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

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

To follow up a little bit on what Mr. Lajeunesse said, if I understood the panel correctly, apart from ISS and IRB, I think what you're saying is that when government puts out an RFP it should be identifying a set of requirements that have to be met, as opposed to identifying more or less a product already. I think that is what is being said, just to add to the discussion there, Mike.

I'd like to focus on IRBs and ISSs a little bit. When the government does go out with a contract to a foreign company and IRBs result from that, I'd like to hear, Claude, your opinion on whether the IRB process is one at the moment that by and large helps the aerospace industry, in the sense of yes, it does provide jobs for a certain amount of money that the IRB is obligated to provide, but does it offer us the opportunity to climb up the innovation scale in terms of developing new capability, or should it?

[Claude Lajeunesse]

We believe it does offer some opportunity, but we also believe very firmly that it could offer better opportunities, opportunities that would lead to the creation of more jobs in this country, that could lead to the creation or the sustainability of industries in this country that can export their technology, export their intellectual property, and we feel that to do that there will have to be a very early discussion in the process. An integral part of the process would be to make sure the benefits to the Canadian industry and the Canadian economy and the Canadian job market are maximized. We've made some recommendations on that, and we have received some very positive vibes in response to the recommendations we have made on behalf of the industry. We have made those recommendations to the three ministers involved in this decision-making process.

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

By and large, are IRBs delivered in a timely fashion, or is it sometimes stretched out over a very long period of time?

[Claude Lajeunesse]

It will depend on some of the contracts. Some decisions are being taken now, and we hope these decisions will reflect the criteria I've mentioned: transparency, sustainability, transfer of technology, intellectual property, and creation of sustainable jobs in this country. I think I will be in a better position to answer that question once some of the decisions that I believe are currently being made are announced.

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

You mentioned single point of contact, dealing with procurements. The ISS, the in-service support of some of the aircraft that the Canadian government owns, can represent a significant life-cycle investment in Canada. Certainly L-3 MAS is a good example, with the CF-18.

From your point of view, is this something that should lead to a different approach in terms of procurement? You seem to be hinting at that, but I'd like to hear a little more on that.

[Claude Lajeunesse]

We have looked at what has happened in the past and what appears to be the trend now. The single point of accountability appears to put many of the critical decisions that will be made with regard to investment for servicing our military aircraft in the hands of non-Canadians.

The other factor is that we want to ensure there is an opportunity not only to service the aircraft that the Canadian government purchases, but that we have the opportunity to service the whole fleet of these aircraft around the world. In that case it allows the Canadian companies to create more jobs, to export their capabilities, and so on. We want to make sure that as these decisions are being made this is taken into consideration and that we maximize the benefit that accrues to the Canadian industrial base.

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

Thank you.

Do any of the other panel members want to comment on either ISS or IRBs?

[J. Richard Bertrand]

Well, the IRBs for Pratt & Whitney Canada are a little more difficult sometimes, but the fact is we do get some work from Pratt & Whitney Hartford.

But I would like to make a general comment on IRBs. We talked earlier about innovation, research, and so on. I don't know if this is happening, but I'll use an example. If instead of an investment in something that's going to be innovative, and research and so on, it's buying seats for a 737 from a furniture maker.... I'm not trying to comment against the furniture maker; a little bit of that is fine. But at the same time, the innovative investments being made in IRBs are extremely important.

I gave you a specific example in our case. I did mention earlier that the PurePower engine, the geared turbo fan, is going to be assembled and tested in Mirabel. We're building a new facility for doing that, and that's an IRB that comes from Pratt & Whitney Hartford. Right down the road, Bombardier will have the CSeries. We're going to be able to integrate and do testing of that engine together, which is pretty exciting.

The other thing we're doing at Mirabel is that we've moved our flight operation centre and consolidated from the United States into Canada. We've now acquired two 747s to do the actual engine tests. That's a specific IRB.

So if you can get IRBs that are really within your industry, it's a terrific addition. If the IRBs are separated, then at some point you have to wonder about the impact.

The final comment is that you can find only so many IRBs in a country of our size. You can't continue buying big projects all over the place all the time and say we're going to put lots of IRBs in Canada. Where are all those IRBs going to go? I mean, you've got Sikorsky right now, which is sourcing IRBs for the maritime helicopter program; you've got the C-17. Don't get me wrong, the industry is huge, but at the same time you can only do so many effectively. I think that's a critical part of the aspect of IRBs.

Claude's point is very important too. You want IRBs handled by someone who is hands-on, to make sure that the commitments continue. That's extremely important.

You were the benefactor of some IRBs recently, weren't you?

[Nathalie Bourque]

Well, we are in a way. When we announced the C-17, Boeing agreed to buy two simulators from us. The value of the IRB, as I recall from my press release, was between $7 million and $8 million. So it's a beginning.

If I may continue from this point on, one of the ways the Canadian government has done well with the IRBs for the C-130J is when it decided to divide the contract. Instead of giving the whole $3 billion contract to Lockheed Martin and saying they should hire people and companies and come back to them with $3 billion worth of IRBs, the Canadian government decided that to make these aircraft, they were not going to ask Bombardier to develop a new aircraft for four C-17s. You don't start a new aircraft for that.

So they bought the aircraft, the C-130J, from Lockheed Martin but said that they would put the training up for competition. This way, the CAE-led team--again I come back to this--was able to win that contract after a full competition. If the contract had been given fully to Lockheed Martin, like the one for the C-17s, maybe they would not have chosen CAE. Boeing has a training arm in its company called Alteon. Maybe they would have said to us--to come back to what you're saying about innovation--that they would give contracts to a company in Canada to do all the seats, but they would do the simulators and the training with their American components.

I think that the best way to do very good IRBs is first of all to look at a way where Canadian companies can really compete in this, and not give it all to the prime company. It applied for the training of pilots for the C-130J. It's a base, and it should go on for other programs. It should also apply to maintenance training. Why is it part of the C-130J? Why will it be part of the fixed-wing SAR or the CH-47? Why don't we compete this part as well?

I know I am preaching for my own parish.

If you do it this way, CAE is the prime for the OTSP. That means there will be more jobs in Canada, more revenues, and more money spent here by our people. If the prime is in the U.S., then that's where the money goes. That's the value of being the prime in this.

This is another area in which we have to look in order to have good IRBs.

[The Chair, Conservative, Dave Van Kesteren]

Thank you. We're going into round number three. Mr. Lake has indicated that he'd like to have a question. Mr. Bouchard has indicated it as well. I will limit it to five minutes at this point.

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

I'll be very quick. I actually wasn't going to ask a question until Mr. Bertrand made the comment there about the IRBs, that there are only so many places that you can go to have them fulfilled.

I find that to be an interesting comment, because this entire study that we've been doing is all about looking for opportunities, particularly for many workers in other industries who have lost their jobs. I think particularly about the auto industry, where some of those jobs are fairly high-skilled jobs. Some of those jobs would be engineering jobs. I understand that there would be some retraining or upgrading or whatever the case might be that might be required there, but it seems to me that we should be looking for all of the opportunity that we can find in terms of those types of jobs. I can't anticipate that we would get to the point where we would be at full employment, full capacity in this country, and turning down potential job opportunities.

Maybe you can just clarify where you're going with that, because it seems to me to be a little bit of an odd comment.

[J. Richard Bertrand]

I don't want it to be misunderstood, but the fact is that if you buy C-17s, buy Hercules, and have the joint strike fighter coming and add all that up, you're into $20 billion or $30 billion, and then you're looking for IRBs across the country. While we talk about the strength of Quebec aerospace, I think all of you from across Canada have to understand that aerospace is across Canada. Let me tell you why.

If Bombardier can't do an IRB on something, for instance, you have Pratt & Whitney Canada, CAE, and a good example in Bell. If you take that group in Quebec out of the numbers, the next level down of population is about 16% to 18%, roughly. You actually have more, at the next level down of suppliers, in Ontario than you have in Quebec, if you look at the numbers. Then you have out west and so on.

Claude showed a chart with the comparison across the country. Now you have a more even delivery. Now you have to look at who across the country can be providing the IRBs you require. You have in-service support, you have manufacture of parts, you have parts that you can produce across the country. We can produce them in Halifax—there are manufacturers there—and there are people in Mississauga, in Winnipeg, etc. My point was more that when we go into the future on IRBs, be very specific in understanding how we're going to get those IRBs. And make sure that they're distributed properly. My fear is that if you just focus on some of the big companies....

Bombardier can correct me, but I don't think they can fully participate in the C-17. You might have been able to do it, in reflection. Did you? No.

So the fact is that there are some companies for which it's just not possible to do it. I want to be cautious, so that when we spend on other products we make sure we understand how we're going be able to benefit from those IRBs.

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

I guess the point I'm making is that all of your companies have laid off workers. When looking at the IRBs, obviously the first thing you look at is the opportunity for those workers to come back to work. The second thing is that I think the eyes of a lot of people who may have heard your comment in southern Ontario right now just popped open as soon as they heard that you can't fulfill all the requirements.

[J. Richard Bertrand]

I didn't say we can't today.

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

Right, but in the future.... A lot of people would say here's a great opportunity, and that may be a good thing. There would be people in southern Ontario who think maybe they could help. I won't comment on it further, other than to say that it may be an opportunity.

[J. Richard Bertrand]

I just want to make sure, when politicians say they're going to spend $5 billion on something and are going to get $5 billion in IRBs, that somebody has worked through where those IRBs are going to come from on that type of product, what quality of IRBs they are going to be, and how they are controlled.

I hope I'm not misquoting, but I think Claude was asking how we can more effectively work with government to ensure that the IRBs are properly applied. Quite frankly, if you just buy furniture all over the place, you're not going to be able to continue to innovate and provide new jobs, or they're going to be short-term jobs, not long-term jobs. Our jobs are long-term jobs. Unfortunately, we've had to lay off because the economy has had a significant impact on our businesses.

[The Chair, Conservative, Dave Van Kesteren]

Monsieur Bouchard.

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

Thank you, Mr. Chair.

Mr. Lajeunesse said that it would be important to get maintenance contracts when aircrafts are purchased abroad. Either Mr. Lajeunesse or someone else may answer my question.

How would you describe the current situation, or the one that has existed for the last few years, regarding aircraft procurement by the Canadian government? Do you think the practice is working well, or is there room for improvement?

[Claude Lajeunesse]

That is a very important question. The Canadian Forces need the equipment the government has decided to purchase.

What I said earlier is that at the moment, most of the contracts that have been announced have not yet been completed. The final commitments made by the Government of Canada have not been signed. We hope that in the weeks or months ahead, the points we mentioned about the creation of productive, value added, and long term jobs will be taken into account in the announcements the government is about to make. We also hope, in cases were decisions are still at an early stage, that the industry will be consulted before the decisions go any further.

With respect to procurement, it is very important that the maintenance and the IRBs are considered from the outset, and do not become secondary concerns later on.

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

Thank you.

[Nathalie Bourque]

I am not in any position to make a judgment on that, but I think the Defence Department has some good teams and has probably made the right choice of equipment based on its needs.

I certainly agree with what Claude said. There must be transparency. When a contract is signed, the principal is that 60% of the industrial and regional economic spinoffs should be identified and signed. We have to find a way of making this clearer. It can be difficult to reach this percentage, but there is a multiplying affect depending on the type of spinoffs. For that reason, I think we can reach this figure.

Everyone would appreciate knowing clearly what the 60% spinoffs are, which are supposed to have been signed off on, and the remaining 40%.

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

With respect to international competition, we talked about the importance of being on an equal footing with other countries, Ms. Bourque. Is Canada's current situation comparable or worse?

[Nathalie Bourque]

Canada is doing absolutely everything it can to develop the aerospace industry. However, if you compare us to other countries... I will leave my own area of expertise for the moment, and talk about the aerospace industry as whole.

The 747 was developed as a result of a contract the Pentagon awarded to two companies. The Pentagon had not chosen Boeing, but rather the other company. Then Boeing added some windows and some seats and came up with the 747. After that, it got a check for $2 billion. Bombardier would really like to have the same type of non-refundable contract.

Our country does have some resources and it has a population of 30 million people. Under the agreements we entered into with the government, we received some repayable loans under programs such as TPC or SADI. It is essential to us that these programs be maintained, because we have to be as good as other companies, if we want to be competitive. Our competitor, Thales, is largely owned by the French government. Our other competitor is CFSI, which is owned by Warren Buffett. I hardly need to tell you that these two groups have much deeper pockets than CAI. So we still need these programs.

The best thing that the Canadian government could do to help out companies would be to make the investment tax credits completely refundable. That would be the best thing it could do. As far as the rest goes, we are good cooperate citizens, and we faithfully pay back the money we received under programs such as the TPC. And after we finish the Phoenix project, we will do the same again. But refundable investment tax credits would be a huge advantage to all Canadian companies that do R & D.

[The Chair, Conservative, Dave Van Kesteren]

Merci, Madame Bourque.

I wonder if I can indulge the committee and ask two quick questions. I think they're important for our study as well.

We've seen a lot about the wages for the CAW. To Bombardier, what are the wage levels of workers? We saw $76 and it had to be trimmed down to $57. How does that compare to a worker in one of your factories producing planes and trains?

[George Haynal]

That's comparable, but I'll have to get back to you with the numbers. I don't want to give you numbers I'm not absolutely sure of.