Canadian Defence Review

 

May 2013

 

Title: Ontario Aerospace and Defence Report 2013

Sub-title: Industry is nervously watching the Harper Government’s follow-through on its commitment to equip Canada’s armed forces to meet 21rst century challenges.

 

On paper the Harper Government’s defence procurement initiatives, announced with great fanfare during the past couple of years, sound wonderful. New fighter jets, naval and coast guard vessels, land vehicles, command and information systems and upgraded infrastructure to support it all, are expected to generate $240 billion worth of spending during coming decades. A recent report by Tom Jenkins regarding a process to identify key Canadian defence-related industrial capabilities called it a “once in a century opportunity.”

 

The problem as David Perry, an analyst with the CDA Institute notes, is that the government hasn’t set aside enough money to meet those commitments. “Not all of the acquisitions are affordable,” says Perry. “Recent budgets have progressively cut DND’s funding allocations. As a result, the Canadian Forces’ readiness has been reduced significantly.”

 

Nowhere are concerns such as Perry’s more evident than in Ontario, Canada’s financial and decision-making center and the hub of the country’s defence industry. The 13.5 million Ontarians comprise about 40 percent of Canada’s population. In a country where defence allocations roughly parallel a region’s political clout, that counts for a lot. As Perry notes, Ontario houses 46,752 soldiers, reservists and civilian defence personnel spread among 12 land, sea and air bases, which alone account for $7 billion in economic activity – and that doesn’t even include the impact of equipment and services suppliers. In short, though it is not politically correct to say so, the challenges facing Ontario’s defence sector, broadly reflect those facing Canada’s as a whole.

 

London Economic Development: a region within a region

Ontario’s scale is such that some of its regions have a bigger defence sector impact than entire Canadian provinces. For example according to Heather Pilot, director of business development at the London Economic Development Corp., the region’s defence cluster alone employs more than 12,000 people, at 45 companies including General Dynamics Land Systems, Kongsberg, Amphenol Borisch, Advanced Manufacturing Technologies, Armatec Survivability, London Machinery and many more.

 

Lack of visibility as to how the Harper Government will fund its defence sector promises, has forced industry stakeholders to regard them as a game of musical chairs … in which someone will have to be left out.  In this environment, it is hardly surprising that players such as the LEDC would be fighting doggedly to get their share of every sector initiative.

 

“London is a great place for defence businesses to invest right now,” says Pilot. “The region is a well-established center for the development and manufacture of military land systems.” That reputation could grow she notes, as opportunities stemming from the Medium Support Vehicle System project play out and when the Close Combat Vehicle contract is awarded.

 

“We are working closely with local firms to provide information on defence programs, to access government funding and create networking opportunities (such as the Best Defence II Conference, to be held in London this October) for potential strategic partnerships,” says Pilot. “LEDC is also attending targeted conferences and exhibitions to create awareness and is seeking out international companies with offset obligations in Canada and encouraging them to locate here.”

 

GDLS: a land systems pioneer

A center-point of the London defence sector cluster that stands to benefit considerably from Canadian government policy during coming years is General Dynamic Land Systems. This internationally known player designs, manufactures and supports armoured vehicles at its London facilities, which house the lion’s share of its 2,400 employees. Last year the government boosted the $1 billion contract that it had awarded GDLS to upgrade 550 Light Armoured Vehicles (LAV IIIs), by an additional 66 vehicles, increasing the contract value by $133 billion.

 

According to Danny Deep, GDLS’s vice-president, the company is also offering its Piranha 5, which it plans to manufacture and assemble in Canada, as an option for the new Close Combat Vehicle fleet. “We were encouraged by the government’s endorsement of the Jenkins’ Report, which recommends a more strategic approach to defence procurements,” said Deep. “There is now recognition that a focus on key industrial capabilities can not only lead to high-value opportunities and jobs in Canadian industries, but also promote success in the export market.”

 

GDSL is actively pursuing opportunities in foreign markets which account for more than 80 percent of the company’s business. However it won’t be easy. Global military procurements are slowing, particularly in the United States, where the defence sector is reeling from sequestration related cuts. These challenges turn the focus back to Canada, where GDLS, one of the few major domestic platform providers, systems integrators, developers and owner of intellectual property, will need all the support it can get during coming months and years.

 

General Dynamics Canada: calling for a focus on KICs

General Dynamics’ overall impact on Ontario’s economy goes far beyond GDLS itself. Its sister division General Dynamics Canada’s Ottawa’s locale, which focuses on specialized airborne and naval solutions, vehicle electronics, assembly and innovation, packs a serious punch of its own. The unit employs 800 of the division’s 1,200 employees, who, as David Ibbetson, its general manager notes produce value-added products and services, such as C4ISR solutions, which are likely to increase in importance going forward.

 

For example General Dynamics Canada, which bills itself as the “incumbent provider of underwater warfare systems to the Royal Canadian Navy,” is responding to numerous NSPS-related proposals. The firm also forms part of Team Spartan in the FWSAR competition. Going forward Ibbetson believes that Canadian defence related procurement needs to focus more on key industrial capabilities (KICs) “as rapidly as possible to guide the remaining implementation of the Canada First Defence Strategy.” He also commends the Canadian government for being “increasingly supportive of export opportunities in emerging markets where there is spending growth.”

 

Another Ontario defence industry player that has been proactively adapting to the new environment is IMT Defence, which operates several Ontario facilities. These include assembly operations in Ingersoll, forging facilities in Port Colborne and Welland as well as two recently acquired heat treating operations in Burlington. Last year the company began production of 120 mm ammunition for Canada’s Leopard II Battle tanks, launched new suspension products and landed major contracts from the US Army. According to Cheryl Hacking, a spokesperson, IMT Defence will also be increasing investment in technology and equipment, boosting workforce training and redoubling its efforts in international markets.

 

General Kinetics: a big winner from LAV III upgrade

When General Dynamics Land Systems reminds sector-related decision makers about how far its influence extends beyond the London area, it often cites its 500 Canadian suppliers. One of these is General Kinetics, which has been a sole source supplier of LAV III suspensions since 2001.

 

The company, which employs 100 people in its Brampton and New Hampshire facilities recently got good news when it received a letter of intent stating that it products will be included in the LAV III upgrade, which according to Chuck Williamson, its president, will provide the company with 100 man years of work.

 

“This $17 million deal is important, particularly at a time when the US, our biggest market, is making cutbacks in a big way,” says Williamson. “Fortunately Canada is in a slightly better position economically. We are especially happy with the government’s commitment to local industry. However delays related to the Close Combat Vehicle and other programs, which one can reasonably assume are at least partially budget related, are a concern.”

 

L-3 Wescam: innovation and exports

According to its president John Dehne, L-3 WESCAM, which employs 850 professionals at its Burlington turret facility and another 150 in its Don Mills high-performance lenses plant, is also not just sitting around waiting for local orders. The company stays ahead by generating significant international business, which in turn requires continuous innovation to stay ahead of relentless competition. “Things are tough,” admits Dehne. “It will take considerable ingenuity for (the Canadian government) to meet its commitments. We appreciate that they are working to improve the business climate and that R&D remains a high priority.”

 

L-3 WESCAM continues to pile on innovations says Dehne, notably to its MX-Series of turrets, which comprises a significant portion of the 400 to 450 units the Burlington facility produces annually. Earlier this year L-3 WESCAM conducted demonstrations of its target designator systems at the U.S. Army’s Yuma Proving Ground in Arizona. The integration capability of L-3 WESCAM products with machine gun, Hellfire and M-134 mini-gun firing systems was tested.

 

Such initiatives are crucial as L-3 WESCAM exports close to 70 percent of its production. Last year, the company opened facilities Florida (a service center) and Jordan to support those efforts. L-3 is also taking steps to broaden fast growing markets such as the Middle East and India, to cope with slower volumes elsewhere.

 

Christie Digital Systems: cost-effective solutions

One company that could make it easier for the Harper Government to meet its commitments is Christie Digital Systems, whose display terminals are used in simulation systems. That’s because although military personnel prefer live training, advances made in simulation technologies and their increasingly lower price points are making them increasingly viable options. And money freed up by shifting to simulation training frees up resources for other uses.

 

Christie Digital Systems employs 700 people in two locations in Kitchener, which house engineering capabilities, rapid proto-typing, environmental test laboratories, research, innovation and manufacturing facilities. The company works with all major large simulation and training systems integrators and according to Zoran Veselic, its vice-president (visual environments) the market is slated to grow significantly.

 

Among Christie Digital Systems’ many achievements are the displays it produces for Air Force simulations, which are much cheaper than real time drills. These include products for a recent installation in Trenton. “The defence sector needs to be more efficient,” says Veselic. “We expect to see continued growth of simulation and training solutions to help maintain lower cost readiness.”

 

Rockwell Collins: new managing director settles in

The big news at Rockwell Collins Canada during 2012 was the announcement that Lee Obst, would be taking over as the avionics, communications and networking systems provider’s managing director.  This former fighter pilot and seasoned industry veteran appears to have hit the ground running, overseeing rapid growth that has seen the unit’s sales spike from $8 million just a few short years ago to $17 million last year.

 

Activity on the defence front continues to be driven by Rockwell Collins’s Ottawa facilities, which house 60 of the company’s 130 employees. These are employed in a range of export, services and representation initiatives, including in-country support of Multi-functional Information Distribution (MIDS) terminals for Canada’s CF-18 fighters, management of Rockwell Collins’ domestic defence contracts and sales efforts. “Nearly every platform that Canadian forces fly has at least some of our equipment on board,” says Obst. “We hope to build on that in coming years by bidding on contracts including the Combat Net Radio (Enhanced) initiative, various satellite ground terminal opportunities and angling to get work on FWSAR.”

 

Having fingers in so many pies for such a long time provides Obst with a unique vantage point from which to assess developments in the province’s defence sector, which he agrees are similar to those at the national level. “Canada is suffering though numerous procurement delays and uncertainty and Ontario is feeling this too,” says Obst. “Things are reasonably stable, but growth opportunities are hard to come by. Solutions that stretch a dollar, such as updating legacy communication systems (instead of installing new ones) thus command a premium.”

 

HISS: Ontario-headquartered, overseas clients

Canadian companies often look with envy to the United States, where massive federal government defence spending often finances product development costs. This makes it easier for American businesses to sell the subsidized wares in export markets. In Canada, many defence sector players claim the process works the other way around.

 

According to Roger Smibert, president of HISS Inc. businesses here have to first prove their mettle in international markets, before the Department of National Defence even looks at them. HISS describes itself as a “surveillance systems integrator and installer,” which focuses on ground, maritime, coastal and airborne applications is a case in point.

 

This Toronto-based company, which also markets Airdyne’s SABIR (Special Airborne Mission Installation and Response) RO/RO C-130 mission system, has offices in the U.S., Denmark and Abu Dhabi and services customers in about two dozen countries. It’s a true success story, particularly for Toronto, where HISS’s headquarters, sales, engineering and project management oversight assets are located. However a key reason that Smibert looked overseas for operational opportunities, related to the dearth of domestic business. “The rest of the world sees Canadian aerospace technology as among the best,” says Smibert.  “The challenge is to get the Canadian government to see it as well.”

 

If that happens, HISS, which recently completed a new design of a surveillance turret elevator system, for small- to medium-sized fixed-wing aircraft, could be a big beneficiary. The company recently shipped two units to a major Canadian integrator. Smibert, who has become increasingly optimistic due to a recent upswing in local programs, hopes to build on that success in coming years, to carve out a role for HISS in Canada’s Fixed Wing Search and Rescue initiative.

 

Field Aviation: new room for Canadian solutions

Of course tough times also spark opportunity. One player that could profit from shifting trends is Field Aviation, which modifies Dash-8, Gulfstream, Challenger and other aircraft, notably at its Pearson Airport locale, which houses 170 of the company’s 300

employees. According to Brian Love, its chief commercial officer, the recent Jenkins and Emerson reports, are both particularly bullish signs. “There is a lot of excitement,” says Love. “The government is paying more attention to aerospace than it has for a long time.”

 

Love cites the increasing realization of the damage done to local industry as a result of the fact that recent government aircraft purchases did not include intellectual property rights, as a major momentum shifter in favour Canadian solutions. This could play out tangibly for Field Aviation in Canada’s Fixed Wing Search and Rescue initiative. The company is partnering with Viking Aerospace to offer a domestic alternative for at least part of the fleet.

 

 

peter@peterdiekmeyer.com

 

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