Government Operations Committee on May 17th, 2022

[The Chair (Mr. Robert Kitchen (Souris—Moose Mountain, CPC)), Conservative, Robert Gordon Kitchen]

I call the meeting to order. Welcome to meeting number 21 of the House of Commons Standing Committee on Government Operations and Estimates.

Today the committee will be continuing its study of air defence procurement projects. Today's meeting is taking place in a hybrid format pursuant to the House order of November 25, 2021. Members are attending in person in the room and remotely using the Zoom application.

Regarding the speaking list, the committee clerk and I will do the best we can to maintain a consolidated order of speaking for all members, whether participating virtually or in person. I'd like to take this opportunity to remind all participants that during this meeting screenshots or taking photos of your screen are not permitted. Given the ongoing pandemic situation and in light of the recommendation of the public health authorities as well as the directive of the Board of Internal Economy on October 19, 2021, to remain healthy and safe the following is recommended to all those attending the meeting in person.

Anyone with symptoms should participate by Zoom and not attend the meeting in person. Everyone must maintain a two-metre physical distancing whether seated or standing. Everyone must wear a non-medical mask when circulating in the room. It is recommended in the strongest possible terms that members wear their masks at all times, including when seated. Non-medical masks, which provide better clarity over cloth masks, are available in the room. Everyone present must maintain proper hand hygiene by using the hand sanitizer at the door. Committee rooms are cleaned before and after each meeting. To maintain this, everyone is encouraged to clean the surfaces of their desk, their chair and their microphones with provided disinfectant wipes, whether you're vacating or taking a seat.

As the chair, I will enforce these measures for the duration of the meeting and I thank members in advance for their co-operation.

Before we start, I'd like to say that the committee has the expectation that all witnesses will be open about any potential conflict of interest they may have. This is to ensure that the committee can fully understand the context of the testimony it is about to receive. If you feel that your testimony may be coloured by a previous or current interest, I invite the witnesses to disclose this during their opening statements.

I'd like to welcome Mr. Valois of the International Association of Machinists and Aerospace Workers. You have five minutes to make your opening statement, sir.

[Guillaume Valois, Public Relations and Research Manager, International Association of Machinists and Aerospace Workers]

Thank you very much, Mr. Chair.

First, I join the International Association of Machinists and Aerospace Workers (IAMAW) in thanking you for the invitation to testify before you today. It's a tremendous honour and privilege to address you on behalf of my organization.

With 184,000 members covered by 1,000 collective agreements in the aerospace sector, the International Association of Machinists and Aerospace Workers is considered the largest aerospace union in the world.

For nearly 90 years, our organization has had a front row seat in the development of this industry in North America. We've been involved in the Canadian aerospace ecosystem since the 1940s, and have always made it our business to promote this industry.

The Canadian aerospace ecosystem really took off during the Second World War. That conflict revealed the strategic potential of the Canadian aerospace industry from a national security and technological innovation perspective.

From the 1950s onward, Canada stepped in to help build its domestic aerospace industry in an attempt to maintain its strategic potential. Faced with a weak domestic market, Canada chose to enter into several agreements with the United States to give its industry access to many of the military programs initiated by the Cold War.

From 1946 to 1970, the Canadian government's intervention essentially served to orchestrate the transition period of its aerospace industry. It therefore evolved from an industry focused on the war effort to one empowered to meet Canada's strategic interests in national security and technological development.

That said, Canada's initiatives did not prevent the failure of projects like the Jetliner and the Arrow. The virtual absence of technically and commercially viable industrial development plans was a major reason for the difficulties faced by the Canadian aerospace sector at the time.

Prior to the acquisition of the CF‑18, the Royal Canadian Air Force used several Canadian-made aircraft. These included the Sabre and the CF‑5 and CF‑104 supersonic fighters, manufactured under license at Canadair in Montreal.

During the 1950s, Mississauga-based Avro was responsible for the first jet fighter designed and built in Canada, the CF‑100 Canuck. Over 692 CF‑100s were built. This model was used by Canada and Belgium and was part of NORAD and NATO squadrons until the early 1960s. Thereafter, it was used for training and reconnaissance exercises until 1981.

Canada acquired the first aircraft in its CF‑18 Hornet fleet in 1982, and efforts to replace them began in the late 1990s. The Royal Canadian Air Force CF‑18s were originally scheduled to reach the end of their service life in 2003. In order to keep its fleet in service, Canada had to carry out major modernization programs beginning in the 2000s and acquire used CF‑18s from Australia.

Since Canadair was awarded the contract in 1986, CF‑18 maintenance and modernization operations have largely been performed by IAMAW members in the Montreal area. The CF‑18 Super Hornet fleet will be retired in 2032. Our members will have worked on the products for 46 years, 32 years longer than planned. Without the contribution of the workers who maintain the CF‑18s, it would have been impossible to keep these aircraft in service this long. Over the years, they have developed unparalleled expertise in the repair and maintenance of military aircraft and in life-cycle extension reviews. This expertise is an asset to the Canadian aerospace ecosystem. It also represents great strategic value to Canada from an economic, technological, industrial and military perspective.

Whether it was the Canadair maintenance contract in the late 1980s or the contract to acquire the next Royal Canadian Air Force fleet, the IAMAW has always been prepared to defend and promote the interests of our aerospace ecosystem and the people who work in it.

For us, there is no question that Canada must use its air defence procurement projects in a way that maintains and creates jobs, like those of our members at L3Harris.

Today, we are submitting three recommendations along these lines to the members of this committee.

First, we recommend that the tendering process for the maintenance or acquisition of equipment required for national air defence or any other type of aircraft and its components be part of a Canada-wide aerospace policy, a policy that sets out the roles, responsibilities and commitments of all stakeholders in the Canadian aerospace ecosystem.

Second, we recommend that the objectives for air defence procurement contracts include clear requirements for industrial activities, technology transfers and maintenance and manufacturing activities of defence equipment or its components.

Third, we propose that certain elements of the Industrial and Technological Benefits Policy be re-evaluated, such as section 8.2 on indirect transactions, and that the policy apply to all procurement and equipment contracts needed for national defence.

The Canadian aerospace ecosystem must be considered a highly strategic sector by the Canadian government. Ensuring its viability and development must be a priority for this government and part of an industrial policy specifically tailored to its needs.

I will conclude my remarks with a comment on the CF‑18 replacement process. When peace, freedom and fraternity are among our core values, it's out of necessity, not out of a sense of gaiety, that we choose to invest in the military rather than elsewhere. In this sense, we have a responsibility to ensure that such an approach is based on a rigorous process where the protection of the common good and the promotion of our interests are omnipresent. The purchase and maintenance of a fleet of fighter aircraft is a complex process that requires a long-term financial commitment and represents a significant portion of the government's budget. In return, this type of project has the potential to provide a government with the means to meet its air defence needs, maintain and create jobs and generate significant industrial and technological benefits in a key sector of its economy.

Thank you very much.

[The Chair, Conservative, Robert Gordon Kitchen]

Thank you, Mr. Valois.

We'll now go to questions and answers.

We'll start with Mr. Paul-Hus for six minutes.

[Pierre Paul-Hus, Conservative, Charlesbourg—Haute-Saint-Charles, QC]

Thank you, Mr. Chair.

Good afternoon, Mr. Valois. Thank you for being with us today.

Your third recommendation is to re-evaluate some elements of the Industrial and Technological Benefits Policy. I'd like to refer you to the report released last week by the Parliamentary Budget Officer, in which he mentions that small and medium-size defence and security businesses are not extracting as many industrial technology benefits as they should.

Do you have anything to say about small and medium-size businesses in that respect?

[Guillaume Valois]

Thank you for the question.

With respect to small and medium-sized businesses, you have to understand that there are ramifications within the value chain of the principals, and the supply chain is often going to go beyond the borders of a single country. Often, ways are found to circumvent the rules to ensure that certain activities outside of Canada are considered in the assessment of technological spinoffs under the current policy. So, if we tighten up these regulations a little to decrease the percentage of work that is done outside of Canada, to instead invite contracting organizations to have these subcontracting activities done by suppliers, SMEs who are on the side—

[Pierre Paul-Hus, Conservative, Charlesbourg—Haute-Saint-Charles, QC]

I understand that you're being careful what you say, but what you're telling me in a somewhat indirect way is that, through the back door, large companies can subcontract to foreign companies that are related to Canadian companies legally, but that generate spinoffs elsewhere.

Is that what you're telling me, more or less?

[Guillaume Valois]

Exactly.

By definition, a multinational has branches everywhere. If they make a component in their factory in the United States, they don't make it in Canada, but the assembly of that component could be completed in a Canadian factory and then end up in a military device that will be used by the Canadian military, and that will be included in the calculation of spinoffs, based on certain criteria. That being said, there are both a floor and a ceiling to meet.

[Pierre Paul-Hus, Conservative, Charlesbourg—Haute-Saint-Charles, QC]

Our committee has met with several experts, and sometimes there seems to be a performance issue in Canada. We seem to have a problem getting the work done on time or on budget. We're having meetings about just that to understand what's going on.

I know you represent mostly Quebec workers, but in your opinion, is there a performance or competency issue in Quebec and Canada that's causing these delays and forcing us to go elsewhere to get the work done? How do you see this?

[Guillaume Valois]

If there is a problem, I don't think it's related to performance or competency issues. If there is a problem, Canada has all the tools in terms of innovation to try to fix it. As I said earlier, it's just a matter of having a long-term strategy and vision. You have to be able to rely on a concerted policy that addresses the problems in the industry to try to bring everyone up to speed and give additional tools to SMEs to go out and get those contracts.

You say we seem to be having trouble meeting deadlines on some contracts. That brings me to another factor, the problem of access to skilled labour. All sectors are going through a labour shortage, but it's even more acute in the aerospace sector because the workforce must be highly trained and skilled. You need relatively specialized skills to do certain jobs. So this somewhat exacerbates the problem of labour accessibility and the ability of some companies to do more contracts.

[Pierre Paul-Hus, Conservative, Charlesbourg—Haute-Saint-Charles, QC]

In another report, the Parliamentary Budget Officer points out that there is often a problem related to the concentration of contracts. There is a quiet period, but then the government decides to award all the contracts at once. This creates a bottleneck for the industry.

Is this something you're currently experiencing or have experienced in the past?

[Guillaume Valois]

It's hard to say, but I don't think that's the case right now. The industry is recovering from the pandemic. There is obviously a lot of excitement and the prospects are still relatively good, both on the defence side and on the commercial side.

The fact remains that what is on the horizon is the technological shift and the availability of skilled labour. We need a concerted policy that will increase co‑operation among all players in the aerospace industry. To achieve this, we must move towards a pan‑Canadian aerospace policy. In this way, the entire sector will pool its collective intelligence to arrive at viable solutions for all. We have to be able to see the problems that we may face ahead of time and address them within a reasonable time frame.

[Pierre Paul-Hus, Conservative, Charlesbourg—Haute-Saint-Charles, QC]

Thank you.

[The Chair, Conservative, Robert Gordon Kitchen]

Thank you.

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

[Majid Jowhari, Liberal, Richmond Hill, ON]

Thank you, Mr. Chair.

Thank you, Mr. Valois.

You talked about, in response to my colleague MP Paul-Hus, some of the shortages of qualified, trained individuals, and you said there is a retention issue. As you know, we've now recovered almost 115% of the jobs we lost during the pandemic. We have recovered about three million jobs. Our economy can still absorb another million jobs. I know in fact that in the real estate industry, we're short 300,000 jobs, which through budget 2022 we are trying to address.

I was doing a little bit of research. I noticed that 30,000 jobs were lost in the industry, and you are currently experiencing a shortage of about 130,000.

In your view, what can we do toward making sure that the aerospace industry, when it comes to talent, is sustained over a much longer period of time? How do some of the current air defence procurement projects play a role here? I just heard that we put up another $99 million for the F-35s. Do you have an opportunity to be part of any of these projects?

Thank you.

[Guillaume Valois]

As far as the labour shortage is concerned, to some extent I don't think it's a retention issue. It's true that this industry, especially in the commercial sector, is cyclical and extremely sensitive to the vagaries of the economy. Certainly, by diversifying the Canadian aerospace ecosystem, particularly by focusing more on defence, we could help increase its resilience.

In addition, the labour shortage is not so much a retention issue as it is a problem of the age of workers. The average age of our aerospace members is over 45. These people will be retiring in the coming years. Schools that offer aerospace training, both in Quebec and elsewhere in Canada, are experiencing a recruitment problem. There is work to be done to try to attract young people to these jobs. To do that, we have to make them understand that the Canadian government will do its part to secure these jobs and that, through procurement contracts, it will ensure the viability of certain activities in this sector by giving priority to local businesses to carry out the work.

I don't know if that answers your question correctly.

[Majid Jowhari, Liberal, Richmond Hill, ON]

Thank you.

You're talking about how we need to be able to enhance the resilience of the aerospace industry and workers, especially given the fact that some of our procurement cycles are up and down, as my colleagues pointed out.

What programs do you think the federal government can implement to incentivize younger generations to come in? You mentioned that we're still going to maintain the CF-18s for another 10 years probably, and then the F-35s are coming. That's a great opportunity for the younger generation and the new talent to be able to join.

How can we as a government help you and help your industry?

[Guillaume Valois]

That's what I wanted to talk about. In order to enhance this industry, we need to be able to sell its projects and programs, to present them to Canadians and future workers as jobs of the future. The aerospace sector needs to be seen as a sector of the future for workers.

Currently, several Canadian companies are involved in manufacturing components for the F‑35. These include Magellan Aerospace in Kitchener, Héroux Devtek and Pratt & Whitney in Longueuil, Asco Aerospace Canada and Avcorp Industries in British Columbia, and Bell Machines in Ontario.

Is there a way for the Government of Canada to promote this sector to the public and to the next generation of workers, and to make the case that this sector offers good, stable, reliable jobs? The government must commit to doing whatever it takes to ensure that the maintenance of the F‑35 or Gripen is carried out in Canada, regardless of which aircraft is chosen at the end of the process, and that the procurement of components necessary to maintain the aircraft is done by Canadian, not foreign, subcontractors, whenever possible, while respecting its trading partners. There is a way to negotiate this. It would be an excellent way to bring more stability to the Canadian aerospace ecosystem.

[Majid Jowhari, Liberal, Richmond Hill, ON]

Thank you.

[The Chair, Conservative, Robert Gordon Kitchen]

Thank you.

We'll now go to Ms. Vignola for six minutes.

[Julie Vignola, Bloc, Beauport—Limoilou, QC]

Thank you very much, Mr. Chair.

Mr. Valois, thank you for being with us today. We appreciate it very much.

As you know, the Government of Canada announced a few weeks ago its intention to negotiate with Lockheed Martin on the F‑35.

What do you think of the fact that the choice seems to be leaning towards the F‑35, rather than the other competitor in the process, the Gripen?

[Guillaume Valois]

We have some reservations about the choice of the F‑35. It's not that it's a bad choice, but there seems to be a contradiction between the industrial and technological benefits policy that Canada is putting forward and its participation in the joint strike fighter program.

Under the industrial and technological benefits policy, the government requires compensation in the form of industrial and technological benefits when the purchase is made from a foreign supplier. The foreign company that becomes a supplier to Canada must commit to making a series of investments equal to the amount of the purchase.

However, when we look at the agreements signed under the joint strike fighter program, we see that they allow Canadian companies to compete with aerospace companies from other partner countries. In return, Canada and all other participating countries must waive their respective industrial benefits policies if they wish to acquire an F‑35. This suggests that Canada will have difficulty obtaining guarantees that these procurement contracts will have domestic benefits.

Furthermore, there is nothing to prevent Canadian contracts that we would have won by purchasing F‑35s from being cancelled if another company in a partner country manages to bid lower than a Canadian company.

It's as if, prior to signing, the potential impact of the 2006 joint strike fighter MOU on Canada's air defence procurement initiatives was overlooked and the project was assessed strictly in terms of the industrial benefits the partnership could bring in the short term. That is where the main problem lies.

[Julie Vignola, Bloc, Beauport—Limoilou, QC]

In short, there is no guarantee of long‑term industrial and technological benefits for our companies, and the big winners would be U.S. companies and the U.S. economy.

Did I get that right?

[Guillaume Valois]

Indeed, the main problem is that we have no guarantee of the benefits. Everything has to be negotiated on a piecemeal basis, and it's a never‑ending process. As soon as a new partner is added to the F‑35 development program for aircraft construction, they too can start negotiating piecemeal and try to steal contracts from other partners. A dynamic has developed within the F‑35 development program. It is extremely difficult to design a new aircraft program and to take on the financial burden alone. That's why Lockheed Martin and its other industrial partners made the decision they did. So it has been split—

[Julie Vignola, Bloc, Beauport—Limoilou, QC]

Thank you, Mr. Valois. I would listen to you talk about this for a long time, because I'm very much interested, but I would like to ask you another question.

You just said that everything to do with maintenance and parts would benefit the U.S. economy more than our companies. What impact could this have on machinists and aerospace workers you represent?

[Guillaume Valois]

Earlier, I briefly mentioned Canadian suppliers for the F‑35. Overnight, we could decide not to choose this aircraft. Even if we did choose it, we wouldn't be able to guarantee a level of activity for this aircraft, even though Canada has participated to the tune of $710 million. Nor can we guarantee that the maintenance carried out at Mirabel by people from L3Harris or on Canadian military bases will continue.

Beyond the economic issue and job preservation, the issue of national security also comes into play. When you don't have—