Industry and Technology Committee on Oct. 22nd, 2025

[The Chair, Liberal, Ben Carr]

Thank you, Ms. O'Rourke.

Mr. Ste‑Marie, you have six minutes.

[Gabriel Ste-Marie, Bloc, Joliette—Manawan, QC]

Thank you, Mr. Chair.

I want to extend my greetings to the two witnesses and thank them for joining us.

My first questions will be for Mr. Mueller, but I want to thank you both for being here and for all the information provided.

Mr. Mueller, before we talk about the defence aerospace industry, I would like to discuss the luxury tax on aircraft. Is this still a major concern for your industry? Where do we stand with regard to this tax, which I believe is dragging down the industry?

[Mike Mueller]

Thank you for your question.

We had talked about the budget, so I have hope that the upcoming budget will address this, but it is of serious concern to the industry right now. In my opening remarks, I talked about the interplay between defence and the civil side. Right now, we have government policy that is a job-killing tax on our industry. We are seeing significant impacts. We've lost over $2 billion in revenue for the business aircraft industry. We've done some independent analysis. This is impacting over 6,000 jobs right across the country. The vast majority of that is throughout the supply chain.

When you take a look at the lost revenue that is there, we've lost $90 million in GST, $90 million in income tax. The government has only collected approximately $15 million off of the aircraft, and it costs the CRA $14 million to administer this program. It absolutely makes no sense, when we're all very attuned to increasing taxes, tariffs and all sorts of things across the board, to have our own government put in place a job-killing tax on our industry. We're talking about the good-paying jobs that the defence side brings, but on the civil side, it's absolutely devastating to certain portions of the industry.

If we want a strong aerospace economy, we need to take a look at the defence side, which is what we're doing, but the government also needs to take a look at some of the punitive taxation measures that are currently in place and impacting workers right across the country. It's a huge concern for us. It's something that we'll be watching very closely in the upcoming budget. We're very hopeful that the government will see the error of its ways and correct some of the taxation issues.

[Gabriel Ste-Marie, Bloc, Joliette—Manawan, QC]

Thank you.

Let's hope that the new government and the new prime minister will see reason. As you demonstrated, the figures speak for themselves. By crippling the industry, the government is missing out on revenue far greater than the revenue generated by this tax. Let's hope that the government will reconsider its position on this issue.

[Mike Mueller]

When I met with the Minister of Finance, I said, “I have a proposal for you to bring in over $150 million in revenue. Get rid of the luxury tax. You're only bringing in $15 million, but the lost sales alone will generate $150 million.” Usually when we talk about budgets, it's always asking, but here's a common-sense solution that would generate some revenue for the government.

[Gabriel Ste-Marie, Bloc, Joliette—Manawan, QC]

Of course, and not to mention the thousands of jobs directly lost because of this tax. Thank you.

Let's turn to the defence industry. You said that a defence industrial strategy plays a key role in setting clear guidelines and priorities to strengthen the defence industrial base.

In your opinion, should this be considered part of a more extensive and comprehensive aerospace industrial strategy?

[Mike Mueller]

Thank you for your question.

We've long been advocating for an aerospace industrial strategy. I'm very pleased that the government.... It seems as though there's support from all parties for a defence industrial strategy, but, much like the luxury tax that impacts the industry, the need for an aerospace industrial strategy is also critical. When you take a look at innovation, the labour market and the interplay between the defence and civil side specific to aerospace, it's absolutely critical that we maintain both sides of that dynamic for our industry.

When you take a look at innovation, we have significant funds flowing through on innovation to the industry for certain projects. We need the government to be the first buyer of that innovation, and then, with aerospace, 90% of what we do is export-related. There is a huge component, both on the civil and the defence side, to generate contributions to Canada's GDP with respect to that export piece. On the civil and defence sides, there are huge export opportunities if we can get these strategies right.

[Gabriel Ste-Marie, Bloc, Joliette—Manawan, QC]

Thank you.

Both the defence sector and the civilian sector must be doing well for the industry to thrive. They can complement each other.

You also spoke about the need to change the culture and to consult with the industrial sector when developing policies. Can you elaborate on this?

[Mike Mueller]

That shift in culture is absolutely needed, and I will give credit to the Prime Minister for his announcement of the Defence Investment Agency. The third part of that announcement was identifying the need for that cultural shift.

How can industry help the government with respect to some of these procurements? Have earlier, ongoing engagement to make sure that we're shortening down these procurement timelines. That's absolutely critical.

[Gabriel Ste-Marie, Bloc, Joliette—Manawan, QC]

Thank you.

[The Chair, Liberal, Ben Carr]

Thank you, Mr. Ste‑Marie.

Ms. Borrelli, you have five minutes.

[Kathy Borrelli, Conservative, Windsor—Tecumseh—Lakeshore, ON]

Thank you, Mr. Chair.

My question is for Mr. Mueller.

Mr. Mueller, as head of AIAC, you represent the aerospace firms that will be asked to deliver much of the hardware systems and dual-use technology behind any Canadian defence modernization. In my riding of Windsor—Tecumseh—Lakeshore, Ontario, we have a lot of precision manufacturers, and we have some aerospace suppliers as well, even though they all face trade and workforce pressures.

What concrete procurement and industrial policy reforms should the government adopt immediately to ensure that the announced defence spending translates into sustained jobs for small and medium-sized enterprises?

[Mike Mueller]

Thank you for the question. I would agree with you. There are world-class machine shops and world-class manufacturers right across the country. I've had the opportunity to visit quite a few of them, and in the most unexpected places also. They're creating good-paying jobs right across the country.

The number one piece—and we've been saying this for probably five or six years—is that industrial strategy. The number one thing the government can do is to put in place an industrial strategy to formalize where the government is going with respect to some of these procurements and paint that picture as to how that then flows through the different supply chains—and it has be the full life cycle of this. You have to take a look at the innovation side. The government has some pretty serious commitments with respect to innovation funding, such as BOREALIS—not a lot of details coming out of that; that has to be formalized. Then there's first buyer for a lot of these pieces that the government is funding and then exporting.

The other piece of critical importance is the labour market side of things. If we don't have that pipeline of highly skilled workers.... We have companies right now that are giving away contracts because we don't have that highly skilled pipeline within the country.

We always talk about aerospace being an ecosystem, and that strategy has to address all those different parts of that ecosystem.

[Kathy Borrelli, Conservative, Windsor—Tecumseh—Lakeshore, ON]

I was going to ask you another question, but you just said something that piqued my interest in regard to having enough skilled labour. Can't we speed up making that happen?

We have colleges and universities that would love to put more butts in their seats and would love to be involved in this strategy and in getting our defence system up and running better. What can be done to speed that up?

[Mike Mueller]

I would agree with you. The labour market side is absolutely critical. We have many companies creating their own training programs to make sure that they're relevant and responsive to industry. When we talk about that cultural shift on the defence side, I think that has to come at educational institutions also, and that is starting to happen, which is very good. A lot of that responsibility, again, rests at the provincial level, so we're doing quite a bit of work at that level also.

[Kathy Borrelli, Conservative, Windsor—Tecumseh—Lakeshore, ON]

Do I have time for another question?

[The Chair, Liberal, Ben Carr]

You have a minute, Kathy.

[Kathy Borrelli, Conservative, Windsor—Tecumseh—Lakeshore, ON]

For Christyn, please, tens of thousands of Canadians are employed in the industry and today's industry invests heavily in R and D, yet many small and medium-sized enterprises across Windsor, across Ontario and across Canada, I believe, are worried about being shut out of major defence procurement. What policy reforms can help solve that problem?

[Christyn Cianfarani]

Thank you for the question. It's a very good one.

Our typical policies, in general, are to compete—compete for largely everything. In the case of small companies with unique technologies that are selling directly to the federal government, I would argue that we should potentially even be skipping a competitive process with foreign entities, perhaps by signalling that you want certain capabilities within your country. You can limit it to only Canadian companies, which we don't do very often.

The second thing is that we have largely passive policies with respect to foreign OEMs, which are largely the platform provider. In the case of aerospace, most of the platform providers—the platform being the aircraft—are foreign, even if they do have a small Canadian component to them. These smaller Canadian companies are in those supply chains. What you need to do is be far more interventionist as to how you want those foreign primes to pick up smaller Canadian suppliers within their supply chains. However, you need to do that a lot further up front because, when you purchase something off the shelf, largely, a foreign prime contractor is not incentivized to change over their entire supply chain for the low volumes that we do in Canada.

The industrial and technological benefits policy is one of the tools that could be used to try to stimulate getting small businesses into foreign supply chains, but as I said, it's largely passive. It's not done far enough up front in the development stages to push Canadian firms into the supply chains of these foreign OEMs when they're actually building the aircraft.

[Kathy Borrelli, Conservative, Windsor—Tecumseh—Lakeshore, ON]

Perfect. Thank you.

[The Chair, Liberal, Ben Carr]

Mr. Bains, you have five minutes.

[Parm Bains, Liberal, Richmond East—Steveston, BC]

Thank you, Mr. Chair.

Thank you to our witnesses for joining us today.

Mr. Mueller, it's great to see you here. I had the opportunity to discuss a lot of this in Abbotsford, British Columbia, during the air show. I also had the opportunity to meet with House representatives in the Pacific northwest, in the respective regions of our neighbours down south. Having our defence system so interconnected, we talked a lot about how many of the suppliers come from Canada.

In your opening remarks, you talked about how we can manufacture in the aerospace sector from tail to nose. I have some experience there. Many years ago, I used to work on aircraft.

With respect to the suppliers and the capacity of our suppliers here, how can we do that sovereignly in Canada?

[Mike Mueller]

It's great to see you again. I always appreciate your support at the air show and the industry event we do in British Columbia.

British Columbia is a great example of an aerospace cluster, much like—I have to go across the country—Manitoba, Ontario and Montreal.

The capacity is there. Industry needs certainty. Certainty comes through this defence industrial strategy from the government. Right now—and we've been saying this for quite a long time—we're in a process of a transactional approach with respect to defence procurement. That strategy will outline where the government is going, give the industry certainty and give those large primes certainty on how to invest and how to develop that supply chain within the country.

It's absolutely critical to have that industrial strategy in place sooner rather than later. Again, bring the industry into that conversation.

[Parm Bains, Liberal, Richmond East—Steveston, BC]

I have the same question for you, Ms. Cianfarani.

Can you add a little bit more about the specific steps we can take with respect to incentivizing our suppliers and that sort of thing?

[Christyn Cianfarani]

One of the things we have shied away from.... To Mike's point about how we operate very transactionally, we look at everything on a procurement-by-procurement basis, which means you don't get these very large economies of scale. You also don't get business capital being invested because the buying is too small and it's lumpy.

If you want a very large prime—whether that's Canadian or even foreign-owned—to start integrating parts, components or sensors from your own supply chains, you have to be doing that much further up front. You have to have a relationship, which is going to guarantee that they are going to get their return on investment from you over time.

It's a little bit like flipping our minds around from doing buy-by-buy to a more longer-term strategy where you have a partnership with a particular company that you know is going to evolve a product over time. Think about Microsoft Office, and the next generation is coming.

If you build partnerships, with either foreign OEMs or.... I would argue, really good ones are like what we've done in our national shipbuilding. Then you can start looking 20, 30 and 40 years down the road. You then have more leverage to say to those firms, “Can you please integrate my Canadian technology within that very large and guaranteed longer-term investment plan?”