Canadian Defence Review

 

September 24, 2013

 

Title: Western Canada aerospace and defence report 2013

Subtitle: British Columbia, Alberta, Saskatchewan and Manitoba defence companies are seeing renewed vigour.

 

Michelle Rempel has had a busy few months. Since taking over as Canada’s minister in charge of western diversification, this rising Conservative party star has gotten up to speed quickly on numerous complex dossiers. That’s particularly true regarding files related to innovation, a key government theme. In recent weeks, she has been tackling defence, a sector she believes needs to be increasingly recognized.

 

“The West accounts for about 15 percent of Canada’s $12 billion defence industry and that story needs to be told,” said Rempel in a telephone interview from the Western Canada Pavilion at the Defence and Security Equipment International trade show in London England, where she was promoting the region’s wares. “That starts with exports, where we hope to make a big push.”

 

One way Rempel hopes to do that is through a recently announced $618,000 grant to the Canadian Association of Defence and Security Industries (CADSI) to help fund a two-year initiative, which will coordinate and manage a western Canadian defence and security industry presence at international defence and security trade shows.

 

Renewed vigour in the region

Rempel’s timing could not have been better says Denean Tomlin, president and COO of WaVv Business Development and co-executive director of the WestDef 2013 defence and security conference, which took place in July. “There is renewed vigour in the region,” says Tomlin. “You see this in talking to industry players and increasing participation in regional events.”

 

Ken Hill, who handles industrial regional benefits at General Dynamics Land Systems, which has a substantial presence in the region, including a 150,000 square foot facility in North West Edmonton, agrees. “We recently did a tour of potential suppliers in Western Canada and were impressed with what we saw,” said Hill. “GDLS already has a cross-country network of close to 500 suppliers. But we are always ready to do business here when conditions warrant.”

 

Naval opportunities: Seaspan sets the pace

A key driver of the region’s burgeoning strength has been the naval front. That’s particularly evident in British Columbia where Seaspan ULC’s win of the non-combat portion of the National Shipbuilding Procurement Strategy continues to drive expectations. The importance of this multi-year, multi-billion dollar initiative, which will include Joint Support Ships (JSS) for the Royal Canadian Navy, was highlighted in dramatic fashion recently. Damage sustained by HMCS Protector (one of the two Auxiliary Oiler Replenishment vessels that the JSS ships are to replace) following a collision with the HMCS Algonquin, left the west coast without an important capability.

 

JSS and other NSPS initiatives are expected to provide work for an army of western Canadian sub-contractors, workers and military personnel, all of whom are closely watching developments unfold. The good news is that according to John Shaw, Seaspan’s vice-president (government relations and business development), activity has been brisk.

 

Last October, the company began a $200 million modernization of its Vancouver Shipyards, where the new generation of ships will be built. Earlier this year, design work began on the first of the three Offshore Fisheries Science Vessels to be operated by the Canadian Coast Guard. There was also movement on JSS. In June the Canadian government announced that a design had been selected. An off-the-shelf option will be supplied by ThyssenKrupp Marine Systems Canada.

 

Seaspan, which is one of the country’s most important defence contractors, is also involved with a slew of maintenance and upgrade programs. For example the company is scheduled to begin work on the HMCS Vancouver, the third of five ships it will be upgrading as part of the Frigate Life Extension (FELEX) program. Seaspan is also upgrading three of the four upholder class submarines as part of the Victoria in-Service Support Contract (VISSC). Work on the HMCS Chicoutimi is almost complete, with the submarine currently scheduled to be delivered in September, or early October. Work on the HMCS Corner Brook is scheduled to begin soon.

 

Babcock Canada: VISSC project management

Another important player in VISSC is project manager Babcock Canada, which has the wind at its back. According to Mark Dixon, Babcock’s acting president, during the past two years the company has almost doubled its workforce to nearly 300, in part due to the Government of Canada’s recent five-year extension of the submarine contract, which alone could be worth more than $500 billion.

 

Project management for VISSC is handled through Babcock’s Victoria, Ottawa and Halifax facilities. Babcock’s employees, (170 of which are located in Victoria) also provide material & logistics support, configuration management and docking period support. That’s on top of the original weapons handling and discharge system and submerged signal ejector equipment that it manufactures and supplies.

 

“Proximity to CFB Esquimalt and Canada’s Pacific fleet provides us with an advantage in service delivery,” says Dixon, who is not resting on his laurels. Babcock is also looking to get future work from JSS, as well as from east coast shipping initiatives such as the Arctic Offshore Patrol Ships and the Canadian Surface Combatants. 

 

Atlas Elektronick: drawn to Canada by NSPS

Like almost any major defence sector procurement, NSPS is attracting the attention of a slew of international players many of whom are facing tighter procurement budgets in key markets. German-based marine equipment supplier Atlas Elektronik GmbH is a case in point. According to Rick Gerbrecht, president of the recently formed Canadian subsidiary Atlas Elektronik Canada Ltd., the company hopes to build on the work it already supplies to the Victoria Class submarines.

 

“We have been a responsive partner to the Royal Canadian Navy in bidding on command & control, sonar, data link, communications and unmanned vehicle systems,” says Gerbrecht. “We also see opportunities in areas ranging from project and sub-contractor management, to production, training, and logistics support services.” Atlas Elektronik, whose four-person Canadian office recently celebrated its first year in operation, is set up using a traditional “foot on the ground” model. Core local staff, are supported by an SME-rooted industrial and regional benefits network.  However Gerbrecht expects staffing to increase as the company builds new business.

 

Western aerospace: a critical mass?

Naval capabilities are far from the region’s only strength says one industry insider. “There is a growing mass of aerospace and defence companies and capabilities located here,” says Larry Glenesk, vice-president (business development) at Avcorp Industries Inc. “This clout enables the region’s companies to work together to pursue and win contracts with major global aerospace original equipment manufacturers such as Lockheed Martin, Boeing Defence and Security, BAE Systems, Northrop Grumman and others.”

 

Glenesk isn’t kidding. In fact Avcorp’s 500 employees, many of which are located in the company’s new 6,000 square foot facility in Delta British Columbia, have been big winners in a bid to get work on the F-35 Lightning’s joint strike fighter (JSF). Avcorp is the sole-source supplier of the outboard wing assemblies for the carrier variant. The initiative could eventually be worth as much as $600 million in contracts, if all expected production materializes. 

 

However with the Harper Government increasingly hedging on allocating the money needed for projected procurements, it is far from certain that these will all pan out. As a result, Glenesk, who is co-chair of the Canadian JSF Industry Group, has been working hard to provide the public, which has heard only negative press about JSF recently, with a fuller picture of the programs benefits and advantages.

 

“There are more than $11 billion in production opportunities stemming from JSF,” says Glenesk. “However with just over $500 million in contracts awarded to date, approximately $10.5 billion of these opportunities remain at risk awaiting a positive decision for the purchase.” That said, Avcorp is hardly just sitting around waiting around for events to unfold. The company has inked a variety of deals recently on programs ranging such the CH-47 Chinook and is working with potential OEMs to elbow its way into the Fixed Wing Search and Rescue program.

 

Magellan Aerospace: another big winner in F-35

According to Don Boiston, vice-president and general manager at Magellan Aerospace, Manitoba has a particularly strong aerospace sector, which employs close to 5,500 workers who generate more than $1 billion in annual billings. Magellan houses 650 of the company’s 3,500 staff at its 850,000 square foot Winnipeg facilities, adjoining the James Richardson International Airport.

 

These focus on two major contracts. The first relates to production of composite horizontal stabilizer assemblies for the F-35 II, for which the company has been setting up a new 138,000 square foot advanced technology facility. The second initiative is a $110 million order to produce three RADARSAT Constellation Mission satellite buses for MDA Corporation.

 

Harris Canada: avionics supplier for the CF-18

Another company that is building its western defence sector presence is Harris Canada Systems Inc., which is currently fulfilling a $273 million CF-18 Avionics optimized weapon system support contract that is expected to extend through to 2020.  According to Jim Gillespie, its director of programs, the company recently invested $2.3 million to expand its existing facility to 36,700 square feet, in order to streamline efficiency of the 64 employees who provide program management, maintenance support and engineering services on the deal.

 

One especially interesting initiative is Harris Canada’s recent removal of avionics and support equipment from the Department of National Defence’s inventory supply system, for which it has taken over the management. “DND has access to the relevant information at all times,” explains Gillespie. “They can thus see where their spares are and how many are available for use, under repair or in transit.” With the CF-18 scheduled to be gradually phased out of operation, efforts are also underway at Harris to land JSF work in areas such as automated test equipment, supply chain services and program set development.

 

Southport Aerospace: a spin-off recipient  

Industry promoters take pride in the fact that the defence sector’s economic impact is felt far beyond companies directly in it. One example is Southport Airport and Commercial Properties, which owns Southport Airport (formerly CFB Portage) and leases some of the space to Kelowna Flightcraft, which trains a variety of Canadian Forces pilots there.

 

According to Matthew Henderson, a manager (marketing and development) at Southport, the company benefits big-time from the sector’s growth. “We are always looking to build our defence footprint,” says Henderson. “In fact we have a 16,000 square-foot facility available to rent on the tarmac right now and are keeping an eye on new initiatives such as JUSTAS to see whether there is a fit.”

 

Cascades: tangible evidence of value

Last year IMP Group provided a tangible demonstration of the attractiveness of the Western Canadian aerospace and defence sector, when it acquired British Columbia based Cascades Aerospace. According to Dwayne Lucas, executive vice-president and chief operating officer at Cascades, that is looking like a pretty good move. Cascades, which operates eight aircraft bays at its 230,000 square-foot Abbotsford facility, does considerable work on both Canada’s 17 recently acquired C-130J Hercules transport aircraft and on C-130 legacy fleet.  

 

However the company is also gunning for work on the manned ISR, Joint Unmanned Surveillance Target Acquisition System (JUSTAS) and Fixed Wing Search and Rescue (FWSAR) programs. “There are benefits to being in beautiful British Columbia, where it is easy to attract people to come live and work,” says Lucas. “We are also strategically located to support the Royal Canadian Air Force’s Pacific operation, close to the Boeing and the Pacific Northwest aerospace cluster and have easy access to Asian markets.”

 

In fact British Columbia is such an attractive aerospace production locale, that some use the area as an export hub. These include MTU Maintenance Canada, which, according to Daniel Watson, its chief commercial officer, operates an engine repair and overhaul shop at Vancouver’s international airport. The facilities include four buildings, totalling 110,000 square feet, which handle more than 70 engines each year from US locations, including more than 80 for the United States Air Force.

 

Yet despite its success overseas, MTU Maintenance is not currently doing work with Canada’s Department of National Defence. Watson hopes to change that as engine maintenance opportunities open up on the JSF.

 

peter@peterdiekmeyer.com

 

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