which were just on the cusp of returning to operations as this piece was being written. A full examination is also being done on the Cornerbrook to define damage repair specifications, after it hit the ground last June.
Babcock is also partnering up with other players by contributing its project management, engineering and material logistics management capabilities, to compete for ISS work on the AOPs and JSS programs. The company is also leveraging its defence capabilities to pursue non-defence initiatives, such as outsourcing work at the Chalk River nuclear facility.
BMT Fleet Technologies: wrapping up the JSS design
Two thousand and eleven was a banner year for Kanata-based BMT Fleet Technologies, which according to Gord Fleming, its president has completed its transition from a smaller engineering consultancy to a medium-sized engineering services company. BMT Fleet, which grew revenues by close to 35 percent last year and now employs close to 100 people, mostly defence, submarine support, engineering and technology staff, is now focusing on landing work in what Fleming calls a “Tier Zero or Customer Friend,” role.
BMT’s major initiatives target the more complex projects emerging under the National Shipbuilding Procurement Strategy. The company is just wrapping up the contract design for the Joint Support Ships, and is providing increased support to the NSPS Project Management Office, as well as working with Babcock on the Victoria In-Service Support Contract (VISSC).
L-3 Wescam: looking for new export markets
L-3 Wescam’s Ontario presence has shot up dramatically lately to 900 employees, almost double the total of just five years ago. These are split in two major locales: Burlington, which designs, manufactures, tests and delivers the MX-series of payloads, and Don Mills which is focused on the production of high performance lens systems. The L-3 Communications Group also bases its L-3 Electronics Systems (advanced systems and electronic assemblies), and L-3 Targa Systems (solid state memory systems) units in Ontario.
Like many Canadian-based subsidiaries of US giants, Wescam is a major exporter. Almost 70 percent of its production is shipped south of the border, and much of the balance goes overseas. According to Paul Jennison, L-3 Wescam’s vice-president (business development), that reliance comes at a cost. “The overall US defence budget is tightening, which in turn has led to more competition and uncertainty on the release of government funds,” says Jennison. “That, coupled with additional tightening in Europe, has forced us to look for newer regional markets such as the Middle East and India, where the demand for security solutions has increased.”
Rockwell Collins: a niche communications and networking player
Rockwell Collins, whose Ottawa facility designs and developments wireless communications, networking technologies, and modeling and simulation technologies is another niche player that has been doing well recently. According to Lee Obst, its managing director, the company’s Subnet Relay, which provides ad hoc mobile networking between ships in Canada in some of the world’s major navies, has been particularly successful. Rockwell Collins’s Ottawa team, which has shot recently up from 40 to 60 personnel, serves as a customer support and sales office for products sold to Canadian military and commercial customers.
The facility also provides intermediate-level repair and service capability for the Multi-functional Information Distribution System (MIDS) Link 16 terminals installed on Canadian Forces CF-18 fighters. As a result, not surprisingly, the company has been eyeing developments on the JSF and Fixed Wing Search and Rescue (FWSAR) fronts, where it hopes to get work. The NSPS (particularly the Arctic Offshore Patrol) initiatives also present opportunities says Obst.
Valley Associates: providing international players with a local face
The one of the biggest challenge that many international defence sector players trying to get work from DND’s capital investment initiatives face, particularly those that do not have a substantial presence here on the ground, is remaining top of mind with procurement and product specification personnel. According to Mike Martin, president of Valley Associates, the Ottawa-based engineering and design firm can help them do precisely that.
“Our customers refer to us as the “black bag” people – if it flies, floats of rolls, we can supply it,” says Martin with a laugh. “We provide Canadian representation to 140 defence sector companies and are the largest representative of firms out of Israel including Israel Military Industries (IMI), Rabintex, and Marom Dolphin.” Two files that Martin expects to keep Valley’s 22 Ontario employees (out of 45 in all) quite busy in the coming months are the TAPV and MSVS bids, for which Valley Associates is providing Canadian marketing and business development services to Oshkosh Defence.
HFI Pyrotechnics: consolidating its base
One company that is especially concerned with potential defence sector cutbacks is HFI Pyrotechnics, which John Witherspoon its president bills as “Canada’s oldest and last pyrotechnics company in our targeted niches.” He characterizes these niches as the provision of “flash, bang and smoke,” to DND in the form of C8 coloured smoke grenades, war games simulation tools, signal projection ground burst (SPGB) and other such products.
“We have been working with DRDC for 50 years and if we are to maintain Canada’s existing pyrotechnics capabilities and to continue to pursue export opportunities world markets, we need their support,” says Withersoon. “With 40 employees in Ontario, we are relatively small. Bigger companies can withstand the pressure when DND blinks, but the hundreds of SMEs in the field like us aren’t always able.”
Full details yet to be released
Whether Ontario defence sector participants’ bullish outlook holds up, in spite of the expected coming federal austerity, remains an open question. Much of this is related to the prevailing impression among industry leaders that the expected belt-tightening will focus on personnel costs, which are slated to decline considerably anyhow due to the wind-down of the Afghanistan and Libyan deployments. Capital expenditures budgets, the thinking goes, are expected to remain intact.
That said, the Canadian government’s budget document was relatively opaque regarding details of the coming cuts and expenditure delays. In the meantime, until further light is shed, there is going to be a lot of knocking on wood going on in executive suites and factories.
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