Industry Committee on April 3rd, 2008

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

I'm going to give you a little bit of a shocker. Did you know that the average campaign in Canada is about $85,000? I understand that, for congressmen, the average is probably about $1.2 million or something like that.

Why do I bring that up? We don't allow any contributions from corporations. It has to be individuals. I think last time my brother and my friend, because they love me, gave me $1,000. From everybody else it was just $100. The reason is that when it gets right down to it, I don't owe anything to anyone except the good people of Chatham-Kent—Essex. It's a good way to do business.

That's why I get a little bit upset when I hear the rank and file aren't being listened to, because really, what it boils down to at the end of the day is that if the place packs up, closes down, they're the ones who are going to be stuck without the jobs. They're the ones who have to feed their families.

My line of questioning for the whole day has been to that effect, and I'm concerned. Forgive us, we're a great country, we're a bright country, but we're a small country. You're a superpower. This is one of our small companies being taken over by...maybe not a multinational but a huge company. So there's an element of distress possibly. We're just a little bit uneasy about this thing.

You've been asked a question. I'm going to ask it again because I don't think I got an answer.

I have to get my glasses on because, you know, when you go past 50, you start losing your sight.

[Raymond Simard, Liberal, Saint Boniface, MB]

It's worse at 60. I have to take mine off now.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

If the sale were approved, would things remain the same, and is it ATK's expectation and commitment or undertaking that there would not be cuts to the operation of these facilities and the employment in Canada? I guess I'm looking for commitment. I'm looking for numbers. Can you give me that? Once you give me that, I'm going to hand it over to Mr. Goodyear. He's going to take it.

[Carl Marchetto]

The commitment that we have made, which is in the record, is to not only build upon--there are 1,900 employees here--the 1,900 employees but to have that grow substantially over time, in technology, in capability, in investment. It is absolutely imperative that after spending $1.3 billion, we end up with a very powerful and strong aligned organization. That means taking the best of the best, which is already up here. There is no overlap between our two organizations, none whatsoever. They're absolutely complementary.

So it is my intention, as I stand before this committee--the responsibility is mine through the leadership of Dan Murphy--that we will grow this organization and value the products, services, and innovation that already exist here and build upon those.

[The Chair, Conservative, James Rajotte]

Mr. Goodyear, you have about one and a half minutes.

[Gary Goodyear, Conservative, Cambridge, ON]

Thank you, Mr. Chair and thank you, colleagues, for allowing me to ask a question today.

I've been looking at this sale for a couple of months now since it was announced--and by the way, gentlemen, it's good to see you again--and I'm not sure I see this as necessarily a bad thing. I see it as a new door, a new way to go for the Canadian space industry. Indeed, in my riding we have COM DEV, with 1,100 employees, and I think over 80% of the satellites in space have COM DEV hardware and software on them.

Here's my concern. The Land Remote Sensing Policy Act was written in 1992 in the United States, so clearly the government of the time, in 1998, our previous Liberal friends across the way, negotiated to give $400 million, give or take, to MDA to build a satellite, but failed to foresee the problems we're having today. In fact, I would venture to guess that none of us would be here today if this original $400 million of taxpayers' dollars had been managed better. Here we are without assurances on some of the issues that face us in this sale, so I'm going to ask you this very directly.

First of all, I'm becoming convinced we're going to get our $400 million back in terms of imaging over the next seven years. Needless to say, when Canadians invest in space, we usually get $8 back for every $1 we spend, so I don't know whether it's a great deal, but at least we're getting our money back--

[The Chair, Conservative, James Rajotte]

Mr. Goodyear, please go to your question.

[Gary Goodyear, Conservative, Cambridge, ON]

This is my final question.

In the event of a national security issue, would it be the United States government or the Canadian government that would control priority access and shutter control on RADARSAT-2?

[Carl Marchetto]

Currently, the understanding, through the agreements that have been in place, is that it would be Canadian.

[Gary Goodyear, Conservative, Cambridge, ON]

Thank you, Mr. Chair.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Goodyear.

We'll go to Mr. Vincent.

[Robert Vincent, Bloc, Shefford, QC]

Thank you, Mr. Chairman.

You stated that 90% of your business is military work. Is that correct?

[Steven Cortese]

It's actually closer to 79% for the last reporting year, for our fiscal year 2007, which includes a wide range of both U.S. as well as international sales of national security weapons systems.

[Robert Vincent, Bloc, Shefford, QC]

I imagine that you would transfer your other military contracts in Canada to MDA. If such were the case, you, and your Canadian workers, would be subject to the Patriot Act and to ITAR.

How will these workers be able to go and work for you if the contracts are negotiated with the Pentagon?

[Carl Marchetto]

I'd look at the opportunity and the space that this new company will operate in. It looks beyond the Department of Defense to the international community and also the civil space and the commercial space. As we look at the two businesses as they combine, the forward-looking view is that 41% of the market and the revenue of this new business will come from international opportunities. That will continue. That's an important aspect of MDA as we look forward. Sixty-nine percent of MDA's sales are international. We continue to think about growing that. That's an important aspect of the business.

Yes, there will be some new opportunities in the United States, but this opportunity and these two businesses getting together look far beyond what's happening in the United States for military or defence applications.

[Robert Vincent, Bloc, Shefford, QC]

You know full well that these workers will be subject to interrogation by the FBI or the CIA, depending on the military contracts that you will be giving MDA. Furthermore, you most certainly did a market study before deciding to purchase this company.

Based upon this study, who will your first customer for RADARSAT-2 usage be? Is my question sufficiently clear?

[Carl Marchetto]

No.

[Robert Vincent, Bloc, Shefford, QC]

You carried out a market study before deciding to purchase the company, in order to determine if it would be profitable. That is the first thing you did. Have there been any developments? Are there clients who might be interested in obtaining images from RADARSAT-2? From what I understand, there are already 45 million dollars in services agreements with Canada. I can understand that, but there is not just Canada. I believe your first customer is the American government, that accounts for 65 percent of your business.

Will the American government be asking you for RADARSAT-2 images for military purposes? Or else, given that it is the American government that will be deciding if Canadian images will be provided or not, because they will be regulated by it, will that not create a conflict of interest?

I am convinced of your good faith when you say that you will fulfil your part of the contract. However, the American government would be free to use RADARSAT-2 for military purposes and to tell Canadians that they will not get these images, that there is no rush and that it will not honour the contract. I am not so sure that the people involved in the American legal aspects will grant the right to transmit these images to Canada.

[The Chair, Conservative, James Rajotte]

Mr. Marchetto.

[Carl Marchetto]

My short answer would be that this is a commercial enterprise. This information in the current agreements will continue to be looked at and bought by the U.S. government, and they will have that current vehicle to buy as much as they want.

As the satellite continues to sweep up important information for all the different communities, all the different countries, it will be available to all of them, along with the needs here in Canada.

Will this satellite be turned over into only satisfying one customer? Absolutely not.

[The Chair, Conservative, James Rajotte]

Mr. Vincent, you have thirty seconds left.

[Robert Vincent, Bloc, Shefford, QC]

Your first customer is already the American government, with military defense purchases. In the case at hand, we could deduce that, in purchasing RADARSAT-2, what could not be done through the back door might be able to be done through the front door. We talked earlier about the missile defense shield and we said we were in disagreement. Your first customer being the U.S. Defense Department, this purchase would suit everyone.

[Steven Cortese]

Mr. Vincent, I don't believe that's necessarily the case at all. As was referenced earlier, there are nearly 60 commercial clients coming after the portion of RADARSAT-2 imagery that is the right and prerogative of the Government of Canada to take first, under its agreement. So the opportunity for ATK and MDA together to market the product of RADARSAT-2 follows the Government of Canada's claim, and then the commercial opportunity for the volume of imagery that's made available by the satellite after the opportunity and prerogative of the Government of Canada is exercised.

The U.S. Department of Defense will potentially be one of those customers, but it has no privileged right or opportunity to buy that data, except by seeking to acquire it commercially from the company.

[The Chair, Conservative, James Rajotte]

Thank you.

Merci, Monsieur Vincent.

Ms. Nash, I'll allow you one question, a minute, to go ahead of me and then I'll finish, as the chair.

[Peggy Nash, NDP, Parkdale—High Park, ON]

First, when you talk about the commercial expansion, MDA can do that today. It doesn't need to join ATK. The whole point of the ATK sale is to get those classified U.S. defence contracts. Currently Canada controls the shutter, but that won't be the case after the deal.

I hear your intention about commitments here in Canada, but I'd like to know about your legally enforceable undertakings under the Investment Canada Act. Have you committed to an undertaking to secure jobs and specific projects here in Canada that you would like to share with us? Because of course, as you know, everything under the Investment Canada Act about this deal is confidential, and this committee has received no information. So if you can share any specifics about undertakings, that would be helpful.