Subcommittee on Canadian Industrial Sectors Committee on April 28th, 2009

[The Chair, Conservative, Dave Van Kesteren]

Order.

Good morning, and welcome to another subcommittee meeting on industrial sectors of the Standing Committee on Industry, Science and Technology.

As you know, we are studying the crisis faced by certain industrial sectors in Canada, such as aerospace, energy, forestry, high technology, and manufacturing.

Today we are honoured and pleased to have with us representatives from the aerospace industry. We have three hours this morning, so that's quite a length of time. We recognize the importance of this sector, and we know you have very much to tell us, so we're looking forward to hearing your testimony.

We will begin by having all the sectors do a presentation. I believe we're going to have Mr. Claude Lajeunesse begin with the opening remarks. The Aerospace Industries Association of Canada represents all the other groups. After that, we'll just start with Mr. Haynal, and then we'll continue on. We'll open our questioning with a seven-minute round, beginning with the Liberal side.

I'd like to welcome you, of course. Thank you very much for coming.

You may begin, sir.

[Claude Lajeunesse, President and Chief Executive Officer, Aerospace Industries Association of Canada]

Thank you, Mr. Chair.

It is an honour to be here today, along with several of my colleagues from the Canadian aerospace industry. My presentation will be mainly in English, but at a later date you will be provided with French and English versions of it. Of course, I will answer questions in both official languages.

I will provide just a brief picture of what the aerospace industry is in this country.

The first point is that total revenues are close to $23 billion. Out of that, $18.6 billion—that's 80%—is exported, which means that 80% of the jobs and 80% of the revenues are generated outside of this country. In other words, money is coming into this country to pay for jobs here because we are in a position to export our sales abroad, outside of the country.

Civilian sales are about $17.7 billion, military $5 billion. Jobs are at 82,000. A very important point to make is that these jobs are spread across the country. I will come back to that in a minute, but this is an industry that goes from the Atlantic to the Pacific in terms of the people it employs.

Growth has been constant since the dip, of course, after 2001. As I've mentioned, we are now back to the level of 2001, with anticipated revenue this year of about $23 billion. The revenues are divided into various sectors. Aircraft, aircraft parts, and components represent about half of those revenues—55%. Engines and engine parts, which you will hear about in a few minutes in great detail, are about 15%. Repair and overall maintenance is about 16%. We are, in this country, as you again will hear in a few minutes, probably the world leader. We are certainly the world leader in terms of simulation and training. It's an industry that is diversified, that has many revenues spread across the country.

I've already mentioned that 82% is exported, but it's worth repeating the fact that these jobs are created in Canada by money coming from outside of this country. That's an important point. The 82,000 jobs are highly skilled jobs requiring a lot of training, a lot of education. Again, in this area it won't surprise you that we've gone over the number of jobs that we had in the early 2000s.

Employment.... When you get a copy of the presentation, please look at this very carefully: 50% is in Quebec; 30% is in Ontario; you have 15% of the jobs in western Canada; and in Atlantic Canada you have 6%. In every region of this country, the aerospace industry is a major player in terms of jobs, job creation, and wealth creation.

You should know that in the world we are fourth in terms of production of aerospace goods. By the way, I should mention that this includes space, and we're all very proud these days of our accomplishments in space. As you all know, Julie Payette will be lifting off in about a month. I'm sure for some of you that will bring you memories. We're looking now at being fourth in the world, but we are very closely followed by Germany, Italy, and Japan. These countries are investing considerable amounts of money to catch up to the other countries. We are at $23 billion—more than half of what France and the U.K. produce every year. That is also a key point to understand. But Germany at $22 billion and Japan at $15 billion are coming up very fast behind us, and they are investing considerable sums of money to catch up and eventually be ahead of us.

I will come back to that in a few minutes, because I'm sure you will all agree with us that we want to keep our leadership role in the world.

I'd like to quote Anne Golden. We asked the Conference Board to look at our industry and to give us a bit of an opinion on where they see our industry at this point. I'll quote it. It's worth quoting word for word: “...in spite of all of Canada’s advantages, our economy has been underperforming in almost all areas”. It's the Conference Board of Canada saying this. “One exception is the aerospace industry...[where] you face significant challenges, but within the manufacturing sector, aerospace is a good-news story.”

I also want to quote from the Canadian Auto Workers union:

Canada's aerospace industry is considered a "jewel" in our national industrial base. Typically seen as a "plum" industry (one marked by high-technology, intensive exports and high wages), aerospace generates many direct and spin-off jobs that benefit workers throughout the country. Additionally, aerospace generates spin-off technologies that contribute to Canada's production capabilities....

It also links very closely with our universities. With the situation we now face in this country, due to the downturn in many other industries, the aerospace industry has now become one of the major supporters of research in our Canadian universities, playing a key or leading role.

We surveyed our members. I thought you'd be interested in knowing what they think about the situation currently. We asked them, what is the overall impact of the current downturn? It's moderate, at this point. What are the top three challenges? Well, they include the reduced availability of financing and credit. So we were very pleased to see some of that being addressed in the last budget.

Another challenge is the increased competition from emerging markets. I mentioned that already. The investments being made by government and industry in Japan, Germany, and Italy are enormous and will make a difference in the medium and long terms.

Finally, the last challenge is the difficulty of getting credit insurance, and that's something that of course we've been talking to EDC about.

What is the impact of this? You've all read the newspapers. It's the downsizing of some operations, cost reductions, and some personnel layoffs.

How does the industry look in terms of the past and the future? This is an industry that is cyclical; there are ups and downs, due to external factors. But one thing that comes across very clearly is that if you plot the growth of the industry over the years—and you'll see in the presentation that we've gone back to 1974—you will see peaks and valleys. Every peak has been higher than the previous peak so far, and every valley has been higher, which means that we've been constantly increasing the number of jobs and the level of activity in this country. Of course, we want to make sure that when we get to the bottom of the cycle we're currently in, it will still be higher than the previous bottom of the cycle.

What are the predictions for the future? There will be 24,000 new aircraft between now and 2027, in less than 20 years' time. The market value will be over $3 trillion—that's $3,000 billion. We anticipate that world passenger traffic will increase by 5%, and cargo traffic by 6%.

What do we need to do to make sure we keep our competitive advantage? There are not many solutions. We have to be ready with new solutions, new materials, new avionics, and new engines when we return to the upward part of the cycle. So it's time now to invest in R and D. Let's not repeat the mistakes made in other sectors of our economy, where investment in R and D was curtailed every time there was a downturn in the economy.

We have programs like SADI, strategic aerospace defence initiative, which need to be reinforced and strengthened to make sure they can support the whole spectrum of our industry.

We have institutions like NRC that in our country that are doing a fantastic job of helping the industry. We have NSERC, the Natural Sciences and Engineering Research Council, which provides research support in universities and also jointly sometimes with industry and universities. We need to position this industry by developing participation in future major platforms. We have produced a report on this that indicates what the technologies of the future are, where we are able to contribute in this country, and how we can contribute.

We need procurement reform. We need to leverage every dollar that is spent on acquisition. This is particularly true for defence. We have to make sure the investments we make in defence are developing our export potential and that they are done strategically to develop our own industry. For end-service support, which is servicing these planes that we purchase abroad because they are not built in this country, we want to make sure that these planes are serviced here in Canada.

Finally, we have to make sure that whatever investment the government makes is able to create short- and long-term jobs. Let me be clear on this: some of these initiatives will respond to the needs the government has expressed to create jobs now to make sure we reconnect the growth of the economy to spending as soon as possible.

We need to develop and implement a long-term space plan. There has been ample consultation with the Canadian Space Agency. As late as last week we had a meeting of the industry players with the agency, and we feel this is important to develop but also to implement the space plan with the proper level of support.

The last point I want to make, Mr. Chair, is that we need to reduce trade barriers. There are many trade barriers: a particular one that is not called a trade barrier, but its impact is to impede trade, is ITAR, international traffic in arms, the program in the U.S. that keeps us from doing everything we need to do.

Mr. Chair, as I indicated earlier, I am pleased to answer questions in both French and English. I am sure that my colleagues will be able to give you greater details on many of the points I raised in my presentation. Thank you.

[The Chair, Conservative, Dave Van Kesteren]

Thank you, Mr. Lajeunesse.

I know we're doing things a little bit backward. Madame Bourque, I should have asked if you were ready for your presentation. Are you ready?

Madame Bourque.

[Nathalie Bourque, Vice-President, Public Affairs and Global Communications, CAE Inc.]

Thank you, Mr. Chair.

On behalf of the CAE, I want to thank you for giving me the opportunity to speak to you today and to present to you our opinion of the challenges facing the aeronautics sector given the current global economic crisis.

Like a number of other companies, we are not immune to the recession that is affecting all industries. Quite fortunately, we have been able to work in close collaboration with our clients, develop new activities both in the civil and military sectors, and stay in the black despite the economic recession.

As you know, the CAE is a world leader in simulation and concept technologies as well as in the area of integrated training services for civilian aviation and defence forces around the world. In fact, the CAE is the largest defence company in Canada. Our headquarters are located in Montreal and we employ at present approximately 7,000 individuals in over 75 facilities in 20 countries. Our shares are listed on the Toronto and New York stock exchanges, and more than 90% of our annual sales figures, totalling $1.4 billion, comes from our global exports and our international activities.

We work with the NRC, the CRIAQ and the CAMAQ. We support universities through research and development projects and grants; we also participate in numerous charities including United Way, the Canadian Cancer Society, and the Fondation Marie-Vincent, which helps children who are raped before the age of 12. For your information, one in five children in Canada falls into that category. We also work with hospitals and various other organizations. We have a large pool of investors, and we are Canadian controlled. We work with over 300 suppliers in Canada to whom we grant contracts of over $300 million. We provide high-quality jobs, with an average salary of $65,000. In short, the CAE is a real Canadian success story.

Created by a pilot of the Royal Canadian Air Force after the Second World War, the CAE is a world leader in the area of simulation for civilian and military markets around the world.

So why is CAE a global leader? Part of our success is due to our employees as they continually strive to push the innovation envelope further, thus making the skies even safer than they are today. But success is never due to one person or one group. Our success is also the result of supportive government policy that spans back decades. This support has been and must continue to be stable, predictable, and comprehensive. Government support is fundamental to maintain a vibrant and globally competitive aerospace sector, and the continued health of our sector is strategically important to the Canadian economy.

Government support manifests itself in several ways. One way is through repayable investments in R and D. In a sector where lives are at stake, we must always find ways to improve the training of pilots, be they civil or military. With the participation of the federal government through the SADI program, CAE will invest $714 million over the next five years to continue to make flights safer, including those of our soldiers presently serving overseas.

Another avenue of support is through the competitive tendering of military programs. During the month of February, a pan-Canadian team led by CAE was chosen as the prime contractors for DND's operational training systems provider, also called the OTSP program. In this program, CAE will lead the provision of training systems and services for Canada's tactical airlift, the C-130J, for medium- to heavy-lift helicopters, and potentially for other aircraft fleets as they come on line. Against stiff competition the CAE-led team won this contract after the appropriate due diligence by DND and Public Works officials. Our provision of this training will not only better equip the brave women and men of our Canadian Forces; it will also create and sustain high-quality jobs throughout Canada. It will also position Canadian companies for future international training system integrator opportunities.

The third vehicle of support comes in the form of investment tax credits. We fully agree that this program is presently very generous. However, given the present economic context we would like the Canadian government to make these tax credits refundable. This would greatly help all sectors of the economy that are research-intensive and hence would give a welcome boost to the Canadian economy.

The fourth pillar of policy support comes from EDC. With a tightening of international credit, EDC must have the flexibility to offer credit to clients in markets where it has not operated before and to clients facing more difficult financial situations.

Taken together, the successful implementation of these measures will strengthen the Canadian aerospace sector and put us on a more level playing field with our competitors in the favourable environment in which they operate. Canada's aerospace sector is ranked fourth globally today, yet nations like China, Korea, Japan, and India have put the world on notice through rapid development of their own industries. The common denominator amongst emerging companies from these countries is found in the strategic, sustained, and substantial support they are receiving from their national governments. Moreover and more troubling is that these companies and countries are aggressively looking to woo our best young talent and leapfrog Canada on the innovation continuum. On a positive note, successive Canadian governments of various political stripes have laid a good foundation on which we can build for the future.

However, more specifically, the Government of Canada must, through such measures, ensure that our partnership continues to grow.

In short, we recommend that the Canadian government: first, continue to support and increase the SADI's annual funding base; second, maintain and expand its commitment to the Canadian industry while rebuilding our military forces and providing it with new equipment; third, ensure the participation of our industry in discussions on programs such as the Joint Strike Fighter Program, in order to bring to the table on the very first day the technological know-how and expertise—that is essential for our participation; fourth, make the research tax credit fully refundable; and fifth, ensure that the special funding framework and support provided to EDC in budget 2009 is used to ensure easy access to credit so that international buyers can invest and purchase major Canadian aeronautics technologies.

Thank you for your attention, Mr. Chair.

[The Chair, Conservative, Dave Van Kesteren]

Thank you very much, Ms. Bourque.

Now we will go to Mr. Bertrand for his presentation.

[J. Richard Bertrand, Vice-President, Government Affairs, Pratt & Whitney Canada]

Thank you, Mr. Chairman and members of the committee.

My name is Richard Bertrand. I'm vice-president of government affairs in the office of the president at Pratt & Whitney Canada. We thank you for this opportunity today. It's a very timely discussion.

I want to take this opportunity to share our opinion on the impact and challenges represented by this global recession. My comments will be brief, because your time is better used through questions and suggestions to reinforce the policy choices affecting our sector.

It is these choices that will strengthen the Canadian economy as a whole.

Pratt & Whitney Canada is based in Montreal, with a proud 80-year history of continuous innovation, achievement, and success. We are a global aerospace leader shaping the future of business, helicopter, and regional aviation with new-generation engines. In fact, we have introduced a record 65 new types of engines into production over the last 12 years alone. No other company in the world has introduced that many offerings.

Our next-generation engines surpass International Civil Aviation Organization standards for low emissions and low noise. This success is proof positive of the benefits that have accrued from our 50-year relationship with the Government of Canada and the various policy and fiscal supports that have been accorded our company and the broader aerospace and defence sector during this time.

We employ close to 10,000 people throughout the world and nearly 7,000 in Canada, namely in Halifax, Longueuil, Mississauga, Lethbridge and soon in Thompson, Manitoba.

This geographic footprint results in an annual economic contribution of $2 billion to the GDP, according to a KPMG study. We are also the number one research and development investor in Canadian aerospace. In fact, we invest over $400 million per year in R and D, which represents 50% of the total spent by the sector.

We have committed $1.5 billion over a five-year period to create the next generation of green technologies in our research and manufacturing facilities. On the knowledge economy, we employ over 1,200 engineers across Canada.

Finally, as a company we take pride in our ongoing work with 16 Canadian universities, with 400 programs completed to date and another 200 in progress or in planning stages. We also plan to invest $75 million into the university sector over the next five years. Of course, the present economic climate is hurting our company and our sector, like so many others.

For Pratt and Whitney Canada the marked delay and decline of orders in the regional and corporate aircraft market has had an impact on our operations, although I was pleased to see this morning in a newspaper that Porter Airlines will be ordering 18 more Q400 Bombardiers with our PW150 engine, so that's a nice little ray of sunshine in the middle of all this. In turn, the spillover effects--and I think it's important--have an impact on the 1,500 suppliers situated from coast to coast, and that cannot be discounted.

Like the others, our company has had to make difficult adjustments in our workforce. Although these decisions are never easy, we have worked with our employees and union groups in order to minimize their impact as much as possible. We remain committed, nonetheless, to the pursuit of excellence and global leadership in terms of developing energy-efficient and low-noise technologies for the next generation. The Government of Canada has a special interest in ensuring our success in this area.

Previous investments in pre-competitive technologies and research efforts, through legacy programs such as DIPP--the defence industry productivity program--and Technology Partnerships Canada have yielded and continue to yield annual royalty payments back to the crown, in some instances with payments continuing decades after the initial investment, royalty payments that are already in the hundreds of millions of dollars back to the government.

As my colleagues have noted, Canada's aerospace sector is ranked fourth by global standards. And when we consider that those countries that rank ahead of us are the benefactors of a massive military presence when compared to Canada's defence expenditures, the success of our company and our sector is all the more remarkable.

The innovative culture, record, and ambition of Pratt & Whitney Canada are unequalled in the small to mid-engine marketplace. By the way—a comment on that—that is a marketplace right now that is being hurt because of, as I said, the corporate aircraft market.

If I may, the other company sharing this table with me this morning can make similar claims about their global leadership in their respective service and product domains.

The point is that our sector is innovative at and to its core. And this innovation has flourished best in terms of products, sales, and economic spinoff benefits to Canada when it has been supported—supported through consistent collaborative and concrete government policy statements, programs, and funding.

Let me be frank. Government support for the aerospace sector is not only in our collective economic interest, it is essential to our national security interest.

During the 2001 economic downturn, Pratt & Whitney Canada made a conscious choice to invest in its innovation capacity and engineering excellence with the support of the Government of Canada. As a result of this longer-term thinking, we emerged from that period as a stronger and more competitive company with sustained growth in orders, employment, and revenues. This also resulted in a greater contribution to our community efforts in the arts and education spheres. And for the taxpayers of Canada, it meant more taxes paid and continued repayments on previous investments.

Today, we do find ourselves in a similar situation, and perhaps a little bit more difficult than what existed in 2001, with the additional problem of a devastated financial community without the resources to lend funds.

For its part, we encourage the government not only to continue with SADI, the strategic aerospace and defence initiative, but to go beyond its additional $200-million election commitment.

As an aside, as politicians, I must emphasize that you're well served by a competent, professional public service at Industry Canada, HRSDC, and other departments with which we interact regularly.

Furthermore, a number of our investments take years to develop and reach the market, and the return on such investments spreads out over several decades. While there is intense and rapid innovation in our sector, returns on such investments in innovation happens over a much longer period of time.

This brings us to our recommendation that aerospace sector policy must remain constant and stable over the same period.

Let me reiterate: it is important that government investment is stable and consistent on a long-term basis.

We recognize that the democratic process is such that governments change depending on the will of the voters.

However, we know that all parties represented in this room today comprehend the present value and future potential and contribution that our company and our sector offer to our economic prospects. Therefore, consistency in the basic policy fundamentals in tax policy, program supports, and shared financial risk initiatives is extremely important.

Finally, as a global company with national operations, Pratt & Whitney Canada urges the federal government to, when possible and practical, align its programs and initiatives to complement provincial sectoral tax policy and training efforts. Ultimately, this degree of federal-provincial cooperation will result in optimal investments and partnerships that yield the maximum return for our economy and the taxpayers' investment.

When our sector and our governments work together in partnership with common purpose of mission and a shared objective to succeed, we put the world on notice that the innovation and resiliency of our industy, of Pratt & Whitney Canada, of the Canadian industry as a whole, are competing and competing to win.

I want to thank you for your interest and your attention. I am eager to begin our discussions shortly. Thank you.

[The Chair, Conservative, Dave Van Kesteren]

Thank you, sir.

Last, but certainly not least, we will have Mr. Haynal, from Bombardier.

[George Haynal, Vice-President, Government Relations, Bombardier Inc.]

Thank you, Mr. Chairman.

Thank you, Mr. Chair, for having giving me the opportunity to talk about Bombardier's view of the situation currently being experienced by the aerospace industry.

I will make my comments very short and informal, if I may. I know the discussion will be a rich one, and I look forward to participating in it.

Let me introduce the company briefly. Bombardier is the third-largest manufacturer of civil aircraft in the world, after Boeing and Airbus. It is also the leading manufacturer of business aircraft and regional aircraft in the world. It is a significant presence in the industry worldwide and a very proud and active member of the Canadian aerospace industry, as a sector.

We are also--and this is significant in terms of the business model that we pursue--the world's largest manufacturer of passenger rail solutions; that is, railcars and systems associated with passenger rail. This is a part of our business that is less well known in Canada because much of the activity that we pursue is in Europe and new emerging markets.

Together, this company employs 60,000 people worldwide, of whom over one-third work in Canada, even though well over 95% of our product, at the moment, is exported for markets other than Canada.

If there is more interest in pursuing these big subjects on the identity of the company, I would obviously be delighted to do that, but let me come to the specifics of the situation. We have been, as has all of the industry, deeply affected by the economic crisis and the fiscal crisis that the world markets are facing. We are taking steps to ensure that we not only survive but thrive despite these global setbacks. Doing that takes a series of measures from the company, including making painful cuts in our employment rate and taking a very dynamic approach to managing our costs, including those associated with our supply chain.

But it's also a moment of opportunity for us, because we know that the market will rebound, and we have a product that will in effect meet the new challenges of the industry when it is launched in 2013. I'm speaking about the CSeries aircraft. I mention that in particular because the Canadian government is an active participant in launching the pre-competitive phase of that aircraft. This aircraft will be a world-leading product. It will have an important Canadian component, and we look to it to sustain us into the future.

I did mention that the Canadian government will be a partner in this, investing in the pre-competitive stage of the development of this aircraft. As a footnote, let me also say that in the past we've had an important partnership with the Canadian government since the 1960s, in one way or another. It has been a mutually beneficial one. Bombardier has paid back over 131% of the closed arrangements that we've had with the Canadian government over the years, which is a reasonably good rate of return.

In the TPC, the Technology Partnerships Canada program, which was the most recent of these programs where the government participated in risk-sharing in the aerospace sector, we benefited, I think, from 4% of that program, or $134 million, if I'm not mistaken. We've already paid back 85% of that. That was a program launched in 1996.

So we are good partners, and we intend to be. I think we're a good demonstration of how a partnership in this sector, as my colleagues have pointed out, is not only critically important but also a key to success in the future.

Let me speak a bit more about the present circumstances. We have been hit. As I mentioned, Bombardier is a leading manufacturer of business aircraft in the world by value. We have now experienced a 25% drop in orders for business aircraft in the last few months. This is nothing short of dramatic. As you can imagine, this has had knock-on effects on the way we have had to do business.

At the same time, however, there has been a 10% rise in orders for our regional aircraft, in particular for the Q400 turboprop aircraft, which I hope many of you will have flown in service to Toronto. Richard Bertrand just mentioned that the service is providing so much satisfaction that they've ordered more of those aircraft.

That aircraft has taken the world by storm, if I can put it that way. It's the most environmentally friendly passenger aircraft now being made, and it is also the most fuel-efficient, thanks to, among other things, the engines and other technical qualities of that aircraft.

Our business is balanced, but like every business today, it is precarious because every business is subject to the vagaries of the international economic climate. The layoffs that we've had to make have been very painful. They have been phased in as much as we could, but we have had to lay off close to 15% of the workforce of Bombardier Aerospace in the last four months.

These cuts have been spread across our operations around the world. Our Montreal and Belfast facilities have taken the worst of the hit. In Toronto at Downsview, where the Q400 is being made, they've been somewhat less, but there have also been cuts in the United States and in Mexico.

We have taken some very, very difficult measures, and we will have to continue to do so.

The critical component of the challenge we face, which is ultimately the heart of the challenge we face, is not our lack of liquidity or our lack of opportunity or our lack of innovation, in all of which we have made every effort to be in a leading position, but that of our customers. We can only be as successful as our customers are and our customers face tremendous challenges--airlines as well as leasing companies and individual corporations. Their problem is related to the capital, the cash crunch that is affecting all businesses around the world, the shortage of liquidity in the capital markets. This is not a situation that is about to be reversed quickly or automatically, but it will be reversed.

However, in the meantime, we, like every other original equipment manufacturer in this business, rely very strongly on our export credit agencies to keep funding going. As I mentioned to you, our sales, certainly in aerospace, are virtually all for the export market, so the continued successful and mutually beneficial participation of EDC in this field, as others have mentioned, is absolutely critical to our success.

Let me close with a few other observations about elements of our cooperation with the government that are also of an extraordinary importance. So far, we have not talked about international trade in depth here, but as I said, we are an international business, as is everyone else at this table. We all rely on international markets, so the health of the international trading system is of extraordinary importance to us.

The capacity of Canadian exporters to access markets, both established and new, is of the first order of importance, so I did want to take this occasion to salute the efforts of the government to conclude free trade agreements, most particularly and most dramatically with the European Union. As you know, that process is now under way. This will make a big difference to all our industries, if for no other reason than it will help to provide labour mobility, which is one of the very important aspects of this global industry.

So free trade is extremely important. The resistance to protectionism, under whatever guise, is extremely important. The role of our diplomatic missions abroad in terms of promoting the image of Canadian industry is extremely important. The networks that are established around the world at the political level, as well as the business level and the official level, are extremely important, especially in markets where governments and economies overlap. In some cases, these are the largest governments and largest economies in the world. All of these things are of material contribution to our success.

More particularly, I have mentioned the continuing and, as I say, sustained and sustainable partnership with EDC, which is an extraordinarily important aspect of our business, as it is for the rest of our colleagues.

Last, of course, though by no means least, the continuing commitment of the government to partner with the industry in general in the form of SADI, a program that has been initiated under this government, will be critical, not just to the major industries and major companies represented here, but as Claude so graphically illustrated, to this vast group of companies participating in this sector in Canada.

I can tell you, just as a snapshot, that Bombardier Aerospace has roughly 500 suppliers directly supplying components to our company. And a large group—it's so large I don't even want to put a number on it, but certainly it has well over a thousand, perhaps as many as two thousand, in it—supplies services and other ancillary products to the company.

So this sector has a huge multiplier effect. It is a dynamic one and it is poised for growth. It has sustained itself through thick times and thin. If I may put it this way, it is a jewel, I think, in the industrial crown of this country that is worth keeping and polishing.

Thank you very much.

[The Chair, Conservative, Dave Van Kesteren]

Thank you very much.

We will now go to our first round of questioning of seven minutes. Generally we let it go over time if there's an answer that's important and we need to finish it off. If it's getting a little long, though, I may ask you to wrap up. We will have enough time to come back to things, since each member has a fair amount of questioning time.

We will begin with Mr. Garneau.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

Thank you, Mr. Chair.

You mentioned that it is remarkable that Canada is in fourth position on the world markets in terms of its aerospace industry, particularly because it does not have a large military to be an important client and particularly because of the cyclical valleys that occur in this industry.

That makes me want to ask you about Canada's current defence procurement policy, and I'd like you to be candid in answering this. Do you see a role for procurement policy, as part of overall government strategy, in helping your industry--providing, of course, we respect all the trade rules of NAFTA and WTO where they may apply?

That's for whoever wishes to answer, please.

[Nathalie Bourque]

I'd be glad to answer that.

As you know, Mr. Garneau, CAE's revenues are half civil and half military. We definitely are very interested in military procurement around the world. But as we found out in the past.... There's a French expression that “Nul n'est pas prophète dans son pays”. It turns out to be exactly the opposite for military contracts.

As I'm sure most people who read the papers are aware, CAE lost some very important contracts years ago, going back to 2002 or 2003. At that point we received a letter from the Government of Switzerland saying, “Thank you very much, but do not respond to the RFP. We will not consider you because your own government has not accepted to give you the job.”

So not only is it important to have contracts here, when CAE is the global leader in simulation around the world...and that includes on the defence side. We were very proud, on the CAE-led team for the OTSP for C-130J, to be able to train the pilots who would be flying those aircraft. But the consequences of our winning this were manyfold.

First of all, it saved over 300 jobs across Canada, and I do mean across Canada. Two, it allowed us to continue to develop our expertise on this. And not least, number three, we have had calls from other governments around the world asking us to please meet with them to explain to them how we are looking into the military training for the C-130J. It's quite innovative; we link a series of simulators together and people can really practice. This is war, this is not just for fun. You see a plane going, and you see some other planes that are attacking it. We have ways to network them together and make it work.

This is opening other contracts, other major contracts, for CAE. Those simulators are done here in Montreal, and benefit all countries around the world. We have Cascade as part of the group, we have Bombardier, we have xwave--we have a lot of companies in Atlantic Canada, Quebec, Ontario, and the west working on those contracts.

For any company you have in the defence world, you must—must—be supported by your government. And I repeat, it was a very strong competition. Believe me, we lost sleep over it many times. But it was fair.

I'll give you an example, Mr. Chair, if I may. There's a troop in the States known as the 160th regiment. I don't know if you saw the movie Black Hawk Down, but these are the guys. We're their biggest supplier. Forget the Buy American Act; these guys buy the best in the world because their lives are at stake every minute they're on a mission. They chose CAE.

So we're very proud that the Canadian government, after having the competition, has agreed to give us the contract. We think our Canadian troops will be very well trained, and we're proud of that.

[J. Richard Bertrand]

Defence is a very small part of our business at Pratt & Whitney Canada. It's difficult to sometimes fathom why, because we provide engines for helicopters, engines for UAVs, and so on. There's a search and rescue competition, so called, currently. Three of the four providers have full Canadian content, and the military is really not moved by that aspect, and so it has a potential in terms of that procurement program and other programs.

I think the issue is a little more difficult in the sense that when you have something like Afghanistan, which is present and therefore you want to do things immediately, then there's an understanding of some of the activities. Quite frankly, what I don't believe is in the process is that longer-term vision of how we're going to get there in the longer term. Again, coming back to search and rescue, that was seen ten years ago, but the fact is that process was sort of predetermined on the end product rather than on the process towards that. There are lots of very capable individuals and companies in this room that can provide some very good product in that area, and the same thing with helicopter programs and other programs.

Having said that, I think the fundamental issue, and the fundamental issue for any government in the past and in the present, is to be able to get a handle on the long-term defence procurement strategy. When we compete against the United States, it's automatic that if it's a military program it's 100%, it's funded, it's not repayable, and so on. If we compete in Europe we're under similar constraints and similar difficulties. If we compete with the United States on commercial, there's 50% support and that's non-repayable even in some of the applications. The military applications in other countries are the applications that are used effectively to be able to provide in those countries a strong military spend, which then becomes the basis for future programs that can become commercial.

The long-term vision is extremely important. We must not always be caught up in sort of, “let's get something for today”, and we start looking for something for tomorrow.

[George Haynal]

I'll just add a couple of words to that.

We are all a product of our history, and the history of the Canadian aerospace industry was determined in the 1960s by the government of the day to be in the civilian realm. We were a manufacturer of military aircraft and we decided not to do that any more, but it was still decided, wisely, I think, in retrospect, that this country benefited from having an aerospace industry and that it was worth fostering that aerospace industry in the civilian realm. That is why we had programs such as DIPP, TPC, and SADI. I believe this is our approach in our country that has worked.

The question of military procurement of course is not frequently raised because military procurements of aircraft happen once in a generation, and we happen to be at that generational moment. It's a question that forces itself onto policy-makers and onto the industry. It would be far from me to try to offer advice to policy-makers, but from an industry's point of view I think there are a couple of things worth saying, certainly from the point of view of my company.

One is that this is a global industry, and we actually happen to be part of that industry. It is very important for us at least to have a fair chance to bid when opportunities arise—not necessarily to be favoured, although that's another issue, but certainly to have an opportunity to bid. This has occasionally been a challenge for us where procurement decisions were made where it was not necessarily open to us even though functionally, as Nathalie said, we had the capacity to produce as a company and as an industry.

The last thing I would say from our own company's point of view, if I can address that very narrowly, is for us the capacity to participate in offset programs or programs of that kind has to be reasonably selected. For us, the great comparative advantage in our industry is access to technology, and the degree to which these programs can bring us to a higher level of technological sophistication, add to our knowledge, and help us to partner with others to bring our technological capacity to others in these global supply chains would be to the good.

[The Chair, Conservative, Dave Van Kesteren]

We're well over our time, but we're getting the cooperation of the government, so go ahead.

[Claude Lajeunesse]

There are a couple more points I'd like to make in reply to the question.

First, there is wide consensus that we must identify and support the needs of our military. That's first and foremost. However, at the same time, we want to maximize the benefits of these investments to the Canadian taxpayers, and we feel the procurement process could be improved in a couple of ways. First, we feel it should be a lot more transparent. There is a need to have a lot more consultation with the industry.

Mr. Bertrand mentioned the issue of fixed-wing SARs. We would like very much to have the opportunity for the industry here in Canada to show what it can do, at the same time, of course, making sure we support the needs of the military. That's one example where we feel the procurement process needs to be improved.

The second point is that there's been a major change in approach over the last few years with regard to the single point of contact for large procurement. What we now face is the fact that there's one company that builds the aircraft and enters into contracts for servicing and maintenance of that aircraft. That can lead to a lack of development of our Canadian industry, lack of access to intellectual property. If we look at a company like L-3 in Mirabel, for example, which services the F-18, over the last year they have developed hundreds of millions of dollars of contracts with Australia because they were able to export the knowledge they have acquired by working on these programs here in Canada.

To answer your question, we feel there is a need to have more transparency, better consultation, systematic consultation with the industry, and there is good news for the taxpayer. There is good news for our soldiers, transmitting support for the industry and development in the long term for our industry, not only for the short term.

[The Chair, Conservative, Dave Van Kesteren]

Thank you, Mr. Lajeunesse.

Mr. Bouchard.

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

Thank you, Mr. Chair.

Thank you for coming. Before I begin my question, I would like to make a request to the chair.

My colleague the member for Saint-Jean is a member of the Standing Committee on National Defence. When we looked at the forestry issue, a number of Conservative members came to our committee, and they were allowed to ask questions. Would you and the other members here agree to allow me to share my time with my colleague Mr. Claude Bachand?

[The Chair, Conservative, Dave Van Kesteren]

You're most welcome, sir.

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

I will ask my first question. Then, my colleague Claude Bachand will take over.

My first question is for Mr. Lajeunesse. In your presentation, you said that the aerospace industry is a jewel in Canada, an opinion that the Bombardier representative shares. Do you fear for the aerospace industry's future in Canada, if current conditions continue?

[Claude Lajeunesse]

The short answer is no. We need to understand that the aerospace industry is a solid one. You heard this morning that a number of companies are investing in the future. For example, we talked about a program that will produce concrete results in 2013. No doubt, the industry is going through a difficult period at present. You also heard my colleagues clearly tell you that in some cases they have had to deal with layoffs, which is always difficult. However, all companies understand that the cycle will reverse. We expect that there will be a need for 2,400 new planes in the world over the next 20 years.

We need to be prudent and to clearly understand the strategy, we need to invest in research, development and innovation in order to prepare for the arrival of new materials, motors and new aircraft manufacturers, and so forth, and we will need to be able to compete within 5, 10 or 15 years. That is why you have heard an appeal this morning to get at least the $200 million promised under SADI, if not more. If we don't invest now in research and development, in a few years it will be extremely difficult to be competitive.

[Nathalie Bourque]

I concur with Mr. Lajeunesse, when he says that we seem to be surviving just fine today. As you know, life is fragile. Twenty-five or even 10 years ago, who would have believed that we would now be having to help the Ontario auto industry? Who would have believed that we wouldn't all have at home a Chevrolet, as the ad said, What do you have at home? This, this and a Chevrolet. We all remember that ad. Today, young people don't know what a Chevrolet is. A number of countries, particularly in Asia, can testify to that. Who would have believed that, today, everyone would have a Toyota, a Hyundai, or a Kia at home? And there are many more that we could name. That is what we are dealing with and what we are trying to overcome.

The major strength of the aerospace and defence industry lies in the fact that the R and D is being done here. However, the auto sector did not have that opportunity. Nevertheless, we are under pressure every day at the office and we are concerned about what will happen in the aerospace industry. Even if we are in a good position, we are continuing to get good contracts and we remain positive, we are prudent. We feel it is extremely important to continue to do what we are doing now, with the help of governments.

[Claude Bachand, Bloc, Saint-Jean, QC]

First, I want to thank my colleagues for allowing me to ask a few questions. I greatly appreciate it.

Mr. Lajeunesse, you talked about SADI, which is equivalent to the TPC, which the government had promised to restore at the time, if it hadn't already done so. My questions concern mainly the military sector.

As you are no doubt well aware, the government has invested $16 billion in purchasing new military aircraft equipment. The way that it has gone about it is somewhat questionable. We spoke with the Auditor General about everything related to the awarding of contracts, meaning the advance contract award notice or ACAN, or by a letter of solicitation. The Auditor General is challenging the way that contracts are granted through an ACAN.

First, how does the supply process work? Is it fine the way it is? Personally, I think that things are not right as they are. Second, do the economic spinoffs have to involve both aspects of procurement, meaning the acquisition fees and support services? It's far from being clear at present. Boeing seems to say that it has received billions of dollars for the purchase of large aircraft but is now asking whether it is possible, concerning the servicing... Perhaps the example of Boeing is not relevant, because I don't think that it will repair the C-17 in Canada. It's quite clear. We can wonder whether there will be any economic spinoffs.

Finally, what do you think about the creation of the aerospace caucus, the chair of which is here, and of which I am the vice-chair? Is this caucus going to be, among other things, an important interface for the industry? We feel that this is a very important role for that caucus.

[The Chair, Conservative, Dave Van Kesteren]

To whom would you like to direct your question?

[Claude Bachand, Bloc, Saint-Jean, QC]

It's for any of them.

Perhaps Mr. Lajeunesse could answer.

[Claude Lajeunesse]

Thank you. I am going to start with the second question. Obviously, we are extremely pleased to finally see the creation of the aerospace caucus. I think that this is an excellent initiative. It shows that this is a pan-Canadian industry. Its members come from across the country. It is extremely important to show that support for the aerospace industry is support for the industry across the country and not just in one, two or three specific regions.