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

[Nathalie Bourque]

Perhaps you are more familiar with the program details than I, but I had understood that a company that was incorporated in Canada—Pratt & Whitney Canada is a good example, I believe—is as entitled to tax credits as a company such as CAE or Bombardier, which has its headquarters and largest financial base in Canada.

Private companies—private in the sense that they are not listed on the Toronto or New York stock exchanges—are entitled to a refund. A large private company conducting research would be automatically entitled to a refund. It would be good, I think, to harmonize the program as a whole to make things easier for companies and to make sure that they get this money back.

To give you an idea, there are companies with whom we have worked that no longer bother filling out the forms because they say that it is not worth it, because they will never get that money back. However, this forms part of the basis on which companies deciding to conduct R and D make their decisions.

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

Fine, thank you.

[The Chair, Conservative, Dave Van Kesteren]

Mr. Lake.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

I'm going to focus my questions in this round to the three companies, although I may not get through all three. I want to talk about SADI specifically, its importance, and the predecessor programs.

I'll start with CAE. I know that in 2006 you received some funding for the Phoenix project. I believe that would have been through TPC.

[Nathalie Bourque]

Yes. It was actually at the end of November 2005.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Just recently there was an announcement of a SADI investment of $250 million for Project Falcon. The numbers I'm looking at say that Project Falcon is part of a $715-million program overall.

First of all, could the overall investment have been made without the SADI portion? Secondly, what is the importance of that investment to not only the Canadian aerospace industry--the other folks can think about this as well, when I come to you--but the taxpayers of Canada, who are obviously funding this through their tax dollars? I understand it's repayable, but could you speak to the benefit Canadians will get from that investment?

[Nathalie Bourque]

I'll be glad to do that.

Yes, we're very proud. We announced, with Minister Clement, on March 31, that CAE was going to invest $714 million for the next five years and that the Government of Canada, through the SADI program, was going to support us--they don't want to use the term “loan”--through a repayable investment to the value of $250 million.

Would we have done this without the help from the SADI program? The answer is yes, we would have done it. But the second question is where would we have done it? We would have done it outside of Canada.

We have clients around the world and we have employees around the world. Half of them are in Canada, but we do have 3,500 employees around the world. When you hire an engineer in India, his or her base salary is $17 or $18.

Just to give you an idea, there are one million engineers graduating every year in India. They're all looking for jobs. Bangalore, as you all know by now, is the Silicon Valley of India. We have a base there. We have about 200 engineers working for us. They're all talented, all good.

Mr. Brown, our CEO, who was a Canadian bureaucrat, particularly in Industry Canada, for 20 years of his life, believes incredibly strongly in Canada. He wants to continue doing business here and he believes in it very deep inside his roots. For us, it was important to do it, and we were very happy to have the help of the Canadian government. But there are a number of countries knocking at our doors for us to open an R and D centre. Think about it, name them, and I'll say yes. I'm sure my colleagues will tell you the same thing.

What we have outside right now, except for India, are training centres where we train pilots around the world. We also have some finishing plants in areas for the military. If we sell to the German government, they want us to finish it, do it there, and it's the same for U.S.A. or Australia.

So the answer is it's very good that we got it, and we're happy. We said it. The program allows us to create or maintain 1,000 jobs in Canada, and they're our employees, our best employees. They're our engineers that do all the research.

The importance for taxpayers is that 1,000 employees still have a job in today's world. I think everybody can appreciate that, but it goes beyond that. It goes exactly to the same thing that Richard and George were saying. It's the universities where we do R and D, as well. We invested $1 million in Carleton University a couple of years ago. At some point your R and D is there, but your head office is not very far. So it's the Price Waterhouses of this world that we hire. Our base is in Montreal. There are the professional services people with whom we work--consultants, accountants, lawyers, name them. Without having a strong base in Canada, wherever it is, I don't think there's a company based in New York, listed on the New York Stock Exchange, that will call a lawyer in Montreal and say “I want you to represent me long term”. Sure, if they have a program in Montreal on something.... We all know where it is. And I think it all makes sense. I give my annual report to a company based in Canada, and they do it, and they do it well. But believe me, if I were GE, or whoever you want to name, and I were based in New York, I would give it to a New York firm.

So I think the benefits to this country are at all levels—at all levels. I think it's very beneficial, and I'm very pleased that all the governments, whatever political mix, always decided to support the R and D programs of the aerospace sector.

Thank you, Mr. Lake.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

All right, thanks.

I'll come back.

[The Chair, Conservative, Dave Van Kesteren]

Was there a...?

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

I don't know if the other guys wanted to comment on that answer.

[The Chair, Conservative, Dave Van Kesteren]

I did allow the last question to go a little over time. I didn't realize there was another one.

A quick answer? Absolutely.

[J. Richard Bertrand]

Absolutely, it's a great investment, looking at the three companies here. The certainty over a period of 20 to 30 years that you will get all of your money back, and more, is pretty well there. At the same time, in the short term, those investments allow us to be able to develop new products. The answer to your question is that if you don't have that kind of interaction that other countries provide their companies, the fact is, what do you now focus on? Do you focus on legacy products, present products, and just try to live out your life with your existing product environment, or do you try to go to the future? Actually, the secret of success for the three companies you see here today has been this investment into the future, so we're always there competing with or ahead of the competition.

It's also complex, because it's not just SADI. We have SR&ED, which we talked about. We have investments that are made by corporations into specific product lines. You have foreign exchange, so that when we were at $1.00 or $1.05 with the Canadian dollar, our product became a lot more expensive. When you combine all of that together, it makes us competitive.

As for helping and giving a return back to Canadians, these are companies that provide a significant return back to Canadians in taxes, in benefits, in investments, and in the things we do in our communities—and not only now, but on a long-term basis. So that's a really important aspect of how we do that.

But I must tell you, if you're looking at one area of government where governments really have to work with us, it's the ITARs. George has mentioned this. It is not solved, which means that we can only take people born as Canadians; those who were not born Canadians can't work on something because they were born in a different country. It's unimaginable, and an area that makes it very difficult for us.

[The Chair, Conservative, Dave Van Kesteren]

Very good. Thank you.

We have lots of time. I'll give the others another slot of time.

Go ahead.

[George Haynal]

I'll make my point quickly.

First of all, we don't get SADI. We've not applied for SADI at this point. But we have been partners in TPC and DIPP, and as I said, we've paid back.

But leaving that aside, I agree with you that's not the major benefit. It's risk-sharing, and if a highly risky proposition pays off—which it has done in this sector—it's a good return to the taxpayer right there. But that's not the heart of the program. If you wanted to do that, you just become a bank.

The returns to the country are in jobs—high-quality, sustained employment in a globally competitive sector. It generates the capacity to take risks on a scale that actually generates jobs. The CSeries, for instance, is now creating 1,000 jobs. It will create roughly 4,500 jobs when it's in production. These are jobs, as others have said, that will last for decades. They're not make-work; they are real, and they bring back all the benefits that high-quality employment brings.

The other thing it creates, as Nathalie said, is innovation. Innovation is contagious. This is the other thing, I think, that is important to remember. The technology we develop for our products is actually transferable to other products. We may be focused on one thing, but it's generic.

I'll close with an example that may be a little weird to you, but as I've said, we're also in the railway business. We build railcars. In Thunder Bay, we have a world-class production facility that makes aluminum railcars. This is a unique technology. The reason we can do this in Thunder Bay is that we have developed aluminum technologies in the aerospace industry. So the multiplier effect of these technologies is sometimes more subtle and a little harder to see than you would think, but they're substantial.

[The Chair, Conservative, Dave Van Kesteren]

Okay. Is everybody done?

Okay, now we have the Bloc round.

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

Thank you, Mr. Chair.

Mr. Bertrand, you took the words out of my mouth because ITAR is what I want to talk about. I heard Mr. Lajeunesse say the words “sustainable, suitable, comprehensive policy, innovation, access to R and D, help future generations.”

Ms. Bourque, you even talked about your 200 Indian engineers. In my opinion, ITAR puts the brakes on all that and I never miss an opportunity to say so, when I go the United States, including to Washington.

I have three questions. Do ITAR regulations have negative economic consequences for your industries at present? What is the aerospace industry doing to try to abolish that policy, for example in cooperation with its American headquarters? Do you think that politicians are doing enough to put an end to that program, which undermines the entire industry?

Perhaps Mr. Lajeunesse could start. Then, the other witnesses could add their comments.

[Claude Lajeunesse]

Currently, the consequences are not as harsh because there is a certain amount of tolerance. I think too that the federal government has managed to negotiate an exemption for its employees who have what is called a security clearance. These employees can work on some ITAR projects.

However, I think that there is a huge danger that the situation will deteriorate and this is creating significant problems for our industries. I will let my colleagues tell you what they are doing and what their companies are doing and what their U.S. headquarters are doing—when they have one. I think that this is a political problem. Before the American election, we were told that the problem could not be resolved before the new president took office along with his team.

We have had the opportunity to talk to various members of the Canadian government about this recently, and I think that negotiations need to be reactivated as quickly as possible in order to avoid the possibility that this could have an extremely negative impact on our industries.

[Nathalie Bourque]

I'm outraged when I think about this Chinese girl who came here at the age of six months, and who does not even speak a word of Chinese today. Her name is Francine Lajeunesse. She has been told that she cannot work on certain issues because she is a threat to the nation. The poor thing! It makes me sick. As you know, we work with children who have been abused. So I'm very touched by this as well.

We have spoken with various governments. We are pleased that the Canadian government has managed to get an exemption for ITAR for the entire bureaucracy. We know that a number of government and opposition members worked very hard on this.

We know that you did a great deal, Mr. Bachand. These efforts will have to continue, because it is very important to our industry.

At the moment, we have a good job pool and some alternatives for our people. However, the real solution is to exempt Canadian workers from these regulations. I do not think we represent a threat. We are doing a great deal of work for all American defence organizations. Some of the work is done here, and the finishing or installation of specific systems is done by our head office in Tampa, by the Americans. Even Mr. Brown, the President of CAE, is not entitled to see what is done there, and we respect that. We understand.

However, with respect to the work we can do in Canada, it is important that competent people have access to these jobs. The point I want to stress particularly is that if you can help the Canadian industry get an exemption, as was done for federal government employees, that would be wonderful. Please do not abandon us; continue with your efforts.

[J. Richard Bertrand]

We are concerned at our head office in Hartford, Connecticut, as well, because this has an impact on the work here in Canada. So the same goes for us. There are parts of the plant that have to be curtained off, and so on.

However, that is not the main point, but rather the impact on the industry. You spoke about military procurement, and the military future of Canada, among other things. In this respect, we must work with American and other companies. So there is a long-term impact, in other words, the people who make the long-term decisions are wondering, when they look at the ITAR situation in Canada and elsewhere, where they can go to avoid encountering the same problem. And so they go back to the United States.

This is an important issue, and one on which we can work very hard, but really it is up to the governments. The federal government and the provinces must work together, because this has an impact on the provinces as well.

I think this issue will become much more important this year and the next.

[The Chair, Conservative, Dave Van Kesteren]

Mr. Haynal.

[George Haynal]

Thank you, Mr. Chairman.

Mr. Bachand, Bombardier, as an aircraft manufacturer with activities in both the United States and Canada, has had experience with American control procedures for decades. These procedures change from time to time, but at the moment, they are much more stringent than they were in the past. We are adapting, we are managing our affairs carefully to ensure that our products do not attract unusual or intolerable control procedures, and we are working closely with all American suppliers to ensure this, not only legislatively, but with respect to actual contracts. We must act with a great deal of circumspection and care, and that is what we are doing.

[The Chair, Conservative, Dave Van Kesteren]

Merci.

Mr. Lake.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

This round of questions, or maybe one question, will be entirely directed to Mr. Haynal.

As you would probably be aware, from an industry-by-industry perspective, there are different perceptions of certain industries across the country. For example, the perception of the energy industry outside of Alberta and Saskatchewan is different from what it is inside. The auto industry outside of Ontario has a different perception from that inside Ontario. And you'd be aware that the perception of Bombardier, in particular, in the west might be different from the perception in Quebec.

I want to give you an opportunity now to act as if you were sitting at a round table of my constituents from Edmonton, the ones who would articulate to me that they feel that Bombardier is heavily subsidized by government, and they would express this by saying things like stop giving money to Bombardier. I'm sure this is not a surprise to you, to hear that might be expressed from time to time. But I want to just give you this time now, in this round, to act as if you're sitting in a roundtable with 15 of those people, sitting around the table, and tell them why it's important. First of all, maybe you could correct any misconceptions that might be there, but also just tell them why it's important that the federal government continue to support Bombardier in the way that we do.

[George Haynal]

Thank you, Mr. Lake.

I'm happy to do this CAE-style and simulate a meeting with your constituents. Let me just say I'd love to do it for real too, because this is an important issue. Perception is sometimes reality, and over the years--for reasons I won't go into--the perception has veered off from the reality in our country.

We are a country of regions, and that's what makes us strong. Each of our regional economies has its great strengths, and together we make a strong country.

Bombardier is kind of an interesting example of that. We were not always a big business. In fact, we started out as a business run by one guy out of a garage in rural Quebec. He had a child who died because a doctor couldn't get to his house in winter because the roads weren't plowed. He became obsessed with inventing what became the snowmobile. Your constituents know it well, not just from having fun on it, but as a critical way of servicing oil fields and for many other aspects of life. I think there are still some of those early machines operating in Alberta. Whenever I talk to people of a certain age, they remember them very well.

That's how this company got started. It is not a behemoth that was imposed somehow from some higher authority; this is a company that grew by grit, determination, and innovation. It still retains all those characteristics. It was based on innovation and still lives by innovation. It's a proud member of the Canadian economy, and it's in some ways a flag carrier for this country outside the country. It is a national icon to everybody outside of Canada and to Canadians when they see it outside of Canada.

It's an unusual asset to this country because it is a global leader in two fields. In some sense--perhaps without overstating it--it may be the last great globally competitive high-tech manufacturer left headquartered in this country. I stress “this country” because we have a presence across the country. We are an important part of the Montreal economy, there's no question about it, but we have important facilities outside of Montreal, and they're not just in aerospace.

In Thunder Bay, after AbitibiBowater's recent declaration of bankruptcy, Bombardier is the most viable part of the local economy. In Alberta we're involved in large training operations. Across the country we have at least 500 suppliers to whom I could point today. So it's important to recognize that it is a real contributor, before the discussion gets started about what government does for it.

I've already said to the committee--and I'll say it to your phantom constituents--that we have had a record of cooperation and partnership with the government. We've paid back 131% of what we were given in contracts and arrangements that are now concluded, and 85% of contracts that are still running. We intend to pay them all off, and I think that's not a bad record.

So the notion that Bombardier is somehow a creation of corporate welfare is about as far as you can get from the reality. It is an SME that grew and grew and will continue to grow. It retains some of the traditions and many of the values of a small family company. It's a very important partner across the country to the economy, and it is perhaps an example to others--as is the sector as a whole--for how the Canadian economy can evolve to be globally competitive on a sustained, long-term basis.

I'm not sure if that's going to convince your constituents, but I've tried.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

This has been an important exercise in understanding as we've gone through this committee, because we have dealt with industries that are specific to regions. It is important for us to have this dialogue and this opportunity to explain to other Canadians--not just the four or five of us sitting around this table--the importance of our various industries across the country, and not just in the regions we're working in. So thank you for that.