National Defence Committee on Sept. 15th, 2010

[The Vice-Chair, Liberal, Bryon Wilfert]

I would ask the media to leave now.

We will resume the committee meeting. I appreciate your all being here on time. We will start with panel three.

We have three witnesses before us: Avcorp Industries Inc., Paul Kalil, president; Aerospace Industries Association of Canada, Claude Lajeunesse, president and chief executive officer; and Pratt & Whitney Canada, J. Richard Bertrand, vice-president, government affairs.

Who's going first here?

[Paul Kalil, President, Avcorp Industries Inc.]

Mr. Chairman, I will do that.

[The Vice-Chair, Liberal, Bryon Wilfert]

All right. Just so you know the procedure, you have five minutes and then we will go to a seven-minute first round and a five-minute second round. I think that's all we'll have time for. If you're under five minutes, I won't be upset. We want to get as many questions as we can.

Sir, the floor is yours.

[Paul Kalil]

Thank you.

Mr. Chair and members of the committee, thank you for inviting Avcorp to speak at this key defence committee session.

First, who is Avcorp? We're a small aerospace company based in British Columbia. We currently employ approximately 500 staff, and we have facilities in both B.C. and Ontario. The company is a designer and builder of aircraft structural assemblies in both metallic and composite materials. Founded over 50 years ago, the company started out building floats for float planes, and it has evolved into a supplier to most of the large OEMs in the aerospace industry. Our key customers today are Boeing, Bombardier, and Cessna.

We are very pleased to be here today to talk about the decision on the F-35. Since 2005, Avcorp has been working to diversify its portfolio of business by adding defence contracts. The aerospace industry is cyclic, and not having defence work in our portfolio was always seen as a disadvantage. To date the company has been successful in winning work on the CH-47 under the current Government of Canada procurement process, and recently we were able to announce a contract on the F-35 program. We will participate in the global supply chains for both those programs.

One of the key things we'd like to highlight is to thank the public servants at DND, Industry Canada, and Public Works for the time and effort they put in to making these opportunities a reality for Canadian industry. Certainly we, as Avcorp, value their hard work.

The impact of participation in the F-35 program for a company like ours has been extremely significant. By participating early on in the program, as Canada has, we have been able to realign our technology base and train our people to be ready to take on this work. That has put us in a position to compete on a global basis and win significant contracts.

A key part of the process has been the transfer of technology into the company for the F-35. That not only enables us to do this kind of work, but it will also allow us at a later date to transfer this knowledge into our commercial programs and hence build on this technology transfer to compete on future major platforms, like the 737 replacement or the A320 replacement. The issue of technology transfer in a program like this is absolutely key to the long-term success of the industry.

Continued participation in the program by Canada is essential. It will ensure that more opportunities will be forthcoming for other Canadian companies, and obviously it will allow companies that have contracts to continue to participate. We believe the important issue for us now should be to focus on driving more of the subcontract work into the Canadian SME supply base, because again we see the technology transfer opportunity and growing the capabilities of the industrial base.

Any delays or pauses in this process mean we would leave opportunities by the wayside. This program is picking up speed. Production is starting to ramp up, and the window of opportunity on certain types of contracts will close as those aspects of the program are locked down for production purposes. There are significant challenges to the program in the arena of capacity. The Canadian industry, as strong as it is on the global stage, has a wonderful opportunity to get more than our fair share, let's call it, on this program because we're not limited by artificial numbers like we would be under an IRB program. We have essentially unlimited capability to take on work if we have the capacity to do it and if we have the will to actually invest to make that happen. So there is really no upper limit to what Canadian industry can do on this program.

Mr. Chair, thank you very much. That is all I have at this point.

[The Vice-Chair, Liberal, Bryon Wilfert]

Thank you. You're right on time.

Our next witness is Claude Lajeunesse, president and chief executive officer of the Aerospace Industries Association of Canada.

Sir, you have the floor for five minutes.

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

Mr. Chair, members of the committee,

let me thank you for your invitation to testify at this very important committee session.

Having listened all morning, I should also thank the members of this committee for the excellent work they are doing on behalf of all Canadians.

In 2009 the aerospace industry generated $22 billion in revenues; 80% of that was export. It provided value-added jobs to over 80,000 Canadians, from St. John's, Newfoundland, to Lunenburg, Nova Scotia, Moncton, Saint John, Montreal, Mirabel, the greater Toronto area, Winnipeg, Calgary, Abbotsford, Delta. I hope you get the message: our companies operate across this country.

Now, going to the F-35 decision, AIAC has been advocating for a timely decision to be made on the next generation of fighters, which was part of the Canada First defence strategy. We were therefore very pleased with the Government of Canada's announcement of its intention to proceed with the acquisition of the new generation of fighters this past July.

Several member companies' involvement in this platform date back to 1997. AIAC was favourable to Canada's involvement back then because it involved companies early on in the process, thus presenting rare opportunities for them to be involved at the level of concept development.

This is also a rare opportunity for companies to get fully involved in developing a new major platform. This idea is at the heart of AIAC's concerns, as described in our report on future major platforms, drafted in 2008.

The “future major platform” initiatives aim at positioning Canadian industry to win large, long-term, value-added job creation packages, on the platform of the future, over the whole life cycle of any aircraft.

As you all know, the F-35 is based on direct industrial participation. This implies that partners, stakeholders, must work together in order to ensure a maximum of opportunity. You've heard this morning from ministers and public servants that this could go as high as $12 billion, excluding sustainment and foreign military sales. We want to make sure that we get our fair share of the $385 billion that these planes will generate and cost over the period of 20 to 40 years.

Several companies have been and will be making significant investments up front in order to ensure their competitiveness to win mandates in these contexts. These are important, expensive business decisions that require stability, predictability, and a climate of certainty around the decision.

This decision provides the Canadian aerospace industry with an unprecedented opportunity, as long as we are able to work closely in order to derive maximum benefit for the entire country.

Now that the decision has been made, the AIAC will work at ensuring that Canada reaps the benefits in an optimal way. We need value-added jobs, technology transfer, as you just heard, and long-term stable contracts. We'll focus now on our efforts to make sure that companies are in a position to win the opportunities and, in collaboration with pertinent government departments, that a clear accounting system is put in place to track not only the quantity but the quality and the amount of work that Canadian companies will gain from this partnership.

Our role will be to ensure that our companies develop in a context where they will be able to derive optimal benefits. We also insist that a control system be implemented to ensure the quality and quantity of jobs created as well as of the work assigned to our companies under this partnership.

As for the maintenance of fighter planes, and pilot education and training, the AIAC Defence Committee will set up a task force with the objective of analyzing the options and recommending to the Government of Canada the best practices to implement.

In the meantime, we will strive to facilitate access for our companies to the global sustainment opportunities that are currently available, such as the maintenance of main systems—there are 40 of those—depot maintenance, and forging alliances with partner nations with more modest aerospace capabilities.

[The Vice-Chair, Liberal, Bryon Wilfert]

Thank you for that, and I'm sure you'll get lots of questions.

[Claude Lajeunesse]

Thank you.

[The Vice-Chair, Liberal, Bryon Wilfert]

Monsieur Bertrand, you have five minutes.

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

Thank you, Mr. Chairman, for the opportunity to appear today.

I am speaking to you as the vice-president of Government Affairs in Pratt & Whitney Canada's president's office.

Pratt & Whitney Canada has a proud 80-year history of continuous innovation, achievement, and success.

Today, we employ about 9,200 people worldwide and close to 6,200 across Canada in manufacturing, engineering and research sites, including those in Halifax, Longueuil, Mirabel, Mississauga, Thompson and Lethbridge.

We are a global aerospace leader, shaping the future of business, helicopter, and regional aviation, with new-generation engines. We've introduced a record of 65 new engines into production, more than any other company in the world, over the last 12 years alone, that exceed ICAO standards for low emissions and noise.

Our ongoing success is proof positive of the benefits resulting from our 50-year relationship with the Government of Canada. We have a public-private partnership, in the true sense of the term. The company and I, as its employee, have been proud to work with Conservative and Liberal governments in developing appropriate, beneficial and collaborative programs, as well as coordinated strategic support tools, and to contribute to our common goals of global economic prosperity.

Pratt & Whitney Canada is the single largest R and D investor in the Canadian aerospace sector—over 50%—and we rank amongst the top four companies in all industries in Canada in terms of annual investments in R and D. We're also pleased to invest $15 million each year in 16 Canadian universities. Investments give engineering students full exposure to the gamut of leading-edge aerospace research, from new theory right through to real-world applications on our current family of engines.

Since you've had a full morning of discussions on the joint strike fighter, let me come right to the point in terms of Pratt & Whitney. To start, it's important to recognize that the decision by the Government of Canada earlier this summer to exercise its longstanding option to move forward and acquire the 65 joint strike fighters is the next logical step in a process that began way back in 1997. While the actual F-135 engine for the joint strike fighter will receive final assembly and tests by Pratt & Whitney in the U.S., the F-135 program is very important to Pratt & Whitney Canada and Canadian industry.

Back in October 2004, Pratt & Whitney Canada was awarded a contract to provide engine-critical hardware, the integrally bladed rotor, or IBR—not IRB but the IBR, as we call it--for the 135 engine. This win, and the research we do, was in part due to our collaborative efforts with Canadian universities, of which I spoke a moment ago.

The knowledge that we have developed and applied to these IBRs will allow us to create a global centre of excellence. Indeed, being the best in the world at high-value, high-skilled, and high-innovation tasks is a policy goal that has been pursued by successful federal governments for the past 20 years.

Second, Pratt & Whitney has already awarded 20 JSF-related industrial participation contracts across Canada, with more contracts currently in negotiation.

The government's decision to move ahead with the joint strike fighter is good news for all these companies in terms of future sustainment opportunities and is critical to being able to plan activities and future investments with greater certainty.

As Paul mentioned, and it's important to emphasize, certainty is very important for industry. If there is going to be ongoing uncertainty, suppliers in countries where the purchase of a joint strike fighter has been concluded could have an advantage.

That certainty is important given the vulnerability of the current economic recovery in the wake of a global recession that has strongly affected and continues to affect the global aerospace industry.

We are confident that Pratt & Whitney can be competitive and win contracts based on the global support model, which is different from how we usually proceed when it comes to industrial and regional benefits, and large-scale military acquisitions.

Indeed, the opportunity for Pratt & Whitney Canada and our value chain partners to provide depot, repair, and equipment for a potential fleet of 2,000 or 3,000 or 5,000 aircraft--whatever the final market will be--instead of just 65 aircraft is immense.

Honourable members, Pratt & Whitney Canada is well positioned for these global sustainment opportunities.

We thank you for taking the time and for giving us the opportunity to be here today.

[The Vice-Chair, Liberal, Bryon Wilfert]

Thank you, Monsieur Bertrand.

We'll go to the first round. It is a seven-minute round, colleagues.

I will go first to my colleague Monsieur LeBlanc.

[Dominic LeBlanc, Liberal, Beauséjour, NB]

Thank you, Mr. Chair.

Gentlemen, thank you for your presentations.

I have two questions, which will probably be for Mr. Lajeunesse.

Your company represents the Canadian industry. I represent a predominantly rural region of New Brunswick. You mentioned Moncton as well as nearby Dieppe. A number of small companies are making efforts, and some of them have been doing so for years. They are becoming increasingly competitive or are at least showing growth. Mr. Kalil said that he represents a small company with 500 employees. My colleague from Newfoundland and Labrador and I think that this company is rather large.

Mr. Lajeunesse, if you were based in the Atlantic region, for instance, what could the federal government and especially the provincial governments do to help your industry and the members of your association, which are probably not all large, well-known companies, be competitive and prepare for the kinds of benefits you have described so well? What can be done in terms of a regional development strategy? That is a term that can mean so much and yet so little all at the same time. If you were an entrepreneur in New Brunswick or in Newfoundland and Labrador, what kind of support could you ask your provincial government and the federal government to provide so that you would not be left out simply because larger companies necessarily have a larger share of the market?

[The Vice-Chair, Liberal, Bryon Wilfert]

Mr. Lajeunesse, go ahead.

[Claude Lajeunesse]

Thank you.

That is an excellent question. We would first have to ensure that the government makes a firm decision, one that makes it possible to take action and that encourages companies to invest in the future. That is the first point.

Second, I would like to mention the New Brunswick company Apex. It has already received a visit from Lockheed Martin's people, who conducted a capacity and feasibility study. That type of review will help ensure that Apex has the necessary capacities to provide the services that Lockheed Martin will need at a given time. Apex has received the support of certain programs, be they federally or provincially funded. That has enabled it to conduct research and development. I feel that a company like Apex can already compete for contracts. It has already moved in that direction.

[Dominic LeBlanc, Liberal, Beauséjour, NB]

Mr. Chair, I'm finished. Maybe my colleague has something he'd want to add.

[The Vice-Chair, Liberal, Bryon Wilfert]

Mr. Simms, you have three minutes and 25 seconds.

[Scott Simms, Liberal, Bonavista—Gander—Grand Falls—Windsor, NL]

Okay.

Just for information, wasn't there a second engine that was to be financed for this from the American government, I mean...vis-à-vis your competitor?

[Claude Lajeunesse]

I just read what happened. You could read in the paper yesterday, for example, that there was a Senate appropriations committee vote. We know where the Obama administration is on that, and we've just been following that. That's all that our role as an association would be. We do not get involved in selecting various winners of various contracts. We do not get involved in regional distribution.

Our role is to ensure that the government makes a decision—the government made a decision in this case—and that the decision is enforced, and then that our companies, our industry, our regions, can benefit according to their strengths.

[Scott Simms, Liberal, Bonavista—Gander—Grand Falls—Windsor, NL]

So that essentially makes you the only provider at this point for this F-35. Is that correct--that's it, you're it?

[Claude Lajeunesse]

I think you're talking to my colleague here, Mr. Bertrand, who is the one with the contract.

[Scott Simms, Liberal, Bonavista—Gander—Grand Falls—Windsor, NL]

Yes, Pratt & Whitney.

[The Vice-Chair, Liberal, Bryon Wilfert]

Monsieur Bertrand.

[J. Richard Bertrand]

Currently the engine on the airplane that is in production is the F135 produced by Pratt & Whitney. The competing development engine is being developed currently by the joint strike fighter team, the GE Rolls-Royce Team, which is continuing to work on the program but is seeking U.S. government support.

What Claude is referring to is that yesterday a subcommittee of the Senate rejected the bid for the support. That said, this has been an ongoing discussion, over years, so I'm not able to comment as to the pros and cons or whatever at this time.

To be fair to them, they are spending funds in Canada, doing work with the NRC—as we are—and so on.

[Scott Simms, Liberal, Bonavista—Gander—Grand Falls—Windsor, NL]

Just for clarification on the issue of IRB, can you give me a good example of how you've been involved in an IRB in the past when it comes to a certain procurement, a certain aircraft? Give us an idea of how you're going to benefit.

One of the biggest concerns we have here, obviously, is the fact that we're in a larger pool of people and more competition. Some might even fear that it's less likely for us to receive those regional benefits.

Mr. Kalil.

[Paul Kalil]

IRBs provide quality work for Canadian companies. This program is different because of its development nature, and it has allowed us to position ourselves more appropriately.

A lot of times there is less value-added, we'll call it, in terms of technology transfer work packages under IRB programs. Because you're buying an off-the-shelf product, there isn't an opportunity, necessarily, to develop technology.