National Defence Committee on April 17th, 2007

[Kenneth Rowe]

I'm not necessarily advocating that, but if the bulk of an industry is in one part of a country, it's logical that they're going to win aerospace type of business.

[Laurie Hawn, Conservative, Edmonton Centre, AB]

If they earn the contract.

[Kenneth Rowe]

Exactly.

[The Chair, Conservative, Rick Casson]

Mr. Hawn, I'm sorry, you're out of time.

Mr. McGuire, then back over to the government.

[Joe McGuire, Liberal, Egmont, PE]

Thank you, Mr. Chair.

I'd like to welcome Mr. Rowe and Mr. Conrad to our committee.

Mr. Rowe is probably the father of the aerospace industry in maritime Canada. I didn't realize you had so many employees outside the maritime region. I congratulate you for the work you've done in the past and are doing now for the industry and for our region.

I find it hard to believe that the government or the bureaucrats didn't know what they were doing when they made a change in the policy that you are talking about here. I think our problem is that we don't treat the U.S. as a foreign country. They treat us as a foreign country, but we don't treat them as a foreign country. We have some other kind of understanding, and I'm not sure what it is, but they think we're brothers in arms or something. I'm not sure what it is.

I know a young lady who was speeding through Georgia recently and found out she was from a foreign country. She was in prison for a number of days because she had a speeding ticket. That's the way they treat anybody from outside of the United States. I think we should realize quickly that the U.S. is a foreign country. Even though they are close neighbours and friends, they still treat us as foreigners, and we should take our cue from them rather than from the Boy Scouts of America.

You also mentioned that the government has changed their policy for one of the provinces previous to the election in the province of Quebec. Senator Fortier was able to get an exception. Does this mean that their policy is now changing? Have you got any response from them that they have changed the policy for one part of the country, and that the policy now will be reverted to what it was before so that everybody will have a crack at the contracts?

[Kenneth Rowe]

We've just been advised that training and simulation, which happens to be done very well by two companies in Quebec, has been exempted from this policy that the rest of us are still under. We will be under the American companies if we win any of their solicitations. The reason is that they are centres of excellence and don't need to be under the American companies, and I agree with that.

My point is that we have other centres of excellence: us in aircraft, complete aircraft systems here and in Edmonton by Spar and others. That, for the same reason, is my argument. We don't need to be under Americans for gaining performance and control. You can do it with Canadians companies, as we've done in the past.

I don't think these changes are progressive, quite frankly. I think they're going to destroy the independent growth of our in-service support industry in Canada, which has now become world-class. We are competing against these same OEMs for foreign contracts, as we've done successfully. We even have American navy aircraft in our hangars.

[Joe McGuire, Liberal, Egmont, PE]

You're saying that on the contracts there's still a window of opportunity there for the government to continue the change. Is the industry meeting with government? Are you meeting with cabinet to press the government to make these changes, to see the error of their ways, and to show them the effect this policy is having?

[Kenneth Rowe]

Yes, we are. We've had meetings. But you have to remember that once an order goes through cabinet, they get their marching orders. There's no one in government who wants to stick their neck out and say we may have made a mistake in doing that part of it. The cabinet agreement is to buy these helicopters and fixed-wing aircraft and the ISS changes without there being any real input from industry telling you what the repercussions will be.

What we need to do is not to stop the acquisitions of the aircraft fleets, but before they start giving the American companies the responsibility for the next 20 years to control all the in-service support--most of it in Canada--in my opinion, we have time to have that cabinet amendment for the rest of the centres of excellence in Canada. They have taken decades to build to this point where we can compete with the American companies.

[Joe McGuire, Liberal, Egmont, PE]

I hope the testimony today gets to the government and they take your suggestions into consideration to make the adjustments that are required here for the good of our country and for the spending of our taxpayers' money in this country rather than some other country.

[The Chair, Conservative, Rick Casson]

Thanks, Mr. McGuire.

Over to Ms. Gallant.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Thank you, Mr. Chairman, and thank you to the witnesses.

Mr. Rowe mentioned that he first knew about the announcement of the procurements we're talking about today during the summer and that he spoke to the Prime Minister himself. It would give me the impression that the procurement process is open and efficient. I really appreciate that you mentioned that the procurement is being sped up for the sake of the soldiers. By not having the equipment they need, we're putting their lives at risk.

My first question is for Mr. Conrad. We've heard a lot from previous witnesses about changes to the procurement process that have been recently made. In your opinion, is the procurement process working better now than it was a decade ago?

[Allen Conrad]

I'm on the outside right now, but from what I've seen, the procurement process is a decision process and the idea is to actually get going.

I can give you a case in point. When we modified the Sea Kings to go to the first Gulf War we put in 12 major and 12 minor modifications in 210 hours. The longest timeline was to find six FLIRs to put on the nose of the airplane. When there's a will, things happen really quickly, particularly if you have the capability in Canada. But when you have projects that aren't pull projects or push projects and you're trying to balance the budget and what not, with cases like the MHP you end up basically debating for decades.

Once the decision is made, it happens, and away you go. But somehow it's a question of.... In fact I think there were studies done around the late 1990s in DND, certainly on the IM side of things. What they determined was that if you wanted to save people in the department, only staff projects that were going.... We kept other projects alive for decades, for that window of opportunity.

So the process is better, absolutely, but the difficult part is to get the decision to move out, particularly on the big stuff.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Thank you.

It's my understanding that Boeing and Lockheed Martin are required to put the ISS contracts to tender to Canadian companies, just like the Sikorsky helicopter has been taken care of by Canadian service people.

[Allen Conrad]

It's a little different. In fact I was at a meeting on Friday with representatives from government. We will not actually be allowed to see the contents of the RFP that is going to Boeing and Lockheed. The first time we actually find out the rules for the competition will be when Boeing and Lockheed put out their RFPs.

Because of comments regarding the ability to control the in-service support, there is that level of integration that they cannot actually subcontract; otherwise, they can't control performance and price and things like this. So they are free to partition stuff however they see fit. The concern is that they'll partition things in packages that make no strategic sense for companies like our own and in a matter of years you'll see Boeing signs all over the place.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

I was going to ask my next two questions, and each of you can answer, just so that we can apportion our time properly.

In your presentation, Mr. Rowe, you mentioned that you take care of the complete suite of services for equipment for other countries. Given that, I'm wondering about the potential threat to their national security by us, as a foreign country, with your company taking care of their equipment. Also, there is the fact that the procurement process does tend to take so long--the decision on the right thing. During that span of time, Canada often leases equipment from other countries, and by the same argument it could be stated that that in itself would be a matter of national security.

The question I have is this. In your recent article in FrontLine Defence, you mentioned the Cormorant helicopter and the difficulties in acquiring the data package from the OEM. Now, I believe I.M.P. currently has the ISS contract for the Cormorant. Why didn't the previous Liberal government negotiate this at the time of purchase?

[Kenneth Rowe]

They didn't want to spend the money, quite frankly, and they felt they could do it incrementally, another one of these theories that doesn't work out in practice. The ISS contractor was having the difficulty of trying to keep aircraft--particularly search and rescue, which save lives, obviously--in the air, working, and trying to get pieces of information incrementally. That's when I talk about governments making decisions about things they don't really know the details about or are not given the proper information about to make an informed decision, which I'm saying this is a case of, concerning ISS.

On your other point, we do not maintain the complete weapons systems for another country. We're a centre of excellence of maintaining the actual structural integrity and the engineering behind it of the complete aircraft itself. The mission systems and other things are kept in that country.

We're doing it for these countries because we're very competitive. Norway, for instance, doesn't have a large aerospace industry, and in the States they're so busy in their own places that we've been able to get through two protests into Washington against American industry, when there was aircraft left to come to Canada. We overcame them because they're so uptight.

We are trying to convince you people to keep jobs in your own country. All we're going to be is an exporter of those jobs because we will not be able to control the intellectual property that gives us the skill sets to engineer and develop state-of-the-art changes for similar aircraft to other countries going forward. We'll be retained with a lower level of work that we used to do 40 years ago in this country because we have not bought the technical data with the equipment, as we've done in the past--with the exception, as I came out with in that article, of the search and rescue one. When you save money, you sometimes don't save money in the long run.

[The Chair, Conservative, Rick Casson]

Thank you, sir.

That brings us almost to 11 o'clock. We have just a few minutes.

Mr. Bouchard, you're on next. If you can do it quickly, that would be appreciated. Thank you.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Thank you, Mr. Chairman.

I'd also like to thank the two witnesses for joining us. Congratulations on your remarks, Mr. Rowe. I agree with many of the points that you have raised.

Earlier,my colleague talked about Canada's aerospace industry joining forces to demand that the government change its acquisitions processes. You didn't seem to be especially keen on the idea of the regions sharing a percentage of the spinoffs.

How can the industry present a united front if it does not take into account the geographic distribution of these aerospace industries or the Canadian reality as it pertain to these industries in each of Canada's regions?

[Kenneth Rowe]

Number one, I think you're coming from the Quebec-based position, because you say you have 60% of the industry. And I've already said a large part of that 60% is Bombardier, which is hardly a recipient of IRBs on these types of purchases, because they're absolutely absorbed in making commercial aircraft.

Those companies in Quebec--and we're one of them--are very good at what they do. If there's going to be a competition, it should go across the country and let the best company win competitively, and if that company wants to relocate somewhere else.... We're in Quebec, with 1,000 people, because the Quebec workers happen to be very good at doing what we want them to do and we're the best in our type of niche there. Nova Scotia is the same. We're in B.C. We're in Ontario. It's a fragmented industry of many very good companies across the country able to compete very well against international competition. I'm not going to be the picker or chooser of which one should get a contract simply because they're within a provincial border.

As far as I'm concerned, it's Canada, and I'm a Canadian; and our people in Quebec are Canadians too, despite the fact that obviously a large majority are Quebeckers and are very proud of that, and we're proud of them. I'm not going to say that because they're in Quebec they should do something better than our company in Edmonton or somewhere else, but I will admit that because you have a critical mass of our industry located in Quebec, it's logical that those companies will obtain the bulk of those offsets, just by being there and able to do that work, against somewhere else with less capability.

We in Nova Scotia do very well on our airframe and aircraft and our engineering businesses. That we've proven nationally and internationally and with our helicopters and fixed-wing aircraft. But we're not good at simulation and we're not good at training like CAE and Bombardier are. They will win those contracts, whether they come from Americans or Canadians. But they've elected to raise the same concerns as I have to the Minister of Public Works, that they would be compromised, being world leaders, going under an American company for their services, and he's accepted that and modified that cabinet decision.

I'm saying we should do it for all Canadian companies and keep control of our own destiny and our own security.

Mr. Chairman, thank you.

[The Chair, Conservative, Rick Casson]

Thank you very much.

Gentlemen, I appreciate your submissions. You obviously stimulated the committee to ask some very pointed questions. Thank you.

That brings an end to our meeting.