Government Operations Committee on May 10th, 2022

[Christyn Cianfarani]

That's fine.

[The Chair, Conservative, Robert Gordon Kitchen]

Mr. Aubertin, would you quickly do an opening statement, please?

[Alain Aubertin, Chief Executive Officer, Consortium for Research and Innovation in Aerospace in Québec]

Thank you.

To begin, let me tell you about the Consortium for Research and Innovation in Aerospace in Quebec, or CRIAQ, which was established 20 years ago. It was founded by members of the industry who have been well established in Canada for just over 75 years. I am referring to major manufacturers of Canadian equipment, as well as level 1 companies, and pioneering universities in aerospace research. From the outset, the Quebec government has supported the creation of CRIAQ.

For the past 20 years, our work has essentially consisted of funding collaborative aerospace research. What does that entail?

It means serving as a bridge between universities, colleges and research centres and industry specialists to enable them to conduct collaborative research projects with support from all levels of government in order to advance technology and develop talent in Canada, and maintain Canada's leadership in the aerospace industry.

For the past 20 years, we have helped our members and partners through all the waves of technology in the industry, from the first composites to the most sophisticated bionics, such as electric flight command technology, and an increasing number of onboard electrical systems.

The projects we fund today are primarily in new sectors and new segments such as drones, changes in electric hybrid propulsion, and of course the whole digital aspect, including cybersecurity, which is becoming a very important part of our portfolio.

We are an aerospace industry research group. That means that each project we fund is an idea that initially comes from industry. We then bring researchers together to develop talent and technologies. Without the initial contributions from industry, our programs would not happen. So it is really applied research to develop technologies and train new generations of innovators and engineers in our sector. We have been doing this for 20 years.

In Canada, about 75% of research and development in the aerospace sector is conducted in Quebec. Specifically, it is in the greater Montreal area. This does not exclude other very innovative ecosystems elsewhere in Canada, however, with which we work very closely. Now there are also innovations relating to energy, including hydrogen, electric energy, quantum energy, and so forth. These are other ecosystems that we work very closely with.

In the past 20 years, close to $300 million in research projects have been funded. Most of that funding has gone to the development of highly qualified talent at the masters, doctoral or postdoctoral level. These people are now industry specialists who hold research chairs at Canadian universities in the aerospace or materials sectors, or industry product specialists and leaders.

The network now has 175 members and partners, about 140 of whom are in Quebec, but there is an increasing number of members outside Quebec. In fact, although we are based in Quebec, close to 40 network members outside Quebec are from universities, SMEs and top-notch companies right across Canada.

All of this has impacted our industry. More than 2,000 of our project graduates now work in the industry; licenses have been transferred to companies that have developed technologies currently used in various engine and aircraft manufacturer programs, as well as onboard systems; research work has led to the creation of startup companies; and of course there has been considerable international influence.

This international influence has meant recognition for CRIAQ thanks in a way to the ecosystem, to the intensity of the research work. It is quite unique to have such an ecosystem that supports an industry that is widespread.

I will now draw your attention to three important points.

I would like to tell you about CRIAQ's legacy. We were fortunate to receive federal funding to manage a second consortium, CARIC, the Consortium for Aerospace Research and Innovation in Canada, for five years. We worked very closely with another consortium on green aviation in Canada, for 10 years. So we have an outstanding legacy.

Regarding the industrial and technological benefits or ITB policy, I would say we have all the processes, all the practices, and all the know-how to lead and mobilize the ecosystem to create consortia in keeping with this policy. This includes traceability of transactions and traceability of work in order to benefit industry and technology in Canada, as the policy provides. Of course you are already familiar with the value proposition pillars in the policy.

I will focus primarily on innovation, that is, the multiplier factors in the policy. Contract holders must have the opportunity to have multiplier factors on research and development investments in order to further innovation in Canada and to enhance our technology leadership through defence and security supply contracts. We have everything we need to fully reap the benefits for Canada.

Yet Canada is not reaping the social, economic and technological benefits of this policy for its leadership and sovereignty at present. We have to recognize the tremendous efforts in the industry, of course, but also in all the processes. Yet we can only bemoan how slow the supply processes are, and especially the disconnect between the intent of the ITB policy, and what is actually required of companies when they win contracts. We have 20 years of experience in this sector. We have received very little major funding from ITB, and very little in the way of industrial and technological benefits, except for indirect SME funding and some financial support. Unfortunately, we cannot expect big things from this policy at this time.

We therefore recommend that the federal government do more, and act more quickly to monitor the organizations that win supply contracts. Quick implementation is needed with specialized and recognized entities which can provide the traceability required by Innovation, Science and Economic Development Canada. Structuring projects are also needed to comply with contracts and materiel delivery, and also to contribute to the growth of new technologies and new industry expertise and competencies for our country.

In closing, I would also recommend that the government should facilitate and release $49 million in investment funding for aerospace research and development, as announced in June 2019 by the minister of Innovation, Science and Economic Development at that time, but has still not been provided. The parameters of the strategic innovation fund are such that we are waiting for the quick implementation of a similar investment in research and development for Canada's leadership. These investments have not yet been made.

That ends my presentation.

[The Chair, Conservative, Robert Gordon Kitchen]

Thank you, Mr. Aubertin.

We'll now go to questions. We will start with Mr. McCauley for six minutes.

[Kelly McCauley, Conservative, Edmonton West, AB]

Thanks, Mr. Chair.

Ms. Cianfarani—again, sorry if I'm butchering your name—you commented earlier. Do you actually believe that Seaspan or Irving will be able to export ships in the future, considering our cost disadvantage and our capacity issues?

[Christyn Cianfarani]

Well, it's not so much their ability to be able to export the ship; it's whether or not Canada would undertake such a team Canada approach to a ship and if another nation would want to purchase it with their own customizations.

When you—

[Kelly McCauley, Conservative, Edmonton West, AB]

What nation would you see buying a ship, considering our massive cost disadvantages?

I'm just putting it out there. I appreciate what you said. I don't want to say it's a disservice to Canadians who are watching, or to our report, but I want it to reflect reality.

Considering, again, our cost disadvantage, our capacity disadvantage, are we actually going to be able to sell ships abroad?

[Christyn Cianfarani]

I can't answer that because I'm not another purchasing nation, but these—

[Kelly McCauley, Conservative, Edmonton West, AB]

Okay. That's a fair answer. Thanks. I appreciate what you were saying earlier.

Where does CADSI get its funding from?

[Christyn Cianfarani]

We have a membership model. Right now, we have about 550 industrial partners, and then we also get our funding by running an event. We run the very large trade show called CANSEC. Those are our two—

[Kelly McCauley, Conservative, Edmonton West, AB]

I know that's coming up soon. The federal government provides grants. I think it was $600,000 in the last couple of years, according to the Treasury Board website.

The members of the NSS would also be contributing members as well, right?

[Christyn Cianfarani]

Yes, of course.

[Kelly McCauley, Conservative, Edmonton West, AB]

Okay, wonderful.

I want to talk a bit about the ITBs, the indirect industrial and technological benefits, because you brought it up a lot.

One of the issues that came up with the ITBs, of course, was the famous french fry ITB for Irving. Do you think it brings legitimacy to the ITB debate when we allow someone to have an offset from a french fry factory, as much as I'm happy that it's in Alberta?

[Christyn Cianfarani]

Well, it depends how you set up your ITBs.

As you heard Mr. Aubertin say, there are various multipliers for the ITBs that are—

[Kelly McCauley, Conservative, Edmonton West, AB]

Are the ITBs, from a CADSI point of view, meant for technological development in Canada?

[Christyn Cianfarani]

There are variations on the ITBs.

Predominantly, we would like to see direct ITB placed on the actual equipment that is being procured. Secondarily, we would like to see it in innovation technology and other research places. Then, with what we call a third tier of ITB, which is less incentivized—meaning these multipliers—businesses are incented to put their dollars into areas where they get $10 for every $1—

[Kelly McCauley, Conservative, Edmonton West, AB]

I understand that. Let me ask you this: Are we hampering your membership with some of these ITBs?

In London, Ontario, we have General Dynamics building the LAVs there. Are we hampering the ability to create jobs or technology by saying that they need to invest in a food manufacturing plant somewhere? Is that a special deal for them? Do we need to be a lot more open or flexible with our ITBs?

[Christyn Cianfarani]

The amount of the ITB that can be direct depends on the platform. There's a portion of it that is direct on the platform.

We know that in the case of the light armoured vehicles in London, for example, there are over 400 companies involved in the direct application of building light armoured vehicles. That is a significant portion of their industrial and technology benefit piece. Then there would be what we call the indirect piece, which goes into other things, some of that being social procurement. It could be indigenous procurement or social programming, and it could be things that are less attractive, such as your french fry manufacturing plant in Alberta.

[Kelly McCauley, Conservative, Edmonton West, AB]

It's not mine, but it will sure address our french fry capability gap.

Is it a stumbling block at all for the membership at CADSI to deal with how we set up the ITB regimes? Are some more flexible than others? I think a french fry factory is a bit flexible, compared to what I think most ITBs are meant for.

[Christyn Cianfarani]

Well, that's the thing. The direct and the indirect aspects allow the business to basically do its best to bring back that value to the economy. In some cases, what you're going to find is that a piece of technology is already sourced. It is largely “off the shelf”, let's call it, and the amount of customization is very limited, so the ability for that company to work right on the platform is quite low, and therefore they would do a lot of indirect work. A good example would be an airplane platform. It would have a lot of indirect work versus direct work, just simply because it's sourced elsewhere, outside of Canada.

I would say that members are very split on how useful ITBs are to them. In the case of the shipyards, I think the shipyards have made tremendous use of ITBs. When we are purchasing a platform that is made outside of Canada, I believe that a lot of the foreign companies prefer the indirect ITBs, because they are not necessarily interested in replacing their sourcing mechanisms—which could be in the United States, for example—with a Canadian firm.

[The Chair, Conservative, Robert Gordon Kitchen]

Thank you, Ms. Cianfarani.

We'll now go to Mr. Kusmierczyk for six minutes.

[Irek Kusmierczyk, Liberal, Windsor—Tecumseh, ON]

Thank you, Mr. Chair.

I want to continue to talk about the industrial and technological benefits program and specifically its importance to Quebec aerospace, so I have a question for you, Mr. Aubertin.

We know, for example, that about 72% of the ITB program benefits in Quebec go to aerospace and that this is the largest proportion of any region in Canada.

There are over 45 academic institutions and research organizations across Canada that benefit from the ITB, including, for example, Polytechnique Montréal and McGill. Recently, Lockheed Martin also joined the Institut Quantique at the Université de Sherbrooke. That was an investment of $1.3 million that was facilitated by the ITB.

I just want to ask you this, Mr. Aubertin: What does the ITB program mean to Quebec aerospace? Also, how can it be improved?

[Alain Aubertin]

Thank you.

The ITB policy is very important for Quebec. There are of course many industry players in this segment, and several sub-segments of defence and security in Canada and around the world.

Yet the vast majority of manufacturers and universities in our sector in Quebec are focused on civil aviation. As I said, the products of research and development are also focused on the defence and security sector.

The ITB policy therefore has a strong structuring effect. It has the potential to enable universities to secure long-term faculty commitments and to lead them to invest in the development of labs. This in turn provides for concentration of activities in niche areas, such as quantum technology, materials, advanced bionics, cybersecurity or the shift to future air mobility, with drones and air taxis. A university that has a structuring contract with a company is afforded a long-term vision, over five or 10 years, which really changes everything.

There are also established research centres, small centres affiliated with technical colleges. These centres benefit as well, because they can quickly acquire the infrastructure for robots or automation systems, for instance, and master those competencies, and their clients are primarily SMEs. This has a strong structuring effect, both for the centres and for future clients.

These kinds of transactions are carried out by certain partners in our ecosystem, but it is on a case-by-case basis. So we need to find ways to ensure that, in the future, contracts under this policy that have structuring effects are not done on a case-by-case basis. That would mean that each of us in our ecosystem would not have to spend so much money and do so much work to meet representatives of this company or that company, travel abroad, come back, meet with people, and so forth. There are a lot of transaction costs for the funded party to be considered by someone who would be agreeable to this investment. That is why I think established structures are important, and I am pleased that the ITB was also raised by my colleague Ms. Cianfarani from the Canadian Association of Defence and Security Industries, because they have very strong direct and indirect structuring effects, and we need more of them.

[Irek Kusmierczyk, Liberal, Windsor—Tecumseh, ON]

Thank you very much for that thorough answer.

I want to switch gears really quickly. This is a question to both of the witnesses. It deals with the question of workforce and labour shortages.

According to a recent Aerospace Industries Association survey, only about 24% of workers in aerospace are women, and about 8% are Black. The International Aviation Womens Association did a similar survey that found similar results. I'm sure that the situation is not that much different here in Canada. One of their conclusions in that survey was that “the aviation industry is not sustainable if more than 50% of the population doesn't see aviation as a successful career”.

I want to ask both of the witnesses how your organizations are helping to recruit and retain more women in the aerospace sector. How can Canada help the aerospace sector develop a more diverse workforce?

[Christyn Cianfarani]

I can take it on a national level.

There are three things that are happening.

One is measurement. You came out with that statistic. In 2018, for the first time in the defence sector, we started to measure the number of women in the defence industry in order to be able to set up programming that would incentivize women to come into the sector.

The second thing is programming and policies. As an example, in the industrial and technological benefits programming, indirect benefits could be used. There could be multipliers for indirect benefits to incentivize companies to hire and train women. We've suggested that the policy could be used to upskill women and create university programming to incentivize women to join.

The third thing is that CADSI is the parent organization for an organization called WiDS, Women in Defence and Security, which is made up of many women in defence and security. We provide mentorship, professional development and a community for women, particularly in the defence sector, because the numbers in our sector are roughly between 13% to 15% women.