Canadian Defence Review

December 5, 2014

Canadian Aerospace Summit soars to new heights

Sector players gather amidst strong demand, cheaper oil and an increasingly favorable export environment.

A standing-room only crowd of 1,200 industry executives, government officials and other sector stakeholders gathered last month at the Ottawa Convention Center for the 2014 Canadian Aerospace Summit.

The event, put on by the Aerospace Industries Association of Canada, took place amidst continued strong projected demand on the civilian front. As Industry Minister James Moore noted, Canadian aircraft production is forecast to grow twice as fast as the global market, over the coming seven years. That leaves the country’s 700 sector business, which employ 170,000 professionals and contributed $28 billion to Canada’s gross domestic product in 2013, in a strong position. In fact recent developments suggest that demand could increase even further due to lower fuel prices which will ease airlines’ largest operating cost.

Early engagement on defence

Barry Kohler the AIAC’s outgoing chair opened the summit by highlighting progress on the defence front. This has included early industry engagement in future procurement initiatives, the emergence of a Defence Analytics Institute and publication of Public Works and Government Services Canada’s Defence Acquisition Guide, which the AIAC played a role in getting off the ground.

On the defence front, participants were clearly hoping that projected elections in 2015 will spur the Harper Government to end foot-dragging regarding funding procurement promises related to next generation fighters, fixed-wing search and rescue aircraft and helicopter capabilities.

F-35 hits headwinds

On that score hall-talk and panel discussions centered on mixed messages that the Harper Government has been sending regarding fighter jet procurement. Officially Canada’s commitment to buy 65 F-35 Lightning IIs from Lockheed Martin is under review. However leaks of US documents that hit the press around conference time, suggested that Canada was planning to take possession of four Joint Strike Fighters as early as next year. 

Lockheed Martin Canada officials and Dan Gillian, vice-president (F/A-18 programs) at Boeing Military Aircraft declined comment on the latest developments. However Gillian’s visibility at the event provided a stark reminder that Boeing’s SuperHornet remains an attractive option, should the Harper Government reverse course, and put the fighter jet contract out for competitive bids.

Complicating matters are a number of headwinds that have been hitting the Joint Strike Fighter, says Kevin Michaels global managing director (aerospace and consulting services) at ICF International. “If the F-35 does not advance fast, UAVs could come to the fore long before the jet hits its target production levels,” says Michaels. “The way things are going right now, I doubt very much that 2,000 will be built. In fact they might not even hit 1,000.”

Here in Canada, Lockheed Martin will have to address intellectual property issues if it wants to get the country involved, Michaels said in a keynote panel discussion. If Michaels is right, the company will have big hurdles to overcome, particularly in the areas of training and in-service support. Canada’s latest defence procurement strategy stems from the Jenkins Report, which identified both the areas as Key Industrial Capabilities (KICs).

These initiatives emerged after Canada’s commitment to the F-35 was already underway. However with the jet fighter program under review, the Harper Government may reassess the impacts on Canada’s sovereignty stemming from procurement of fighter jets, for which it will need other countries’ permission to repair and maintain.

Balancing civilian and defence efforts

This year’s AIAC event was particularly important during a time in which the Canadian economy continues to struggle to gain traction, following a recession that ended five years ago. The country’s aerospace sector, the world’s fifth largest and a key contributor to both employment and export dollars, will need to play a key role going forward.

“The aerospace and defence industries are in a highly competitive environment right now,” said Boeing’s Gillian. “Customers are changing. Business models are changing. The conventional war-righting apparatus is enduring, yet diversifying. Assymetrical warfare is driving innovation everywhere.”

Innovate or abdicate

Perrin Beatty president of the Canadian Chamber of Commerce and a former minister in the Brian Mulroney Government agrees, but says Canada is not doing enough. “Aerospace and defence have tripled in terms of global market share in the past 20 years,” he told the conference. “If we don’t innovate we abdicate.”

Beatty however acknowledges strong Canadian barriers to innovation, such as skills gaps in engineering, product development and testing, coupled with its small population and the large distances separating its communities. One solution he says, would be to ape countries like Germany and Switzerland which build highly skilled workforces by investing heavily in trades and apprenticeships.

One company that has been taking the lead in innovations related to future flight decks and information management is Rockwell Collins, whose senior vice-president (international & service solutions) Colin Mahoney, shared recent developments in the field. The avionics provider has been designing solutions to help aircraft manufacturers keep pace with the “increasing air traffic, changing pilot demographics, airspace modernizations, unmanned aircraft integration into civil aerospace and increased connectivity,” and other innovations which are impacting Canadian and military supply chains.

“Demand for information enablement and management is increasing significantly,” says Mahoney. “We expect that 80 percent of aircraft to be information-enabled by 2030, up from 15-20 percent in 2000.” Mahoney in particular commended the Department of National Defence’s mantra: “Every platform a sensor, every sensor on the network,” which encapsulates these   challenges and opportunities head on.

A coast-to-coast industry

The AIAC event also highlighted British Columbia’s growing prominence in the industry, which its provincial government recently recognized by committing $5 million to funding its development. Some of that money will be funneled to the association to fund studies to help foster its growth and that of its AIAC Pacific, its British Columbia branch, which recently hosted a successful conference that drew 400 participants, in conjunction with the Abbottsford Air Show.

 As Michael De Jong British Columbia’s finance minister notes, close to 10,000 people work in the province’s aerospace industry, making it the 3rd largest in Canada after Quebec and Ontario.

 Momentum could get stronger

That said, while momentum is strong, it could get even stronger. In the weeks following the AIAC Summit, oil prices fell even further, to the $65 per barrel level and then below. This in turn could stimulate travel price declines at the major airlines, and thus increase passenger traffic and further production. If these trends persist, this will however raise questions as to what degree new, more fuel efficient, aircraft such as Bombardier’s C-series, are needed say some experts.

 On the other hand those lower oil prices have been driving down the value of the loonie, which is making Canadian aerospace and defence products cheaper in foreign markets. That’s a big deal as Canadian aircraft, engine and parts exports reached a near record high of $10.8 billion in 2013, a 5.4 percent increase from the previous year. Lower prices would almost certainly help to maintain or perhaps even increase that momentum.

That said, much of this will now become David Curtis’s problem. The AIAC used the summit to announce that Viking Air’s president and CEO would take on the role of board chair for the coming year. Curtis will no doubt use the visibility that the platform provides, to remind defence officials of the advantages of a “Made in Canada” fixed wing search and rescue aircraft solution, for which Viking Air would be a prime contender to contribute. Kohler, who took final bows as outgoing chairman at the summit, can now focus on his day job as president of Bell Helicopter Textron.

Peter@peterdiekmeyer.com

 

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