Canadian Defence Review

 

September 2012

 

Title: Report on British Columbia

Sub-title: Vancouver Shipyards’ win of the non-combat portion of Canada’s huge NSPS contract late last year coupled with expected DND air and land procurements could turn BC into a defence powerhouse.

 

With its ideally located ports and status as a hub for Canada’s Pacific trade, British Columbia’s strategic position is obvious to anyone who looks at a map. Less well-known is how much the province’s defence sector has grown in recent years and how it is positioned to progress even further in the future.

 

That British Columbia should support a strong defence industry is not surprising. The province’s four million inhabitants generated $191 billion in GDP in 2009, which makes it an economic powerhouse in its own right. That inherent strength coupled with fallout from Canada’s industrial and regional benefits strategy almost guarantees British Columbia a strong position going forward.

 

British Columbia’s promise is reflected in the excellent position it is in to benefit from variety of projected defence-related procurements. On the naval front the Department of National Defence’s and Public Works and Government Services Canada’s selection of Vancouver Shipyards Co. Ltd. to build seven non-combat vessels (including joint support ships, the Canadian Coast Guard’s off-shore science vessels and the new polar icebreaker) as part of its $33 billion National Shipbuilding Procurement Strategy, has been a particular boon.

 

According to Lynne Yelich, Canada’s minister of state (western economic diversification), during coming years the NSPS procurements alone could boost British Columbia’s shipbuilding industry’s annual revenues from $450 million to $800 million and sector employment from 3,000 to 5,000. “It means a lot for BC economic activity,” says Yelich. “In addition new construction, coupled with government and private investment in the Industrial Marine Training & Applied Research Center (IMTARC) will go a long way to improving workforce competitiveness and training.”

 

According to Pat Bell, British Columbia’s minister for jobs, tourism and innovation, the province has also been active in promoting the defence and aerospace sectors, and has been engaging in closer consultation with industry representatives on how it can best do that.

 

An energized defence sector

Rick Gerbrecht, managing director at Atlas Electronik Canada, is particularly bullish.  “(NSPS) has energized firms and individuals to get ready to compete (as sub-contractors) on the project,” says Gerbrecht. “At the Western Canada Shipbuilding Summit held (earlier this year) in Vancouver more than 500 delegates representing first, second and third tier suppliers attended. That demonstrates considerable interest.”

 

Atlas Electronik, which supplies command and control systems for submarines and surface combatants as well as integrated mine warfare systems, is particularly keen. According to Gerbrecht, the company has built up a considerable Canadian track record which should improve its chances to bid on future work. That record includes its support of the Victoria Class submarine program as well as provision of ASW modeling and sonobuoy post mission analysis solutions to the Canadian Forces Maritime Warfare Center.

 

In all Atlas Electronik, which is headquartered in Bremen Germany and has provided integrated C2 systems to 21 navies, sonar systems to 28 navies and mine disposal capability to 12 navies, hopes that its decision to locate its Canadian offices in British Columbia will pay off. To help ensure that Gerbrecht has spent considerable time raising Atlas’s profile with the Royal Canadian Navy, PWGSC the federal government and other key stakeholders.

 

Cascade Aerospace: reaching for the sky

While British Columbia’s naval sector justifiably attracts considerable attention, its aerospace capabilities, which were highlighted at the province’s Abbotsford Airshow held last month, also looks set to progress considerably in coming years. Some have speculated that provincial players such as ASCO Aerospace, Avcorp Industries, Kelowna Flightcraft, MDA Corp, Viking Air, Vector Aerospace, the British Columbia Institute of Technology (which hosts one of the country’s largest aerospace training center) and others, could double the sector’s annual contribution to the province’s economic output to $2.5 billion by 2020.

 

Part of the British Columbia’s advantage is geographic says David Schellenberg, CEO of Cascade Aerospace, and chairman of the Aerospace Industries Association of Canada, who notes that British Columbia’s Greater Vancouver aerospace cluster, benefits from close proximity to Washington state, home to Boeing as well as to a good chunk of the American giant’s supply network.

 

Cascade Aerospace, a “specialty aerospace and defence contractor,” that provides “long-term integrated aircraft support programs, for OEMs, military, government and commercial customers,” has been a major pillar in the sector’s rise. This month the company, which employs 700, announced that it was chosen to become one of only two Lockheed Martin authorized C-130J Heavy Maintenance Centers (HMCs).

 

According to Schellenberg, this will present Cascades with considerable business development opportunities going forward, as Lockheed has close 1,450 C-130s currently operating internationally. The Lockheed announcement comes of top of an earlier disclosure by the two partners that they will also team up on “mutually beneficial opportunities,” notably a chance to bid on Canada’s Fixed Wing Search and Rescue Aircraft (FWSAR) replacement and in-service support programs.

 

Kelowna Flightcraft: a leader in maintenance and overhaul

Aerospace industry watchers tend to focus on capital equipment producers. However insiders acknowledge that none of that equipment is worth much unless it can be kept in good running order for its expected serviceable life, which often extends decades.  One growing aerospace MRO player with a large British Columbia footprint that has been helping accomplish that is Kelowna Flightcraft.

 

According to Bryan Akerstream, a Kelowna supply chain manager, the company operates or leases 70 aircraft and is Canada’s largest cargo operator. But the company also acts as one stop-shop that services corporate, commercial and military aviation industries worldwide. Kelowna employs 750 personnel and operates full service facilities in Kelowna and Hamilton where many work on maintaining, modifying and providing engineering support for aircraft such as DND’s Buffalos and Twin Otters.

 

Kelowna Flightcraft recently announced a major three-year maintenance deal with WestJet that will create excellent infrastructure and capabilities that company officials believe can be effectively leveraged over to the defence side. Akerstream identified Fixed Wing Search and Rescue, Contracted Airborne Training Services and the CC-150 Polaris MRO initiatives as contracts that Kelowna would be bidding on. “The scope of our operations is not widely known,” says Akerstream. “But when people realize what we can do, they are quite impressed.”

 

Avcorp: supplying Joint Strike Fighter production

Due to Canada’s (and British Columbia’s) size, it is hard for either jurisdiction to build the critical mass, needed to justify large scale development and production of major capital equipment items. As a result, provincial players, such as Avcorp Industries, have taken to integrating themselves into global aerospace supply chains by specializing in the production of value-added components.

 

Avcorp, which designs and builds major airframe structures, has been particularly successful in that regard. “We were traditionally regarded as a commercial aero-structures company,” says Larry Glenesk, vice-president (business development). “However we have made a big push into defence in recent years and now draw between 35% and 40% of our revenues from the sector.”

 

The company’s defence work comes from three major sources. The first stems from cockpit enclosures that it makes for Chinook helicopters (known here in Canada as the CH-147). The company has also been quietly emerging in recent years as a major Canadian supplier to the US Joint Strike Fighter program, the largest military procurement in world history. Avcorp is currently contracted to build 260 outboard wing production units for the carrier version of the JSF. But that’s not all, if all goes well, it  could land an additional orders for 340 more sets, which would generate close to half billion dollars in revenue during the coming 10 to 15 years.

 

Not surprisingly, given Avcorp’s success on JSF, Glenesk is a big booster of the controversial program. “The F-35 Lightning II is by far the best option for Canada and it will remain so for the coming decades,” says Glenesk. “Canadian industry has also done quite well on the program so far. Avcorp alone has build considerable competitive advantages from the work we have done, and we expect to extend there even further in coming years.”

 

Viking Air: expands into China

Viking Air, which bills itself as one of Canada’s two first tier aircraft manufacturers has also been keeping busy, notably maintaining a close eye on DND’s quest for updated fixed wing search and rescue capabilities, which looks to be moving forward. According to PWGSC, the FWSAR Secretariat is planning to host another meeting in October 2012, in its ongoing consultations with industry.

 

A variety of teams have been lining up to get work on the program, but Victoria-based Viking Air, which services legacy de Havilland aircraft, has hinted that a new generation of its Buffalo aircraft could fill the role. “We are looking forward to the upcoming meetings,” says Rob Mauracher, the company’s vice-president (business development). “We heard that DND may be leaning to a two aircraft solution, which would put us in an advantageous position.”  DND currently operates six Buffalo CC-115s, mostly in search and rescue and intermediate airlift roles, as well as several Twin Otters, so it is familiar both with Viking’s aircraft and the company, which continues to supply it with technical publications, engineering support and spare parts manufacture.

 

Weatherhaven: sheltering the troops

Another major believer in British Columbia’s defence sector potential is Ray Castelli, chief executive officer of Weatherhaven, and chair of the BC Jobs and Investment Board. Weatherhaven, one of the world’s leading suppliers of re-deployable camps and shelter systems, attracted considerable media attention in recent weeks when it delivered the first mobile shelter in a $60 million contract it has with DND. “The British Columbia government has made a considerable push lately to attract more defence sector IRBs to the province,” says Castelli. “If that happens, it would be good news for all sector companies because we work extremely well together and tend to benefit from each other’s success.”

 

Defence contracts now account for about 30 percent of Weatherhaven’s revenues says Castelli and that total could grow considerably in coming years. The company is currently bidding on an additional $50 million contract to outfit the shelters that it is currently producing, which will be empty upon delivery. At that point they will be turned into medical clinics, washrooms, kitchens, command centers, portable offices, radar stations and a variety of other moveable facilities.

 

NGRAIN a value-added technology innovator

Gabe Batstone, who last year took over as CEO of NGRAIN, which produces interactive 3D simulation technology, software, and solutions, is now in a good position to help the company take advantage of sector trends. As Batstone notes, despite Canada’s lofty defence procurement objectives, officials face a range of countervailing pressures, which NGRAIN can help navigate. 

 

“Canada, like many global governments, faces a combination of rising demand for defence resources for missions such as Iraq, Libya, Afghanistan and anti-piracy, all at a time of increased austerity pressures,” says Batstone. “As a result defence officials are under considerable pressure to do more with less.”

 

One way that NGRAIN has been helping them accomplish that is by providing increasingly sophisticated simulation technology, which significantly cuts training costs. Recent customers include Lockheed Martin, which uses NGRAIN’s battle damage assessment and tracking software on both the F-22 and F-35 fighters. NGRAIN is also releasing a new version of its Producer 3D animation software and of its production suite, as well as increasingly finding ways to push collaborative mobile applications.

 

Ain’t done nothin’ yet….

Yet while British Columbia’s potential as a major defence sector player is considerable, as an old coach once said “potential, is another word for ain’t done nothing yet.” As with all major projected defence and security procurements, for those which the province is counting on, the devil is in the details. Results from an ongoing shakeup in DND’s procurement processes and of the Harper Government’s Industrial and Regional Benefits (IRB) Policy implementation both matter a lot, as will the timing of projected purchases, (which remains hazy).

 

One stakeholder who has few doubts about the eventual outcome is Avcorp’s Glenesk. “We are optimistic that plans for the (government’s) new Defence Procurement Secretariat will prove effective in quickly restoring faith in (the) process,” says Glenesk. “This in turn should go along way to getting major crown projects back on track, notably FWSAR and JSF.”

 

Whether Glenesk is right remains an open question. All we know for sure is that a lot of British Columbia defence sector players hope he is.

 

Peter@peterdiekmeyer.com

 

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