Canadian Defence Review

November 10, 2015

Quebec Aerospace and Defence Report 2015
Defence contractors in La Belle Province could be big winners from a Justin Trudeau led Liberal government, which ran on a promise to scrap Lockheed Martin’s F-35 Lighting II Joint Strike Fighter and to devote the extra funds to the navy.

The aftermath of federal elections can be a tense time for Canada’s defence industry.  The recently elected Liberal regime, headed by Justin Trudeau, is a case in point; as neither the party, nor Trudeau’s father, the late Pierre Elliott Trudeau, a former Prime Minister, were regarded as big backers of the armed forces.

The good news for Quebec contractors, who rely on the Department of National Defence for a good chunk of their business, is that both “Trudeau the Younger” and the Liberal Party, have strong loyalties to the province.

With 40 Liberal Members of Parliament elected in Quebec including Trudeau himself, out of a possible 78, the province will have a much stronger ear in Ottawa. That will be a sea change from the Tory administration, which often appeared to leave Quebec aerospace and naval providers to fend for themselves. The upshot, is a cautious sense of optimism among sector leaders.

“The increased number Quebec MPs in government ranks will translate into more opportunities for local defence contractors to get their voices heard,” said Martin Lafleur, senior director (innovation, human resources & defence) at Aero Montreal, an aerospace industry lobby group. “This will help on variety of issues.”

The biggest clues as to how the Liberals will act come from the party’s defence strategy, unveiled by Trudeau in September, which calls for a “leaner, more agile, and better equipped military.” The three most prominent components, include commitments to scrap the purchase of Lightning II F-35 next generation fighters from Lockheed Martin, to launch an open competition to replace the country’s existing CF-18 fighters, and a pledge to divert the funds saved to Canada’s navy. All three elements are promising for Quebec’s aerospace industry, which got a huge boost in the arm, in early October, when the provincial government announced that it would invest $1.3 billion into Bombardier, one of the world’s largest civil aviation manufacturers. The move will also provide a major shot in the arm for local sector supply chains.

L-3 MAS and CAE: hopes for continued fighter ISS work
L-3 MAS, which currently provides in-service support for Canada’s existing CF-18s, at its Mirabel facility just north of Montreal, stands to be another big winner from the recent developments. That mandate would have been threatened had the F-35 purchases had gone ahead. Aero Montreal spoke for many in a severe rebuke delivered to the outgoing Harper Government in a recent position paper which noted that: “Despite representing between 65-80 percent of the life cycle cost of the Next Generation Fighter Aircraft, sustainment planning has been lacking.”

At a minimum, the tabling of the F-35 initiative, should enable L-3 MAS to continue its CF-18 sustainment work. However if an open competition is held, the company could win even bigger, if it can team up as an ISS partner with one or more bidders.

The impact from shelving the F-35 on training and simulations provider CAE, is less clear. The company had teamed up with Lockheed Martin as the firm’s fighter jet training partner. However, as Mike Greenley, CAE’s Canadian vice-president and general manager points out, CAE already provides considerable CF-18 mission systems, maintenance and upgrade support. In fact following its recent acquisition of Bombardier’s Military Aviation Training unit, CAE is particularly well positioned with regards to servicing Canada’s future pilot training needs. The company thus has an excellent chance of being a major part of any Canadian fighter jet purchase proposal.

As Greenley noted in a recent presentation to small businesses who looking to break into the defence sector, such assignments are critical, particularly for firms looking to grow internationally. “You need your home customer to buy your stuff,” said the industry veteran. “Then can you go out and get export work.”

Who will be Trudeau’s top defence advisor?
While Harjit Saijan, a newly elected Member of Parliament from British Columbia, has been selected as the new Minister of National Defence, the Prime Minister will also be able to draw on Andrew Leslie, a former Lieutenant-General, who was elected as a Liberal in the riding of Orleans, for advice. Leslie, the author of Report on Transformation 2011 about the Canadian Armed Forces, drew widespread approval for his conclusion that Canada should be smarter about how it spends defence funds and focus on generating “more tooth, less tail.”

Key proposals included redeploying or eliminating nearly 7,000 regular forces personnel and civil servants and using some of those funds to better equip soldiers on the ground. One key signal of Leslie’s influence will be the degree to which his ideas, not all of which make sense, will be implemented in the new Liberal Administration.

That’s particularly true of his recommendation to cut 30 percent of the $2.7 billion that the government spends each year on private sector contractors, consultants and services.  That recommendation flies in the face of consensus civilian research which suggests that one of the best ways of getting more efficient services is to sub-contract non-core work, to niche providers.

Discovery Air: smarter defence means getting more aggressive
One example of a Canadian defence sector provider, that has been helping out on that front is Discovery Air, whose Top Aces division, recently celebrated its tenth anniversary of delivering Contracted Airborne Training Services (CATS) to the Royal Canadian Air Force. The company managed to leverage that success, by winning similar bids overseas, notably in Germany, which according to Didier Toussaint, its group president (government services), have been proceeding well. “Our fleet of A4-Ns is providing a range of adversary training and support to all branches of the Germany military (including a recent) deployment over the skies of Sardinia,” said Toussaint, a former Royal Canadian Airforce pilot.

During coming months, Discovery Air will be heading into one of its biggest dogfights ever. The company is currently completing a Request for Information related to the latest CATS renewal. This massive, ten-year mandate, which, according to the Defence Acquisition Guide could be worth between $500 million and $1.5 billion over the life of the agreement, is attracting considerable attention from both local and international competitors. Winning it will necessitate some tough maneuvers.

Marinvent: foreign procurers getting involved with SMEs
One of the outgoing government’s most positive moves, says Phil Cole, a spokesperson for Marinvent, an aerospace consultancy, relates to its new procurement strategy, which asks bidders to ensure that 15 percent of the value propositions attached to their proposals are attributable to Canadian small and medium sized entrepreneurs.

“Provisions which call on foreign OEMs to get involved with local entrepreneurs earlier in the procurement progress, often at the RFI or RFP stage, have been great for us because our content is more than 90% Canadian,” says Cole. “The new government is also showing positive signs, which is good news.” Cole notably lauds the Liberal regime’s decision to go out for bids for a next generation fighter jet, which will free up funds for other more pressing products such as Fixed Wing Search and Rescue capabilities.

Marinvent, which now draws close to a third of its business from the defence sector, has been particularly active on the that front during the past year and has been actively recruiting new talent. During coming months, the company will focus on a bid related to the government’s Engineering Flight Test Rationalization initiative, which is currently at the Request for Information stage.

Davie Shipbuilding: an inexpensive JSS alternative that delivers immediate results
The Trudeau government’s stated intentions to better support Canada’s navy and to deploy funds effectively could be good news for Davie Shipbuilding, which bills itself as Canada’s largest shipyard, says Alex Vicefield, a member of the company’s advisory committee. “It’s great to see a Prime Minister from Quebec,” says Vicefield. “However if we want to take advantage of that fact, we have to deliver. We think we can do that.”

One example could be on the Joint Support Ship front. In August, the Harper Government, which had allowed Canada’s existing supply ships, the Protector and the Preserver to rust away, was forced to make what some describe as a “stop gap measure,” by awarding Davie a contract to upgrade an existing containership to fill that role.  The vessel, currently named the “Asterix,” which arrived at Davie’s Levis facilities in early October, will be configured to serve as a seaborne hospital and emergency seaboard housing facility and to supply fuel, ammunition, water, spare parts and food, to individual ships, naval task groups and helicopters.
 
However as Vicefield notes, Project Resolve, which is being led by industry veteran Spencer Fraser, could be far more than just a stop gap measure. For one, the estimated $400 million estimated cost, including the Asterix’s acquisition expenses, is just a fraction of what the JSS vessels, are projected to cost. Furthermore, notes Vicefield, many containerships that have been refit for replenishment duties in other navies, have been in operation for decades. These include the Royal Fleet Auxillary ship RFA Argus, which has served in every major conflict that the UK has been involved in during the past two decades. If Vicefield is correct, there is no reason that all three ships in Canada’s projected JSS initiative couldn’t consist of refits, a move that would save the country billions of dollars, and get it equipped quickly.

Naval focus could boost Quebec- based suppliers
Another big potential opportunity for Davie relates to the coveted AJISS contract, a massive, multi-year PWGSC initiative to provide in-service support for Canada’s Arctic Offshore Patrol vessels and the Joint Support Ships. One natural partner that Davie to could team up with on such a proposal, would be DCNS, a France-based provider, that has experience on almost all classes of navel vessels, and whose president Olivier Casenave-Péré has been touring the countries to meet suppliers to see where there are potential fits.

Bronswerk Marine, a Montreal based company, which does naval heating, ventilation and air conditioning systems work, is another potential Davie partner on these and other initiatives. The company cites its knowledge of nuclear, biological and chemical weapons protection systems as being of particular use in future National Shipbuilding Procurement Projects.

Another big beneficiary of potential Trudeau government fund transfers from air to maritime operations is JSK Naval Support, which has been gearing up to supply and manufacture combat systems component for Canada’s Navy here in Canada, in conjunction with a UK based partner. “We are now seeing the first fruits of our strategy,” says Brian March, its president. “The backlog of work at out Pointe Claire facility continues to grow and are optimistic looking forward.”

Logistik: leveraging CF work to vault to the international stage
Larry Lashkevich, director of business development, at Logistik Unicorp for his part is focused on international business. “Our success in providing uniforms to the Canadian Armed Forces and the design innovations that we have developed have given us considerable credibility overseas,” said Lashkevich, who joined the company following a long career with the Canadian Armed Forces, where he reached the rank of Brigadier-General. “For example I recently returned from a series of meetings with procurement officials in Columbia and they were very impressed with the work we are doing in Canada. This gives us tremendous credibility there.”

Logistik Unicorp is by far the defence provider which is closest to Canada’s regular force personnel’s hearts – literally: as they feel and touch Logistik products every morning when they put on their uniforms. However the company’s focus during coming months will in large part be here in Canada, where it will be developing a value proposition related to the massive Operational Clothing and Footwear Consolidated Contract (OCFC2). The contract which comes up for bid in the coming months could be worth as much as $500 million.  Longer-term the company will be focusing on the similar sized Consolidated Clothing Contract (C3) for which a request for proposal is expected to be released next year.

Revision Military: new contract up for bid?
Another Quebec defence sector leader that is growing internationally is protective soldier equipment provider Revision Military. The company, recently announced that it was opening a UK facility to support its European business. However as Jonathan Blanshay its president admits,  much of its international success stems from its base here in Canada. This includes a win, announced earlier this year, of a $20 million deal to supply energy storage systems that will power sensor suites on the LAV 6.0 RECCE vehicles.

Revision, which maintains its operational headquarters in Vermont, in part, to qualify it to bid and deliver contracts to the US military, is also doing well there. Last month Revision announced that 90 new posts would be created at the Newport location, to help complete recent orders.

Rheinmetall Canada: a $500 million soldier systems win
Rheinmetall Canada also appears to have the wind in its sails. The company was the beneficiary of large medium-range radar and soldier systems contracts awarded by the Harper Government the week before it called the election. The contracts, which could be worth as much as half a billion dollars will bring new work to the company’s St-Jean-sur Richelieu facility’s 200 employees.

Rheinmetall also maintains and overhauls Canada’s Leopard 2 A4 tanks, its 40 mm close area suppression weapons and will play a similar role related to the recently acquired Tactical Armored Patrol vehicles. A recently partnership with Elbitt in a bid to sell the Israeli-based provider’s wares to the Royal Canadian Navy, for its remote weapons state project, also holds promise – particularly if the Trudeau administration’s commitments to shift funds to the Navy materializes.

Meggitt: working smarter means more simulations training
If the Trudeau administration is serious about being smarter about the way its spends defence funds, then one big winner will by Meggitt Training Systems (Quebec) Inc. The use of simulations is regarded by many to be one of the most economically effective ways to train soldiers, in a budget constrained era, in which sending soldiers on exercise to blow off boxes of ammunition, is proving increasingly hard to justify.  

Meggitt recently picked up a $25 million three-year contract to provide in-service support to the CF related to its Small Arms Trainer (SAT) and its Indirect Fire Trainer (IFT) devices, which according to Paul Romeo, its director of business development, “support individual and groups training across a range of military and paramilitary operations.” Meggitt’s Montreal-based office is also doing considerable export work, notably related to supporting US Army and Marine Corps projects.

For the Department of National Defence and Public Works and Government Services Canada to spend funds better, they will need to work smarter, says Vincent Dugré, vice-president (operations) at the Quebec Ground Transportation Cluster, an industry group, which has a few suggestions. “Breaking down contracts into smaller components, would help as this would enable SME players to provide niche support in key areas,” says Dupré. Dupré also suggests shortening the time between contract’s appearance in the DAG and when is actually awarded.

Alexandre Trudeau: the last man to get the king’s ear
Students of family political dynasties, which Justin Trudeau is showing signs of setting up, have long learned that the most influential members, are those that the public rarely sees or hears about. Ironically one of Quebec’s, and the Canadian Armed Forces’ biggest aces in the hole, may be Justin Trudeau’s brother Alexandre, a former militia officer, who was attached to the Royal Canadian Hussars in Montreal, when he did Reserve Entry Service Officer training.

Alexandre, a documentary filmmaker, who has also written extensively on foreign affairs, has so far kept a relatively low public profile, so it’s too early to say how much influence he will have in the new administration. However there is one inescapable sign that that influence will be significant: during the campaign the Liberals were forced to deny that they agreed with Justin’s younger brothers positions on certain issues.

If, on top of that, the Hussars start getting a lot of new equipment, this would provide a big clue as to which way the wind is blowing.



*****

Highlight the following quote in bold in a text box:

“It’s great to see a Prime Minister from Quebec. However if we want to take advantage that, we will have to deliver.”
Alex Vicefield, Davie Shipbuilding.



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