Industry Committee on April 3rd, 2008

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

Once MDA is sold to ATK and grows to take more and more defence contracts, what is left under the Canadian space industry? What else do we have to contribute? The Canadarm and RADARSAT are the best known contributions that Canada has made, and we have been a world leader in our contribution. What's left of the Canadian space industry?

[Dr. Lucy Stojak]

I don't know if anyone else would want to take a crack at that first.

[Carol Phillips]

We see it as the end of the Canadian space program as it is now. It's an erosion of the Canadian space program. We'll be back at the same level as developing countries instead of being a world leader.

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

I understand we now spend about one-third of what India spends on its space program. Do any of you find it ironic that our industry minister has just announced a revitalization of our astronaut program at a time when we may no longer have a vibrant or functioning space industry and space program? Does that strike anyone else as somewhat ironic for Canada?

[Carol Phillips]

Brazil is coming on fast in terms of the space programs.They are coming on really fast. You have India and China coming on fast. We have so many opportunities here, as well as Europe, to get into this, but without MDA our opportunities will be seriously eroded.

We are very confused about the whole issue of astronauts. We assume they're for NASA. We can't figure out how they would be for a Canadian space program if this sale goes through. Maybe it's a good signal that the company is going to do the right thing here in terms of a Canadian space policy, and so they're planning ahead by getting astronauts ready.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. Nash.

Thank you all for coming in today. I apologize for the shortness of the time, but we only have two hours allotted today, and we do have the two panels.

We want to thank you all for your input. We will endeavour to have the legal opinion translated as quickly as possible.

If any of you have any further comments or questions to the committee, please submit them to me or the clerk. We will ensure that all members receive them.

Members, we will suspend for two minutes and then we'll bring our next panel to the table.

Thank you.

[The Chair, Conservative, James Rajotte]

We have less than an hour, members, so let's take our seats.

We have our second panel here. We have representatives from Alliant Techsystems Incorporated. We have the senior vice-president, Washington operations, Mr. Steven Cortese; we also have senior vice-president and president, ATK Space Systems, Mr. Carl Marchetto. Good afternoon.

Gentlemen, you have five minutes for an opening statement, and then we will go to questions from members.

[Carl Marchetto, Senior Vice-President, President, ATK Space Systems, Alliant Techsystems Inc.]

Mr. Chairman and members of the committee, good afternoon.

On behalf of the 17,000 employees of Alliant Techsystems, it's my extreme pleasure to testify before the committee regarding the pending acquisition by ATK of the information systems and geospatial services business, MacDonald, Dettwiler and Associates.

For ATK this acquisition is the most significant transaction in the history of the corporation. It reflects the determination of our chief executive officer, Dan Murphy, and our board of directors that the growth strategy for ATK will focus on space, space systems, and moving into international markets. Aligning ATK and MDA into a single complementary team will drive collaborative, collective growth and success.

Today's hearing affords ATK our first official opportunity to introduce our corporation to the committee and Parliament and explain ATK's intentions, strategy, and commitment related to the acquisition of MDA. While many elements remain subject to specific regulatory requirements governed by the Investment Canada Act, today I will attempt to report on those portions that we can address in this forum.

Since the transaction on January 7, 2008, business and functional teams at ATK and MDA have focused on three immediate priorities: to bring the two accomplished, proud companies together; to address the needs and interests of all our employees and their families; and to address through regulatory processes both Canada's and the United States' issues. Needless to say, we've learned a great deal together, and each step of the process has increased excitement about the technologies, culture, and innovation reflected by each corporation. We are rapidly realizing that together this will be a remarkable and unique enterprise.

Earlier this week Dan Friedmann, president and CEO of MDA, testified before this committee and spoke to MDA's perspective on the transaction and how it will impact this corporation and its employees. I will address many of the same topics from the perspective of ATK and how our team intends to build on those successes achieved by the men and women of MDA.

First, ATK seeks to acquire this segment of MDA by virtue of the record of technical engineering and manufacturing prowess demonstrated by the workforce at MDA. The value this constitutes by the people, industry partners, and community relations make MDA what it is today. It is ATK's intention to grow and to build on that powerful foundation at all four primary sites in Canada, and it will be the anchor for the international work and growth for ATK Space—I reference British Columbia, Nova Scotia, Quebec, and Ontario.

The most powerful factor in bringing these two corporations together is the absence of substantial overlap between our existing businesses. Achieving success in this integration is not based on downsizing the technical or operational workforce, or the combining of manufacturing or engineering functions; the success will be a product of leveraging the respective talents and capabilities of the two companies combined and the physical capital that has already been established. Together they will provide a new force in the marketplace. In fact, we anticipate significant growth in our space business from teaming these capabilities.

In February our CEO, Dan Murphy, penned a letter, which was published in the Financial Post, speaking to ATK's intentions on the unique capabilities that MDA currently provides to Canada as the Canadian standard-bearer on significant international science and space pursuits. Dan voiced that there will be no change or reduction in the Canadian profile and the leadership on Canadarm, RADARSAT, or the new Dextre robotics—the system just employed on the International Space Station. These systems are Canadian, they will remain Canadian, and the next generation systems will be developed and manufactured out of Canada.

ATK's strategy to grow the existing information systems and geospatial services businesses now operated by MDA will focus on presenting these capabilities to a wider range of international customers. The international regard and interest in MDA's technologies and products will be central to the business opportunities we will pursue and achieve together. The international market also includes the U.S. government.

We believe our long-standing and deep relations with U.S. government agencies, including NASA, the Department of Defence, NOAA, and the Department of Homeland Security, will expand and accelerate the business opportunities for what will be the ATK space systems group in Canada.

The strategy does not contemplate moving the production, engineering, or design of these systems from Canada to ATK facilities in United States. These technologies, developed here in Canada by MDA, in many cases with the support of funding from the Canadian government, will be manufactured in Canada subject to the export licensing and intellectual property laws of Canada.

MDA and ATK both have excellent records as suppliers to our two nations' national security, homeland defence, and law enforcement services. We intend to continue that proud record of service to Canada and the United States and will invest to grow the capabilities of the new combined businesses. The result of those investments will not only serve these two direct home markets but fuel our international offerings.

Let me close my presentation this afternoon with recognition of a wide range of media coverage and address one issue that continues to be most important to folks. Regarding RADARSAT-2, ATK will implement and adhere to the contractual requirements currently existing between the Government of Canada and MDA. The structure of Alliant Techsystems Canada will be that of a wholly owned Canadian subsidiary. It will be a Canadian company, headquartered in Canada, and led by Canadians. There is no intention on the part of ATK to diminish or exchange the control regime exercised by the Government of Canada over RADARSAT-2.

More than a decade ago, while MDA was previously owned by another U.S.-based corporation, the Government of Canada and the U.S. entered into an intergovernmental agreement addressing the management and control of RADARSAT-2. We respect that agreement and will fully comply with its conditions and terms, as established between the two nations.

Mr. Chairman and members of the committee, I appreciate the opportunity you have afforded us here at ATK to have this conversation and participate in a very important hearing today. All of us at ATK look forward to the opportunity to work closely with this committee and the House in the upcoming days and years. We're excited about the prospects and the very bright future, as we move forward together, and strengthening the technology, the capability, and the workforce here in Canada.

Thank you very much.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Marchetto.

We'll start with questions from members. We'll start with Mr. Brison for six minutes.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you very much to both of you for being with us today.

Mr. Marchetto, you say that the RADARSAT-2 technology will be treated as a company, consistent with Canadian law. Yet under the U.S. Land Remote Sensing Policy Act of 1992 and the regulations under the Department of Commerce there is reference to the U.S. law as applying to “any company existing under the laws of the United States, a subsidiary, foreign or domestic, of a U.S. parent company or affiliate, foreign or domestic, of a U.S. company”.

Do you agree that MDA will be a wholly owned subsidiary of ATK, and as such will be governed under U.S. law? Or are you going to be seeking some sort of congressional amendment to American law to change that?

[Carl Marchetto]

Currently our intention is that it will be a wholly owned Canadian entity, and we will abide by the contracts and the legal regulations that currently exist.

[Scott Brison, Liberal, Kings—Hants, NS]

But, sir, I have the American law, the regulations, right here. These apply to, and I'll repeat, “any company existing under the laws of the United States, a subsidiary, foreign or domestic, of a U.S. parent company or affiliate, foreign or domestic, of a U.S. company”. It's very clear. If this transaction is a successful one, MDA will be a subsidiary of a U.S. company. Under that, it will be subject to this law, an American law.

You referred to over a decade ago and the previous ownership structure, which involved an American owner. Would you agree that over a decade ago American security laws—pre-9/11, pre-ITAR—were very different from those of today, both in terms of pervasiveness and strength and the extraterritoriality of the applicability of those laws?

[Carl Marchetto]

I would first say that the situation is different, rightfully so. But again, we will continue to operate this company with the leadership that's here in Canada. Our obligation to our customers.... And these are commercial contracts. We will abide by the regulations and the law that's set before us.

[Scott Brison, Liberal, Kings—Hants, NS]

So you'll break American law? Are you going to break American law in order to abide by Canadian law?

[Steven Cortese, Senior Vice-President, Washington Operations, Alliant Techsystems Inc.]

Mr. Brison, I don't believe it's a question of breaking American law--

[Scott Brison, Liberal, Kings—Hants, NS]

It's pretty clear, sir. With respect, it is very clear. If we're going to protect these images for the Canadian taxpayers who actually invested in developing them, that would be contrary to the American law under which they will be governed.

[The Chair, Conservative, James Rajotte]

Let's let Mr. Cortese answer that.

[Steven Cortese]

Thank you, Mr. Chairman.

As Carl made mention of in his statement before the committee, the intergovernmental agreement, which has been in place for many years, has been taken into consideration. We believe we're not fully privy to all the details, of course, because it is an agreement between the two nations that contemplates the operation of RADARSAT-1 and RADARSAT-2.

Our intention is to adhere to the determinations reached by the two governments and lawfully operate in full compliance with our contracts and under those laws that have been entered into, taking into account the agreement between the two nations. So we believe we'll be able to adhere to those terms and conditions in the contracts, because those subsequent laws have been entered into with the understanding of what the agreement between the two nations is for these matters.

[Scott Brison, Liberal, Kings—Hants, NS]

Your CFO said this recently, on February 5, at a U.S. defence conference: “The key for us is to be able to move that technology”--RADARSAT-2--“transfer that technology into the ATK U.S. space and go after what we believe is a very significant growing U.S. classified market.”

I can understand why that is financially beneficial to ATK and, in fact, to the American economy. But if roles were reversed and you were to develop a technology like this, with the help of the American taxpayer, do you honestly think the U.S. government would allow it to be sold to another country, particularly if that technology were aimed at defending and strengthening U.S. security--a foreign company? Would the U.S. government actually permit that?

[Carl Marchetto]

I think the intent of this kind of capability addresses multiple industries. It's going to address a commercial industry, it's going to address a civil space industry, and also defence. So there are certain aspects of the capability that will be used for special purposes.

There were earlier discussions today. It's very interesting to me that people think this information will get locked up. If you look at the approach that has been taken in the United States relative to commercial imagery, it's re-purposed over and over. That's the value that's created with these assets. There are certain circumstances in which some of this needs to be controlled. We understand those. But the beauty and the value of doing earth science is to share that information with the industry, the scientists, to create new understanding of what the earth resources are moving into.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Marchetto. Thank you, Mr. Brison.

We'll go to Madame Brunelle.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

Welcome, and thank you for being here.

Mr. Marchetto, you stated in your presentation that: “There is no intention on the part of ATK to diminish or change the existing control regime exercised by the government of Canada over RADARSAT-2“.

What control regime are you talking about? Is it, as I believe is the case, the possibility for Canada to control the interruption of services when it is a matter of national security? Is the issue that of priority access?

[Carl Marchetto]

First of all, what I was addressing was the control of the assets, which is the human capital and the business-making decisions that already exist up in Canada.

Again, I will go back to the earlier statements that we have no intentions—none whatsoever—to change the leadership, the decision-making power, around these key assets that are currently held here in Canada, managed in Canada, and operated in Canada. None whatsoever.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

You heard the statements made by scientists and academics. People are obviously concerned by the ability of the government of Canada to retain control over imagery interruptions and priority access in emergency situations. Major incidents come to mind. This is, despite everything else, important. There are also the environment surveillance capability and the commitments made by Canada under the International Charter on Space and Major Disasters, that was mentioned earlier.

In your view, will Canada lose its rights with regard to all of this data? Will it retain control over image-sensing? Will it be granted priority treatment with regard to RADARSAT-2?

[Carl Marchetto]

First and foremost, I think it is our obligation to continue to support the situations that may arise out of natural disasters. I know of no other great opportunity than to support a nation when it is in distress and to use these resources appropriately to solve those problems.

This information needs to be and will continue to be shared by the science community, such that the algorithms, the fusion of this type of data with other types of fusion from remote sensing devices, promote a better understanding of what's happening to our natural resources. That is key and paramount. We have no intentions to limit, sequester, or control the information from that kind of well-being to the most important aspect, which is managing, getting through, and working through these tough situations. We would promote that. That's part of our business. We want to grow the business. We want to grow the collaboration on this type of data. This is only one type of data, in relation to other types of earth-sensing capability.

We hope to bring more capability to our customers, not only here in Canada under times of duress but other customers around the world.