Industry Committee on May 27th, 2008

[Len Dacombe]

I have two IRAP ITAs in my office. I lease them office space, and it makes perfect sense for them to be in my office, because they bring companies into talk to them and they also introduce them to TRLabs as well. I know they are oversubscribed.

[The Chair, Conservative, James Rajotte]

Thank you.

I regret that the first panel is over. As you can see, the members have a great interest in the subject.

We want to thank you for your time. If you have anything further you would like to add to the questions that were asked today, or on the issue in general, please feel free to submit that and we will ensure that members get it.

Members, we will suspend for about two minutes and then we will change the panels.

But thank you very much for your time this afternoon. We sincerely appreciate it.

[The Chair, Conservative, James Rajotte]

I understand some of our witnesses are delayed, but we might as well start with the ones who are here on time.

Members, we are on a fairly tight schedule. We do have a flight to Saskatoon tonight, and Mr. Simard is buying everyone dinner, apparently.

The second panel is focusing on aerospace, and we're supposed to have a number of guests here, but we do have Mr. Olson, from Standard Aero. He's the senior vice-president of technology and engineering.

Mr. Olson, we do typically have five minutes, although obviously we'll give you a certain amount of leeway as you are the only witness here at this time. So welcome to the committee, and please feel free to start your opening statement.

[Kim Olson, Senior Vice-President, Technology and Engineering, Standard Aero]

Thank you very much.

I thank the committee for giving Standard Aero the opportunity to come before you this afternoon and talk a little bit about some of our views on technology and the aerospace sector in particular.

Just to give the committee a little background on Standard Aero, we are a global aerospace and defence supplier with the diversified engine and airframe services we provide. We are one of the largest independent and OEM-aligned service providers, MRO companies, in this market.

We have a large base of operations in Winnipeg. About 1,400 people work in Winnipeg, and our headquarters is in fact located in Winnipeg.

It's important to note that a majority of our sales are in fact to foreign customers, with the U.S. being a predominant supplier of customers for the work we do.

Over the years we've put a significant amount of investment into our engineering and our operations talent, and we have had a fairly active involvement in numerous small-scale research and development initiatives. That's just a little background for your benefit on Standard Aero.

In terms of looking more specifically at some of the technology challenges we face as an industry in the aerospace and defence landscape, we are seeing certainly increasing barriers to entry for the suppliers for MRO services in that type of area. In particular, one of the things that drives that in aerospace and defence is that programs are changing with OEM—original equipment manufacturers—with new programs and new products coming out...having considerably greater control over those products and having in fact life cycle requirements and arrangements built into those kinds of contracts that are put in place. These really create a barrier to entry to independents, or in many cases to Canadian companies' participation in those kinds of programs.

We also see an obviously increasing amount of technology going into these new aerospace products, whether they're engines or air frames, composites and new technologies, that require additional and increasingly more sophisticated technologies to provide ongoing support there. Couple that with the intellectual property licensing and technology transfer controls that accompany a number of these types of programs and that again creates considerable barriers to many of the Canadian companies. Even we are challenged with some of those things.

In other aspects of the industry, airline and supplier consolidation is again raising that technology investment risk, and we're seeing a burgeoning foreign commitment to developing in-country aerospace capabilities. Again, this takes away what has often been there in the past and was very much an opportunity for Canadian companies to provide export opportunities on aerospace and to develop technologies in those areas. It's just another one of those factors that's entering into the challenges.

The rapid rise in the dollar also really contributes to creating difficult business cases for preparing development research and different types of advancement programs that exist. So we're constantly challenged to put a viable commercial business plan together for those types of endeavours.

Looking at it from the workers' perspective, worker shortage continues to be an issue for our industry. We have an aging and retiring workforce, and we see that the workforce in the aerospace industry in Canada is not particularly mobile. You tend to have to grow your own and develop that capability within the area you're in.

On the technical side, new entrants see the aerospace industry as being not particularly attractive. Other industries look more attractive from the perspective of working conditions, salaries, and job perception. Our engineering perspective would suggest there is limited career growth, so the new college graduates are not particularly enamoured with aerospace as the future place to grow because of limited development programs. In some cases, the regional concentration in the aerospace programs means there is not that opportunity there for them.

An important aspect of growing this area is in the realm of knowledge management. The transfer of technology to the newer workers, and in fact developing technologies for better enhancing and utilizing that knowledge, is one key advancement for the industry and government across many different sectors to look at. The sustainability of the environmental aspects is certainly an ongoing area that we need to constantly keep a focus on.

So where is the government role in some of this? I think facilitating industry-government-academic collaboration and investment in research and commercialization is really important. In looking at the creative tax programs, SR and ED is certainly an element that's viable. I think there's still a lot of work to be done in terms of understanding how to really apply it and gain the benefit of it.

With respect to facilitating cross-sector best practices and opportunities, as I look at different government programs and different sectors, it occurs to me that there may be some opportunities, from automotive to aerospace, to perhaps cross-breed some of the ideas out there and the advancements that are ongoing. I think it's important that the government continues to look at supporting regionally diverse initiatives in growing a broad aerospace capability across our nation.

Another aspect is ensuring that our defence-related procurement activities facilitate continued development and growth of technology within Canada. We want the foresight to realize that as we enter into some of these new programs, there can be barriers to advancing the technology...and becoming mere servants to various manufacturers who might have these life-cycle programs from other countries and so forth. It's important for us to think about that from a long-term perspective.

Finally, we need to look at continuing to facilitate the development of our human resource. It's very important for our industry--for the aerospace and defence industry in particular.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Olson.

We're joined as well by Mr. William Geary and Mr. Peter Hoffman from Boeing.

Mr. Hoffman will be making the opening statement on behalf of Boeing.

Welcome. You have five minutes for an opening statement.

[Peter Hoffman, Director, Global R and D Strategy, The Boeing Company]

Honourable members of the committee, ladies and gentlemen, it's a privilege to be here today. I'd like to thank you for your invitation to discuss the topic of science and technology in Canada and its impact on the aerospace industry.

I'm pleased to report that Boeing is an integral part of Canada's aerospace industry. Boeing's presence in Canada stretches over more than 85 years of aerospace excellence, and the company's contribution contributes approximately $1 billion U.S. annually to the Canadian economy.

As the country with the third largest international Boeing supply base, Canada is home to a Boeing-owned high-technology composites manufacturing facility here in Winnipeg, as well as an airline maintenance software development operation in Richmond, British Columbia, and an airline crew, fleet and logistics software development operation in Montreal. In addition, Boeing operates out of five locations in Canada, providing new aviation parts and related after-market services. In total, Boeing employs over 2,000 highly skilled Canadians across 10 locations.

Each year, Boeing places orders with hundreds of suppliers in Canada in every province. Canadian industry provides Boeing with aerospace parts, components, and subsystems for all Boeing commercial airplanes, including the 787 Dreamliner, the CH-47 Chinook heavy lift helicopter, plus Canada's military CF-18 fighter jet and the C-17 strategic airlift aircraft.

In addition to our significant business presence in Canada, Boeing is also actively engaged with the technical community, both from an academic and industrial perspective. We have research and development, continuing education, and scholarship and recruiting relationships at the University of Manitoba, Red River College and Stevenson Aviation & Aerospace Training Centre here in Winnipeg; the University of British Columbia in Vancouver; McGill University in Montreal; and Memorial University in Newfoundland.

Technology collaboration with Canadian government and industry includes development of affordable composite manufacturing techniques, in cooperation with the Composites Innovation Centre in Manitoba, and natural fibre composites research, in cooperation with the Canadian National Research Council. In addition, we are involved in the development of advanced metal joining and forming technologies with the Canadian firms, Guthrie Research Associates and Spinduction.

Boeing and the Canadian government share a common understanding of the importance of innovation to the long-term health of industry. Canada recognizes the need to continue to innovate and shift to higher value-added activities to maintain their competitive advantage. Boeing faces the same challenges to maintain a leadership position in a highly competitive and dynamic global aerospace market.

In response to these challenges, Boeing has instituted significant changes to our business models and operating methods both inside and outside the company. Inside Boeing, innovative leading manufacturing techniques have been implemented in our commercial and defence businesses, bringing new levels of productivity and efficiency. At the same time, new partnering approaches on the 787 Dreamliner have driven design and manufacturing responsibility outside of Boeing to a greater extent than ever before.

Boeing's emphasis on finding best-value opportunities outside the company has not been restricted only to manufacturing and engineering communities. A parallel global outreach has also taken place involving research and development. The rising cost of technology development and speed of innovation required to meet the competitive requirements of our customers in today's aerospace market is driving Boeing's commitment to reach out and collaborate around the world with the best and brightest researchers in government, industry, and academia to quickly find and transition the most affordable and innovative solutions possible.

Boeing research and development investment decisions are driven by two primary factors: gaining access to world-class capabilities and leveraging our research and development investment. To help us set our investment strategy, we continuously collect information on the types and amounts of global research and development activities and use this data to identify capabilities that align with our technology needs. Canadian government programs, such as the strategic aerospace and defence initiative and the scientific research and experimental development tax incentive programs, are important for encouraging Canadian private sector technology investments.

Boeing searches for the best technology capabilities to meet our needs both in the academic and industrial sectors. As detailed in the Advantage Canada plan, a skilled and highly educated workforce and high rates of private and public investment in research and innovation are fundamental to long-term economic growth in developed countries. Recognition of these factors and a willingness to co-invest with industry has played a key role in past Boeing technology investments.

In closing, Boeing is proud of our long history of business and technology engagement in Canada, and we look forward to working with the Government of Canada, academic institutions, and industry to strengthen our current technology relationships and identify new models of collaboration.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Hoffman.

We do have our final two guests here, who we saw earlier this afternoon. From the Composites Innovation Centre in Manitoba, we have Mr. Sean McKay, and from Bristol Aerospace Limited, the vice-president and general manager, Mr. Don Boitson.

Do both of you gentlemen have presentations or only one of you?

[Don Boitson, Vice-President and General Manager, Bristol Aerospace Limited]

I have a few words to say.

[The Chair, Conservative, James Rajotte]

Okay.

We can have both of you. We have a bit of a short timeline. Perhaps we'll start with you, Mr. McKay, and then we'll go to you, Mr. Boitson.

[Sean McKay, Executive Director, Composites Innovation Centre Manitoba Inc.]

Briefly, I just wanted to allude to the discussions we had this afternoon regarding science and technology and research in Canada.

I guess we've been involved in several projects. So far, we've predominantly been working with single industry partners and with other multiple research collaborators. Most of the funding has been provided through the western economic partnership agreement that flows from Western Economic Diversification Canada and the Province of Manitoba. We have also been involved in a fairly extensive roadmapping assessment with the National Research Council and the Institute for Aerospace Research. This commenced in 2003 and has been ongoing since.

We've identified key areas in the sector for competitive development. However, we've been unable to move forward and have these projects implemented. These predominantly are pre-competitive collaborative projects with numerous industry partners. We have been unable to find a funding agency to at least underpin some of the costs, and that continues to be an effort.

In terms of recommendations, I know that Industry Canada is going to a second round of review of the program, especially under the strategic aerospace and defence initiative. It's with respect to how that funding can be utilized not only by Canadian industry, from a commercialization standpoint, but also in the form of potential grants for a lot of these larger types of projects.

Also, as I mentioned earlier, there is the comparison between funding from Industry Canada and funding from other organizations, such as Agriculture and Agri-Food Canada, to see if there is a similarity or if there are distinct differences. I believe there are differences, and maybe one group can learn from the other.

In terms of other activities, specifically from Manitoba's perspective, we're involved in trying to leverage industrial and regional benefit offsets from major military procurement packages. We would like to see if we could have some additional government involvement, not mainly in sponsorship but involvement in coordinating those activities.

We're also looking, together with the University of Manitoba, at bringing in what's known as a consortium for research and innovation in Canada. This is a program that's revolving at the moment around Quebec universities and the aerospace industry. It is quite effective, and we're looking to try to bring that into Manitoba. There are some nuances, especially in the way NSERC views this organization.

Also, from the university perspective, we're looking at what types of guidance we might have in terms of getting the universities to explore ownership of IP and publication initiatives a bit more to make them more industry friendly. I think that's one of the stumbling blocks in terms of getting industry to participate with our university system.

Finally, we are involved in some large capital-intensive projects with industry. We find that it's fairly difficult to get a good solution, not necessarily from a granting perspective but from the perspective of how projects can be funded. I know there is involvement from the strategic aerospace and defence initiative. But there may be some other mechanisms that could be looked at with these tax initiatives, which would actually bring a considerable amount of funding into our aerospace industry.

[The Chair, Conservative, James Rajotte]

Thank you very much.

We'll go to Mr. Boitson, please.

[Don Boitson]

Thank you.

I just want to add a couple of comments based on what I mentioned this morning on the efficacy I see in our partnership.

The aerospace sector operates within a high-technology sector in Canada and we do compete globally. We at Magellan Aerospace design, engineer, and manufacture aero-engine and aero-structure assemblies and advanced proprietary products. We do actively participate in collaborative, strategic investments of national interest, and we also have coordinated approaches to access opportunities through Canadian government purchases, such as IRBs.

I'm bringing this up because we look forward to applying these technologies to the export markets. We at Magellan have a proven business model of developing these proprietary products based on Canadian government and military requirements--for example, our Black Brant, Wire Strike, and CRV7. We exported those to the global market, and it is now a $50-million-a-year thriving business, 100% on exports. Those types of models do certainly work within industry.

Aside from the proprietary products, obviously there is manufacturing technology that we want to apply from military applications and take to civil and commercial applications as well. We're investing in automated manufacturing technologies to enable this to happen. We believe this technology is paramount to the success of the Canadian manufacturing industry in the future for folks in high-precision assembly and automated assembly of metallic and composite components. It will allow the Canadian industrial base to participate in future programs as well.

I did want to mention a couple of areas in the strategic partnerships, and I'll leave the notes here. We do look forward to the Canadian government's continued support in long-term risk-sharing capital requirements. We mentioned earlier that there is a strategic aerospace and defence initiative that replaced TPC, and it's just getting started right now. It's critical to make sure that is a success for industry.

We're asking for a level playing field, as was said earlier. It's not about grants or other opportunities, but we need a level playing field in the Canadian industry to develop new manufacturing technology and to maintain and grow our highly skilled workforce.

We are asking that the Canadian government consider modifying the policy required to ensure procurement of satellite technology and other strategic technology in Canada. Right now we are restricted as Canadian companies from competing in other jurisdictions and countries. Again, we need to seriously look at that so we can level the playing field with some of our international competition.

We do want continued government support through corporations like CCC and EDC to support the ongoing export of commercial and defence products. I know there's talk about some potential changes in a couple of those areas, but we want to make sure they do support the export of products, as that is key to our long-term success.

We'd like to maintain the procurement policies and practices for future proprietary product development--this is on strategic purchases specifically on the military side right now--so that we do have engineering, repair, and overhaul throughout the procurement and operational phases of those programs for Canadian industry. Again, we feel that's very important in our sector.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Boitson.

For the interpreters, EDC is Export Development Canada.

[Don Boitson]

CCC is the Canadian Commercial Corporation.

[The Chair, Conservative, James Rajotte]

Thank you for your presentations.

We'll now go to questions from members.

For the information of witnesses, members have either five or six minutes, so it's a very short time for questions and answers. If they direct it to someone on the panel and you want to answer the question, just indicate it to me and I'll ensure you get time to respond.

We'll start with Mr. Simard, for six minutes.

[Raymond Simard, Liberal, Saint Boniface, MB]

Thank you very much, Mr. Chair.

I would like to thank the witnesses for being here this afternoon.

One of the tools we have at our disposal is the IRB. It is a tool in the procurement process when we purchase equipment from another country. I believe they are supposed to invest dollar for dollar in our country. If I'm not mistaken, there are no restrictions in terms of what they have to invest in; it doesn't have to be science and technology. The example that's always used is toilet paper, and I hate using it, but in fact they can buy a lot of toilet paper for $1 billion, let's say.

Is there something the government should do in terms of imposing a minimum to be reinvested in certain sectors? Is that something we should consider?

[Peter Hoffman]

I could speak to that. I've worked closely with our IRB and industrial participation teams over the years. I was a member of that team for a number of years. Across the world it's very wide-ranging. Some governments are very prescriptive. In particular, I could point out that the Korean government is very specific about what they want, about what kinds of ratios of technology versus manufacturing they want. It's a double-edged sword. It gives you a more rigid guideline, but at the same time you know exactly what they're looking for.

One thing I can point out, though, is that there is a heavy focus on technology in some countries. There's a recognition of the long-term benefits of investing in technology within the country, and that's demonstrated through granting of offset credits.

We have had discussions with Industry Canada along those lines. We have yet to come to a series of programs where we've been able to find common ground, but if we were able to promote the use of technology as part of the IRB programs, I think that would be a positive step forward.

[Raymond Simard, Liberal, Saint Boniface, MB]

One of the other tools we have at our disposal is our local economic development agencies--Western Economic Diversification, for instance. We often hear in Winnipeg that WD is not doing what it should be doing. We often compare it to ACOA. Although we have the third largest aerospace sector in the country here, the Atlantic provinces have a fairly vital sector. I'm told a lot of it is because of ACOA's work and because of ACOA's flexibility.

I wonder if you can speak to us on that a bit, because I think if a local agency can make that much of a difference, we should maybe change our structure here with WD.

I wonder if Mr. Boitson might comment.

[Don Boitson]

I will comment. A good point is that we know the WD policy had changed over the last four or five years, and previously there was more direct investment by WD. I actually sat on a panel--it was two years ago now--when they talked about what were some of the structures we could do in WD to reshape and refocus. It was a former deputy minister who was saying and promoting the fact that when there was some of that direct investment in key technologies, in key research and development areas, it was helping in assistance. We know that is applied in some of the other areas across Canada. So yes, I think we're a strong proponent of that.

At the same time, again, we've got WD supporting initiatives like the CIC, where there is a group clustered together, and we've been talking about potentially others with materials or other areas to focus on as well. Again, we feel there needs to be potentially a few more wins in some of the WD areas that way. But certainly direct investment by WD would be a positive.

[Raymond Simard, Liberal, Saint Boniface, MB]

Mr. Olson, do you want to comment on that?

[Kim Olson]

Sure. I would tend to support that. Certainly we could see where there would be advantages in that direct investment. We've seen where other companies in eastern Canada have definitely benefited from that and can really help to propel in terms of developing some technology and capability in a particular area by supporting that direct investment.

[Raymond Simard, Liberal, Saint Boniface, MB]

Mr. Boitson, you mentioned that Magellan was not able to compete on an even playing field. That really concerns me. This is something we certainly have to look at.

So what you're telling us--and I've used this example before in committee--is you're not allowed sometimes to compete in a European bid, for instance, but they are in fact allowed to bid here in Canada.

Can you tell us what reason we are giving you? Is it because of our free trade agreement? Why are we not allowing you to play on this even playing field?

[Don Boitson]

I admit this is one of the biggest challenges. How do you go ahead with either some strategic procurements or direct procurements in some of these technologies? I'm a proponent of going ahead with some of these strategic purchases and having the IRBs. I think the example here was a country like Korea, which nails it down and says, “Here are the elements, or here's the technology we want to go after.” I think Canada should develop some of those.

I'm going to say satellite technology; it's been in the news a bit with the MDA purchase and a few other things. We are not allowed to bid into some countries like the U.K. and Europe for those same types of products, but they can bid here. They have economies of scale. They have other competitive factors to us. So a lot of times I think we in Canada take a step back and say, “Well, we need that natural process to go.” If we take that step, let's understand that it does harm or impact our potential for long-term strategic growth in areas like satellite technologies or other advanced technologies.

We need to look closely with other countries and see how they do put these policies and plans in place. I'm suggesting there should be some Canadian government policy change to either mirror or look at and address some of the high-technology sectors for Canadian industry.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Madame Brunelle, please.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

Good afternoon.

I have a very simple question for you. Are your companies in competition or do you work together? Are you subcontractors for Boeing for some jobs? That is something I would like to understand.