Canadian Defence Review

 

December 4, 2014

 

Quebec aerospace and defence report 2014

A new federalist Liberal provincial administration is creating a more business-friendly environment for contractors.

 

Quebec aerospace and defence players got great news earlier this year when the province turfed out a minority, separatist, left-leaning Parti Québécois government. The new Liberal administration, headed by Premier Philippe Couillard, rapidly set in motion a series of fiscal and administrative measures to help improve the province’s competitive position.

 

These actions coupled with the shelving of constitutional reform squabbles, create a significantly more favourable outlook says one industry insider. “It will remove uncertainty regarding foreign investment,” acknowledges Suzanne Benoit, president of Aero Montreal, which represents more than 200 local sector players. “We were also encouraged that the recent economic update (in December) maintained research and development tax credits at existing levels. Close to 70 percent of Canadian aerospace R&D is done in Quebec, so it is a big boost. ”

Benoit isn’t kidding. Montreal, which is home to the International Air Transport Association (IATA), the International Business Aviation Council (IBAC) and the International Civil Aviation Organization (ICAO), is one of the world’s premier aerospace hubs. Boosters rank the city’s metropolitan region, which houses most of the province’s aerospace sector, in the same ranks as Toulouse and Seattle. A better business climate should help maintain and possibly improve that status.

CF-18 life extension could boost L-3 MAS

One winner from recent developments is L-3 MAS, which due to the service and support work that it conducts on Canada’s 77 CF-18 fighters, makes it one of the country’s most important defence contractors. That future would have been severely tested had the Parti Québécois regime gained traction.

 

The company got good news on that front in October when the Department of National Defence announced that the CF-18s’ useful lives would be extended by an additional five years to 2025. The extension will also provide ancillary work down the line.  L-3 MAS, which also does in-service support work on Canada’s CC-150 Polaris aircraft and the CH-148 Cyclone helicopters has also been simultaneously building a value-added aero-structures business.

 

Going forward Jacques Comtois, L-3 MAS’s vice-president and general manager has one of the toughest jobs in Canada’s defence industry.  He has to find a way to convince the public what any Canadian Armed Forces private already knows: that buying fighter jets for which in-service support work is controlled by foreign governments (as the Harper Government has proposed with the F-35 Lightning II) provides little defensive value.

 

“Lockheed Martin is setting up five or six global maintenance bases where (F-35s) will be serviced,” says Comtois.  “There will be some in the US, Europe and Asia. We believe that if the program goes ahead, one facility should be in Canada. It’s a sovereignty issue. In-service support work is also where much of the deal’s economic value lies, so on that front it also makes sense to do it here.”

 

L-3 MAPPS: pushing forward with AOPS

The big news L-3 MAS’s sister division, marine automation provider L-3 MAPPS, was the promotion of Rangesh Kasturi, to acting president. He takes the helm of a company that is generating solid momentum, stemming from an integrated platform management system design contract win related to Canada’s new Arctic Offshore Patrol Ships. 

 

L-3 MAPPS control systems are already used on a range of Royal Canadian Navy ships. These include submarines, destroyers, as well as more than 100 other ships in more than a dozen countries around the world. L-3 MAPPS is also currently providing IPMS upgrades for the Halifax Class Modernization program, which Defence Minister Rob Nicholson recently labelled a “success.”

 

L-3 MAPPS’s AOPS win may appear modest but it is a big deal, particularly for the company’s 250 engineers, technologists and ancillary staff. The six to eight AOPS ships are the first combatant vessels to be built as part of Canada’s National Shipbuilding Procurement Strategy. Getting in early will position L-3 MAPPS not only to get the eventual system integration and in-service support work, but also to land assignments on other National Shipbuilding Procurement Strategy projects such as the Joint Support Ships and Canadian Surface Combattants. 

 

CAE: surprising strength on the defence front

One Quebec aerospace provider that does well in almost all conditions is flight simulator producer and training services provider CAE. The company been working hard to build its civil aerospace and healthcare services business during a time of tight global military budgets. However it has been doing well on the defence front too.

 

According to Mike Greenley, vice-president (general manager) at CAE Canada, the company continues to expand its global base of long-term recurring services contracts and flight training devices. By the end of the previous quarter CAE had an impressive $2.4 billion backlog of work. That includes new US Air Force business related to existing Predator/Reaper training services contracts and US Navy T-44C Aircraft initiatives.  CAE also continues to do Eurofighter related work in Europe and Orion-related efforts in Australia. As if that was not enough CAE managers expect and even stronger second half of the year on the defence front.

 

Here in Canada CAE recently finalized completion of its C-130J transport aircraft training center in Trenton, and is currently installing C-147 Chinook transport helicopter simulators as part of a new training capability in Petawawa. According to Greenley, CAE is also eyeing naval training systems integration work on the new Canadian Surface Combattants and land work on the upcoming Land Vehicle Combat Training Systems program.

 

DADS takes out its aggression in Germany

Discovery Air Defence Services, which grew out of Quebec-based Top Aces, is also going great guns. Earlier this year Discovery Air’s subsidiary announced that it will provide Germany’s army, air force and navy contracted defence services similar to those that it provides the Canadian Armed Forces. According to Didier Toussaint, group president (government services) this five-year public-private-partnership, which begins on January 1, 2015, will see Discovery Air Defence Services supply an adversarial air squadron using seven A4-N aircraft, acquired when the company picked up US- based ATSI late last year.

 

This innovative business model could see increasing growth in coming years, as military budgets tighten say company executives. They argue that contracted defence services, provide a cost effective way to simultaneously reduce spending and maintain readiness. That’s particularly true during a time when many fourth generation fighters, built decades ago, are becoming a more “precious asset,” whose use must be carefully husbanded.

 

“We have saved the Canadian government hundreds of millions or dollars,” said Toussaint. “Canada was one of the first NATO countries to pursue this kind of strategy. But other countries are now following suit.” Discovery Air Defence Services is also set to launch an international training solution that will bring pilots from around the world to Canada to improve their skills. Details regarding the training location and aircraft to be used will be released later this year.

 

Esterline CMC Electronics: positioned for FWSAR

Montreal-based Esterline CMC Electronics, a navigation and flight management systems provider, is also keeping busy by focusing simultaneously on civilian and military markets. “Requirements (related to) new air traffic control environments, offer many opportunities for cockpits and avionics upgrades,” says Jean-Michel Comtois, its vice-president (government sales).

 

Earlier this year Esterline CMC Electronics, which employs 850 at its Montreal headquarters, announced that the upgrade solution that it proposed for use on DND’s five Polaris aircraft had received Transport Canada certification. Esterline CMC Electronics was also selected by Alenia, as its flight management systems provider for its global C-27J Spartan fleet. That aircraft is regarded as a front-runner in Canada’s search for a fixed-wing search and rescue aircraft. That means defence stakeholders are likely to hear a lot more about Esterline CMC Electronics in the coming months and years. 

 

Davie Canada: the rebirth continues

On the naval front, the big story in Quebec continues to be the re-birth of Davie Shipbuilding, which bills itself as Canada’s “largest and highest capacity shipyard.” According to John Schmidt, its vice-president (commercial) in August the company delivered its 717th ship, the CECON pride, which he touts as “the most technologically advanced commercial vessel ever built in North America.”

 

Davie was cut out of the major National Shipbuilding Procurement Strategy contracts by the Harper Government. This despite the company’s claim that it can build one of the vessels - a Polar Icebreaker – for half the projected cost.

 

However company officials remain focused on the future. Led by Alex Vicefield Davie’s chairman and Alan Bowen, its CEO, Davie has invested significant time and resources into its yard. This includes new hydraulic lifting platforms, slipway equipment and streamlined workflows. The new administrators quickly filled up an order book of domestic and international work.

 

One key goal says Schmidt relates to looking to fill the gap which early decommissioning of the two Auxilliary Oiler Replenishment ships created. In late October, Davie also announced that it has been cooperating with Babcock Canada on life extension work on the CCGS Des Groseillers, a 1200 ton 98 meter icebreaker.

 

MTSC: working smarter in a tough budget environment

Smaller Quebec contractors are also struggling to contribute, in a complex environment of simultaneous Harper Government defence cuts and acts of war against Islamic State forces in Iraq. Complicating matters is long-forgotten Libya - where Canadian Forces led an air campaign to overthrow the Khadafy regime – which is morphing into a failed state and breeding ground for terrorists.

 

One way Quebec companies are contributing is by helping the government do more with less. That means technological innovations and investments in production facilities. Meggitt Training Systems Canada’s Montreal offices, which supply simulation and training solutions, has focused on the former says Paul Romeo, the  company’s director of business development, who notes that advances in these areas have vastly increased the efficiency of armed forces around the world, particularly in the area of small arms, one of the company’s specialties.

 

Marinvent, an aerospace services consultancy, for its part, is contributing by helping Public Works and Government Services Canada streamline procurement procedures. The new defence procurement strategy is a big positive in that direction says Phil Cole, the company’s vice-president (business development). Marinvent workflow solutions help officials conduct operational analyses by breaking down buyer provided requirements into measureable elements that can be tested and signed off against.

 

That ensures a solid paper trail of all decisions, so that if anything goes wrong, key decision points can be tracked down and analyzed.  “Defence is now the fastest growing segment of our business,” says Cole. “We have done a lot of work on helicopter initiatives already and if the next generation fighter and fixed wing search and rescue initiatives move ahead, then we will be really busy.”

 

While Quebec has traditionally been regarded as an aerospace sector hub, many subcontractors have nevertheless managed to get work on the land front, though there too budgets have been tight. For according to Guy Dumouchel, sales and marketing manager at TCP Cable, a manufacturer of electric wire harnesses for use in military vehicles, the company has had to lay off some staff.

 

This says Dumouchel is despite the fact that TCP Cable was named “supplier of the year” by General Dynamics Land Systems. That said, the company is far from standing still and has been making significant efforts to build business in overseas markets, notably Saudi Arabia.

 

Looking to 2015

While most Quebec business sector stakeholders are no doubt happy with the new Liberal provincial administration, on the aerospace and defence front, many wonder what effect a change at the federal level would have. With its eye on going to the polls in 2015, the Harper Government has made Canada’s defence a low priority. However the needs of Quebec producers within that group appear to rank even lower still.

 

On the naval front, government policy has essentially refused Davie Shipbuilding the right to offer competitive bids to produce the larger NSPS vessels, not just for coming years, but for coming decades. On the air front, the Harper Government’s pursuit of the F-35 Lightning II fighter jet initiative, without first angling to get attractive intellectual property rights, domestic ISS and offset benefits, has left many Quebec providers in a weak position. And on the land front, the Conservatives have maintained a long-term policy that has prioritized Ontario producers.

 

In short, while many Quebec aerospace and defence providers are notional Conservative Party allies, it is far from clear how enthusiastic their support will be the next time Canadians head for the polls.

 

Highlight this sentence:

 

“Buying fighters whose in-service support is controlled by foreign governments provides little defensive value.”

 

peter@peterdiekmeyer.com

 

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