Canadian Defence Review

 

December 2012

 

Title: Aerospace stakeholders gather for annual summit

Subtitle:  Emerson report, FWSAR and JSF dominate chatter at the AIAC event.

 

The timing of the 2012 Canadian Aerospace Summit, held in Ottawa in early December, could not have been better. The event, which drew a record 650 aerospace and defence sector participants from Canada, the US, Russia, Mexico and several other countries, took place on the heels of the release of the Aerospace Review, conducted by David Emerson, a former federal minister and key speaker at the symposium.

 

Emerson used the opportunity to talk up some key elements of his report titled Beyond the Horizon: Canada’s Interest and Future in Aerospace. These include prioritizing aerospace in Canada’s Science and Technology Strategy, streamlining projects such as the Strategic Aerospace and Defence Initiative (SADI) and making aerospace a centerpiece of Canada’s international trade agenda.

 

Aerospace is big business in Canada, which hosts in world’s fifth largest sector cluster. According to the Aerospace Industries Association of Canada, which represents 700 companies across the country, the industry generates more than $22 billion each year, of which close to 80 percent is exported. The sector, which is responsible for 160,000 sector and spin-off jobs, is also said to be the second largest spender of research and development dollars.

 

The stakes were also huge for defence sector players, particularly companies such as Bombardier, CAE, Pratt & Whitney, CMC Electronics, NGRAIN and others, who occupy more than half of the AIAC’s executive and directorship positions. In fact defence related procurement challenges were a key subject of hallway conversations throughout the event. Industry continues to absorb the implications of the JSF procurement debacle, which has been making Canada’s aerospace and defence sectors even more heavily reliant on exports than they would normally have been.

 

However as Emerson notes, the international outlook is also grim. “Defence expenditures among Canada’s closest allies are shrinking and with them markets for Canadian military aerospace products,” he notes. “Civil and military maintenance, repair and overhaul activities – which have fuelled a robust aerospace MRO sub-sector in Canada – are increasingly being retained by manufacturers in pursuit of superior profit margins in after sales services. Meanwhile the highly skilled labour workforce that has been the industry’s backbone is aging, raising the spectre of critical skills shortages.”

 

Reaction to the report

Official reaction to Emerson’s conclusions among summit participants was generally positive, notably at the government level. “This report will not sit on the shelf collecting dust,” said Christian Paradis, Minister of Industry and Minister of State (Agriculture), who was badgered by reporters throughout, due to the government’s impending announcement regarding the future of the multi-billion dollar Joint Strike Fighter project which was eventually delivered the following week, reopening the process to new possible bidders. “We intend to study it closely and act in due course.”

 

David Schellenberg, chairman of the AIAC and CEO of Cascades Aerospace agreed. “In an industry that deals with complex long-term risks and production cycles, a productive relationship with government is essential,” said Schellenberg. “The minister’s support and belief in the importance that aerospace has for Canada and his commitment to build n our partnership is invaluable.”

 

Industry optimistic about Fixed Wing Search and Rescue

Of course the AIAC summit wasn’t all just speeches and press conference. Attendees were also there to do business at the slews of booths set up throughout the premises. On that score the big topic of conversation was the federal government’s fixed wing search and rescue procurement initiative, which according to Jim Meltsner, vice-president (government relations) at Alenia is unfolding well.

 

“We are extremely pleased with steps that the government is taking and with the package that we are putting forward,” says Meltsner, of the C27J Spartan medium tactical aircraft that the company is suggesting with partners General Dynamics Canada, Provincial Aerospace and DRS Canada. “The recent industry day was quite informative with lots of good interaction. With Alenia’s strong team on the ground here I really like our chances going forward.”

 

Cathy Anthony, a business development official with Boeing, and Robert Dompka, director (international military business development) at Bell Helicopter, were also a prominent presence, lobbying for their team’s proposal the V-22 Osprey.  According to Dompka, the choice, would not be as unlikely as may appear at first glace. “The V-22 provides an extremely economical lifetime service cost offering which would take a lot of steps out of typical search and rescue operations,” says Dompka. “Don’t forget that a typical SAR operation uses fixed wing aircraft to identify the parties and possibly drop off emergency supplies and then a helicopter typically follows to do the rescue. The V-22 can do it all at once.”

 

Pedro Mas, head of Airbus Military in Canada was there too, proudly helping man the company’s booth, which included a model of its twin-engine C295 FWSAR offering. Late last year Airbus announced that Discovery Air would be joining a team bid which also includes partners Pratt & Whitney Canada, CAE, L-3 Wescam, and Vector Aerospace.

 

According to the terms of a memorandum of understanding Discovery would provide in-service support through the life of the deal, which proponents claim could save Canada close to $1 billion in FWSAR fuel costs alone. “The C295 is a proven reliable SAR platform and 114 of them have been sold in 17 countries, which is quite a track record,” says Mas. “And although an official RFP has not yet been issued, we expect the aircraft to be fully compliant with all requirements.”

 

More support needed?

Yet ironically, despite the widespread Aerospace Industry support for the Emerson Report, in an AIAC statement, its author made a comment that inadvertently could make some stakeholders rethink whether enough action is really being suggested.  “Canada’s position as a global leader in aerospace and natural resource and energy powerhouse house are not in conflict,” said Emerson. “Development of the north, and the resource bounty in remote areas, depends on our space and aerospace capacity. It provides a natural reinforcing linkage between aerospace technologies and products and the development of this vast northern land.”

 

That may all well be true. But many economists, particularly those that have studied the “Dutch Disease” phenomenon – which deals with inherent challenges faced by manufacturing businesses in resource-rich jurisdictions, would take issue with the statement. They would argue that the Canada’s rich raw materials bounty, particularly energy, has substantially boosted the value of the Canadian currency, which in turn significantly hampers the competitiveness of aerospace (and defence) exporters in key foreign markets.

 

This would imply that if Canada is to maintain a balanced economy, Canadian Aerospace players ought to be getting far more government support than the revenue-neutral measures being suggested. Of course for that help to come, someone would actually have to ask for it.

 

But with so many sector players reliant on existing or potential government contracts, few are likely to so publicly anytime soon.

 

Highlight this quote:

“This (Emerson) report will not sit on the shelf collecting dust.”

Christian Paradis, Minister of Industry and Minister of State (Agriculture)

 

Picture captions:

 

  1. David Emerson, a former minister, talked up his much awaited report on Canada’s aerospace sector.

  2. Christian Paradis, Minister of Industry and Minister of State (Agriculture), was besieged by reporters seeking comment on the latest JSF developments.

  3. Pedro Mas, head of Airbus Military in Canada proudly displayed a model of the company’s FWSAR offering the C295.

 

peter@peterdiekmeyer.com

 

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