Canadian Defence Review

June 4, 2015

Western Canada aerospace and defence report 2015

The Harper Government will be counting on Western Canadian support in the upcoming election, scheduled for this fall. Has it done enough for the region’s defence sector?

Michelle Rempel, has been by almost all accounts, a major defence sector champion. Canada’s Minister of Western Economic Diversification, is highly visible at regional and sector events and was a key driver of the recent Western Innovation Forum, which brought together more than 500 participants from SMEs, research institutions, multinationals and other aerospace and defence sector innovators.

However in coming months, Rempel and other Western Canadian Tories will be facing the challenge of their lives, as they head to the polls in an election scheduled to be called for this fall. There are plenty of causes for concern.

Sluggish Conservative Party showings in recent polls and the New Democratic Party’s recent win in the Alberta provincial elections, leave recent announcements by high profile Harper Government ministers Peter MacKay (a former Minister of National Defence) and John Baird (a former Foreign Affairs Minister) that they will not run in the next election, smacking of rats leaving a sinking ship.

Seaspan: anchoring a Western Canada revival?
Rempel’s ability to rally the Western Canadian Defence sector during coming months, will provide a good indication of the Tories’ chances of winning a fourth straight mandate. That said, her boss has not given her much to work with. During its three mandates, the Harper Government has ruthlessly cut defence training and readiness budgets and overall defence spending has barely kept pace with inflation. This during a time when Canadian Forces launched military strikes in at least four countries (Libya, Iraq, Syria and Afghanistan).

However in recent months there have been signs procurement will be picking up. “Our plate is quite full,” says Brian Carter, president of Seaspan Shipyards. “Our Vancouver yard is fully modernized ahead of schedule and is now North America’s most modern shipyard. We ready to hit full rate production on the first National Shipbuilding Procurement Strategy ship, the Offshore Fisheries and Science Vessel.”

Seaspan,  which  is also doing design work for new Joint Support Ships scheduled to roll into production in early 2017, isn’t the only company seeing a pickup in activity. “The vessels we are building are huge and highly complex and thus offer considerable opportunities throughout the supply chain which local firms are picking up on,” says Carter. “There is thus a lot of interest and investment in the ecosystem by lower tier suppliers such as Ideal Welders, Intech Marine Services, Trident Marine Systems and many others.”

Atlas Elektronik leverages a promising market
In fact, while many industry insiders grumble at the Harper Government’s slow pace at living up to its procurement commitments, Canada is regarded as a promising market by many international firms. One example is Atlas Elektronik Canada Ltd., the Canadian subsidiary of the UK defence giant.

“Lower defence budgets in our home country means we under significant pressure to dig up new work,” says Rick Gerbrecht, the unit’s president and CEO. “Our “keel to waterline” naval construction expertise provides numerous potential opportunities for us to contribute to NSPS and that will be a major focus going forward.” Atlas, which is based in the Vancouver Island Technical Park, in close proximity to the Royal Canadian Navy’s Pacific fleet recently completed three research & development programs at its Western Canadian facilities. These include provision of a prototype software application that slots into its family of command and control systems.

Babcock: an AJISS contender?
Another potential favourite for NSPS work is Babcock Canada, which last year hired veteran Brett Johnson as vice-president (business development, marine and technology) with a mandate seek out new opportunities from the program. Babcock certainly has the capabilities, and in a pinch can draw on the resources of its UK parent, which bills itself as the “number one support provider to the Royal Navy for the past 15 years.”

Babcock Canada has good credentials in its own right. Its work on the Victoria In-Service Support Contract related to Canada’s submarines (in partnership with Seaspan) has been progressing. Earlier this year the HMCS Chicoutimi was delivered to the Royal Canadian Navy. According to Johnson, Babcock, which has already started preliminary work on the HMCS Cornerbrooke, hopes to get the program in full gear this summer.

One obvious NSPS participation possibility is in a projected Arctic Offshore Patrols Ships-Joint Support Ship In-Service Support Project (AJISS). Although details of the planned initiative are foggy, and initial work would only trickle in gradually during the first few years, the program would represent massive work over the projected lifetimes of these two large ship categories

A poster child: OSI Marine Systems
NSPS’s immediate benefits to Canada’s defence posture and domestic industry are fairly clear. Less obvious are the spin-offs; says Ken Kirkpatrick, president of navigation and tactical solutions provider OSI Maritime Systems. One example: last month OSI inked a deal to build, deliver and support the installation of an Integrated Navigation and Bridge System (INBS) for six new Arctic Offshore Patrol Ships (AOPS). This contract for the ships, which are to be built by Irving Shipbuilding, at its Halifax Shipyard, comes on the heels of a design phase, which ended earlier this year. OSI’s new work will be done under sub-contract for Lockheed Martin Canada, the command and surveillance systems integrator for the AOPS vessels.

While the work, which will be done at OSI’s Burnaby facilities, will generate a slew of highly skilled jobs, it will also open up opportunities on the export front. “The fact that the Canadian government initially bought our product in 2001, gave us enormous credibility internationally and helped us get work in many other places such as the UK and Australia, where we recently set up an office,” says Kirkpatrick. “We are the poster child for this type of success and a world leader in our field.”

Indeed the falling dollar has given a massive boost to a slew of Western Canadian defence exporters. Vector Aerospace, Zodiac Milpro, Weatherhaven and many others have all either recorded significant major success or undertaken new initiatives on the international stage during the past year.

Viking Air for its part has had considerable success with the military version of its Twin Otter, which according to David Curtis, the company’s president, is generating interest in Peru, the United Arab Emirates and Vietnam. The company also recently announced the set up of a Twin Otter seaplane configuration flight simulator (manufactured by Montreal-based TRU Simulation + Training) which will be located in a 10,000 square foot, training center located adjacent to Viking’s Victoria, British Columbia headquarters.

JSF: picking up globally, but Canada stalled
The elephant in the room related to Harper Government defence procurement remains next generation fighter acquisition, which remains stalled as federal officials examine alternatives to the high cost program. This is leaving potential Western Canadian suppliers, many of whom are counting on Canada’s participation in the program, to get them new work, in limbo. For example Avcorp, a major F-35 sub-contractor, recently reported that its first quarter revenues had decreased, in part because the timing of one of its defence initiatives, had shifted until later in the year.

However Leslie Yakimishyn, a spokesperson for Magellan Aerospace, whose Winnipeg facility has produced more than $150 million worth of work for the program, says that JSF has been gathering steam internationally. In fact the global Lockheed-Martin F-35 Lighting II fleet has now logged over 30,000 flight hours. Furthermore significant annual production increases are planned over the next several years, which should generate even more work for Magellan.

That said, Magellan is far from relying on the F-35 Lightning
II alone. The company recently opened a satellite research, development, construction and testing facility at its 835,000 square foot Manitoba plant, adjacent to the James Richardson International Airport. This new production area can accommodate work on three satellites simultaneously.

KF Aerospace: Kelowna Flightcraft spreads its wings
The big news at Kelowna Flightcraft this year has been the firm’s name change to KF Aerospace, which, according to Bryan Akerstream, its senior manager (business development), relates to more than just branding. “We wanted our identity to better reflect the range of services we offer,” said Akerstream. “These are now grouped into four main categories: maintenance & engineering, cargo operations, leasing and defence.”

KF Aerospace’s main priority on the defence front during coming years will be to help meet the Department of National Defence’s changing pilot training requirements. The company’s Allied Wings division is crucial to the Royal Canadian Air Force, as almost all of its pilots go there for their ab initio training (which is done on Grob 12A aircraft). Many of these pilots also pursue further advanced phase courses at Allied Wings.

However the Canadian government has set up a new Future Pilot Training office and asked industry about potential options going forward. Figuring out the best ways to train Canada’s new pilots is easier said than done, particularly on the fighter jet front, as no yet really knows which planes Canada will buy.

To complicate matters further, the various training contracts, which are split between KF Aerospace and CAE (which recently purchased the NATO Flight Training Center from Bombardier) have different expiry dates. The stakes are particularly high for KF Aerospace as the vast majority of its 650 Western Canada employees are in the Kelowna Winnipeg area. That said the company will be hedging its bets somewhat, by trying to do more in-service support work for Canada’s Buffalo and Twin Otter Aircraft and (through its membership in Team Spartan) to do the same when the country acquires new Fixed Wing Search and Rescue Aircraft.

Touring the trade shows
How this all will affect Rempel’s efforts on the ground is unclear. However indications are that she is showing great spunk, arguing that notwithstanding what critics say, that the Tories have a “great track record on funding,” which she contrasts to the “the decade of darkness that we had under the Liberals.” Rempel will get a good chance to further sound out industry’s pulse in coming months at two important trade shows WESTDEF, which will be taking place between July 5th and 7th in Calgary, and the Abbotsford Air Show, which will be taking place between August 7th and 9th.

The good news for the Tories is that Western Canadian aerospace and defence producers are a savvy group. And while many would like federal procurement to advance at a more rapid pace, they fully understand the government’s conflicting interests.  Furthermore, despite weak oil prices, Western Canada continues to grow faster, both in population and in economic terms, than the rest of Canada, which means that even if its defence sector is hurting a bit, it may not matter much.

In fact the recent victory in Alberta, by New Democratic Party, which is regarded as neutral at best, if not hostile to the defence sector, coupled with its recent strong standing in national polls, might well be enough to motivate Western Canadian defence producers, to do whatever they can to forestall their momentum.

Rempel will be hoping that translates into defence players backing the Conservatives and not the Liberals

peter@peterdiekmeyer.com

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