Canadian Defence Review
May 7th, 2016
Western Canada Aerospace and Defence Report 2016
With Harjit Sajjan leading an ambitious rethink of the country’s defence strategy, Western Canadian contractors have considerable clout in the Trudeau cabinet. Major procurement decisions will hinge on the results.
When Harjit Sajjan took the stage at the École Nationale d’Administration Publique in early May, to chair the Montreal leg of the Canadian government’s Defence Policy Review consultation process, the audience consisted mostly of academics, bureaucrats, military officials and think tank apparatchiks. Few industry personnel played prominent roles. However the stakes, for Western Canada’s land, air and naval defence contractors, are huge.
The good news is that Canada’s new Minister of National Defence, who represents the Vancouver South riding and is a key regional spokesperson, is emerging as a naturally ally. “That Canada’s Armed Forces will get the equipment they need to do their jobs is a given,” said Sajjan, during an interview at a break in the event. “However (procurements) will be based on a review of the main challenges to Canada’s security and the CAF’s role in meeting those challenges.”
Weatherhaven: reinforcing Canada’s defence posture
Sajjan’s approach makes sense says Ray Castelli, president of Weatherhaven. “Any new government needs time to set priorities,” says the hard-working executive who doubles as vice-chairman of the Canadian Association of Defence and Security Industries. “With the Canadian Armed Forces recapitalizing many of its assets, the country has a once in a generation opportunity to simultaneously reinforce its defence posture and its industrial base. The fact that the government is seeking input from stakeholders is thus highly positive.”
Castelli’s comments are all the more pertinent, as Weatherhaven is a frontrunner in bidding on the Headquarter Shelter System Program, a potential $400 million contract, for which a decision is expected later this year. That said, the Burnaby BC-based company, which recently booked a $5 million deal to build helicopter facilities in Qatar isn’t sitting around. When we interviewed CDR’s Defence Executive of the Year for 2015, Castelli had just pulled over his car en route in England, where he is overseeing the company’s supply of shelters to NATO special forces.
Western Canada’s growing clout
Despite recent weakness in oil prices, which has put a major crimp in Alberta’s economy, the signs of Western Canada’s growing clout are everywhere. The combined population of the four Western-most provinces, - British Columbia, Alberta, Saskatchewan and Manitoba, - hit 30% of the Canadian total in 2011. In a country which assigns Parliamentary seats, military bases and defence contracts, in large part based on population – that matters.
The region hosts installations of numerous sector leaders. These range from General Dynamics, Raytheon, MDA, Avcorp, and Meggitt, to small and medium sized enterprises such as Marshall Aerospace, International Submarine Engineering and Race Rocks Digital, as well as three major aerospace and defence trade shows - ConvergX (see CDR’s January/February 2016 issue) WestDef and the Abbottsford Air Show.
Abbotsford: “The Farnborough of North America?”
On the air front, the big question in Western Canada remains what the government will do about next generation fighters. That’s a particularly big concern in British Columbia, which has a large, and growing aerospace cluster. Much will depend on the role and characterization that the Defence Policy Review report will assign to air operations. During the election campaign, then candidate Justin Trudeau said that his government would not buy Lockheed Martin’s F-35 Lightning II fighters. However there is widespread speculation that the government is trying to back away from those promises says one expert.
“In its recent budget the government pushed out capital allocations until the early 2020s,” says Jim Reith, president of the Abbotsford Airshow. “If that happens, it increases the F-35’s chances, because two other options that it is considering (Boeing’s SuperHornet, and the Eurofighter Typhoon) are expected to be at the end of their production lines by then. That would benefit the many British Columbia companies that are directly involved in the F-35 supply chain.”
The Abbottsford Air Show provides Reith with a fantastic platform to track industry developments. This year, as usual the show is scheduled to feature a wide variety of aircraft. At press time, Reith was trying to line up an F-35, a Eurofighter, bidders in the Fixed Wing Search and Rescue aircraft (Alenia and Airbus) and Contracted Air Trainings Services competitions (CAE and Discovery Air) as well as a SuperHornet and some F-15s.
Cascade Aerospace and an emerging cluster
One of Western Canada’s aerospace sector’s biggest advances has been the growing recognition of the cluster’s importance, says Benjamin Boehm, chief operating officer at Cascades Aerospace. “The British Columbian government, particularly Mike de Jong, the finance minister, has been a big champion of the industry in recent years,” says Boehm. “They realize that when you take into account the value-added engineering work, that aerospace has one of the highest economic spin-off multiples of any industry.”
Boehm, is also heavily involved in AIAC Pacific. This increasingly important industry lobby group, recently year hired Taylor Briggs and Mike Mueller to help out. The pair’s immediate task will be to oversee the Aerospace, Defence & Security Expo (ADSE) and its integration with the growing Abbottsford show which is held concurrently. Boehm hopes the combined event will become “the Farnborough of North America.”
The veteran executive has also been highly busy in his day job. That includes managing a company of 700 people, which services Canada’s 12 C-130H Hercules search and rescue and mid-air refueling aircraft and its 17 C-130J tactical airlift transport planes.
The mandate has led to significant opportunities on the export front. Cascades has just completed two major avionics upgrades and a wing swap on two Mexican C-130s. These contracts, when combined with aftermarket warranty support, could generate as much as $30 million in billings for the company. Better still, Cascades, through Canadian Commercial Corporation, is working to do work on three more aircraft.
Magellan Aerospace: F-35 tail assemblies in Winnipeg
One company that has a lot riding on the next generation fighter decision is Magellan Aerospace, which produces tail assemblies for the Lockheed Martin F-35 Lightning II. According to Scott McCrady, the company’s JSF Program Director, Magellan has been a long time backer of the initiative. Like many Canadian aerospace sector suppliers, McCrady isn’t taking Prime Minister Justin Trudeau’s decision to cancel the Lockheed Martin contract, as the final word.
Magellan continues to monitor developments on the F-35, both in Canada and internationally, closely. In fact the company has seen an uptick in orders from Lockheed Martin in recent months as it steps up production south of the border. That said, officials haven’t been sitting around waiting for developments. In early May Magellan announced a whopping $720 million civilian deal to supply precision made parts and assemblies to Airbus, for use in its A320 and A330 family of aircraft.
Magellan isn’t alone in that respect. Avcorp Group’s CEO Peter George recently announced reception of additional orders for parts for the F-35’s outboard wing. The company is also in negotiations with Lockheed Martin to expand its role in the program.
KF Aerospace: training the pilots of tomorrow
Another major aerospace sector leader that is watching Sajjan’s Defence Policy Review process closely is Bryan Akerstream director of business development at KF Aerospace. The bulk of the company’s 700 employees and its influential defence unit, are based in British Columbia and Manitoba. These include its Allied Wings division, which provides Royal Canadian Air Force pilots with initial training at Southport Airport (formerly CFB Portage La Prairie) about 40 miles west of Winnipeg.
However KF Aerospace’s mission, which includes delivering advanced training to fixed and rotary wing pilots on a variety of simulator, aircraft and helicopter platforms, could be redefined based on how the government proceeds with its Future Aircrew Training initiative. KF Aerospace also does maintenance work on Canada’s Buffalo and Twin Otter search and rescue aircraft and is also partnering in Team Spartan, where it would fulfill a similar role in the FWSAR bid.
Seaspan: FELEX wraps up. Focus shifts to OFSV and OSV
During the election campaign, then-candidate Justin Trudeau promised to use the funds the government saved from the cancellation of the F-35 program, to rebuild Canada’s navy. One of Sajjan’s biggest challenges in the Ottawa backrooms will be to use his clout advance the case of Seaspan Shipyards, which operates yards in Vancouver and Victoria British Columbia. During the past several years, Seaspan, which was chosen to build the non-combat vessels in Canada’s National Shipbuilding Strategy, has invested considerable sums of money in those facilities.
Sajjan was on hand at an official ceremony held at the Victoria facility in late April, to mark the handoff of HMCS Regina to the Department of National Defence following completion of extensive modernization work on the Halifax Class frigate. The ceremony marked the delivery of the fifth and last vessel that Seaspan has completed under the Frigate Life Extension (FELEX) program (Irving Shipbuilding is doing the refitting work on the East Coast-based frigates).
According to Brian Carter, president of Seaspan Shipyards, the company is now looking for new work. Part of that will come from a lucrative deal it inked to do retrofit work on two Royal New Zealand Navy frigates. The company is also pushing ahead with construction of three Offshore Fisheries Science Vessels and one Oceanographic Science Vessel for the Canadian Coast Guard, and recently placed an order for long lead items, that will be needed to build Joint Support Ships, which it hopes to complete for the Royal Canadian Navy.
Babcock Canada starts thinking beyond VISSC
Another continuing crucial mandate will be the work that Seaspan is doing on the HMCS Corner Brook. The submarine is currently at its Victoria yard undergoing its Extended Docking Work Period (EDWP) as part of the $1.5 billion/15 year Victoria In-service Support Contract (VISSC), which is being overseen by Babcock Canada’s 350 Victoria, Ottawa and Halifax-based employees.
According to Jake Jacobson, the program management and systems integration provider’s vice-president (business development), with VISSC completion scheduled for 2018, Babcock’s has been increasingly pitching in elsewhere. For example last year the company won a $1.6 million contract to replace high frequency monitor receiver systems at six DND stations and two support facilities.
These systems guard and monitor frequencies used for aircraft radio communications in search and rescue operations, arctic patrol and global transport flights. Babcock will also train operators to use the new technology, a contract which is expected to be completed by mid-year. As if that were not enough, Babcock also recently completed a $4.5 million refit and life extension of the CCGS Des Groseilliers, a heavy ice breaker, for the Canadian Coast Guard.
Atlas Elektronik: willing to pitch in to NSS
Canada’s National Shipbuilding Strategy has drawn intense international attention from global experts. These include Bremen Germany-based Atlas Elektronik Canada, a subsidiary of Thyssenkrupp GmBH and Airbus DS, which quickly set up a Canadian division headed by Rick Gerbrecht, to seek out opportunities on the project.
Altas Elektronik scored an important success when it recently landed a contract to provide HF radio suites and near-vertical incidence skywave antennae for Canada’s Arctic Offshore Patrol Ships. Although the initial contract is small, the Royal Canadian Navy prefers to have common equipment throughout the fleet. That means that Atlas has considerable scope on which to build on its initial penetration. That will include providing In-Service Support on the initial order and could potentially lead to broader sales of these and other products (such as its sonar and Seaspider Anti-Torpedo Torpedo offerings) for other classes of ships.
Focus turns to policy recommendations
In short, Western Canadian defence players have an especially high stake in how Sajjan’s policy review will address naval issues. Some things are clear. Experts almost unanimously agree about the importance of establishing a presence in Canada’s Arctic regions. The Department of National Defence, provided an early sign of this earlier this year when it awarded MacDonald Dettwiler and Associates (MDA) a contract to provide continued support to Canada’s broad-area maritime surveillance system.
The new government’s approval of the Royal Canadian Navy’s Resolve-Class MV Asterix project provided another important signal regarding future direction. This was particularly good news for Scott Dewis, CEO of Victoria-based RaceRocks 3D Inc., which landed a training contract related to the Auxiliary Oiler Replenishment (AOR) Ship. International Submarine Engineering, which provides mine-countermeasures equipment, will likely also continue to find new ways to add value through its innovative technologies.
For other suppliers, the outcome is less clear. Initial public comments suggest that Sajjan would prefer an increased focus on peace-keeping missions rather than on past policies related to following allies in foreign adventures. If this philosophy makes its way into his final report, procurement priorities will be affected. The good news is that the Minister has a clear strategy to balance his natural instincts to represent British Columbian and Western Canadian interests, with his national responsibilities. “It’s easy,” said Sajjan. “It simply means identifying the right priorities and then moving forward.”
The Abbotsford Airshow will take place on August, 12, 13 and 14, 2016, in conjunction with the Aerospace, Defence & Security Expo. WestDef 2016 will take place in Calgary, Alberta, between July 5th and 7th.
Sidebar: Western Canada snapshot
Provinces: British Columbia, Alberta, Saskatchewan, Manitoba
Land mass: 2.7 million km2/ 9.98 million km2 (Canada total)
Population: 10.2 million (2011)/33.5 million (in Canada/2011)
Geographical assets: Western fleet based in British Columbia, vast spaces for air and ground training in Alberta and throughout region.
Major defence production infrastructure: Seaspan Shipyards, Cascades Aerospace & KF Aerospace/MRO facilities, GDLS land vehicle upgrade center.
Photo caption: Harjit Sajjan, Minister of National Defence at Seaspan Shipyards in April 2016. Sajjan is expected to be a strong regional and sector champion.
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