National Defence Committee on Nov. 25th, 2010

[The Chair, Conservative, Maxime Bernier]

Welcome to our Standing Committee on National Defence, meeting number 36.

Pursuant to Standing Order 108(2), for today's agenda, we are continuing the study on the next generation of fighter aircraft.

We're continuing our study on the next generation of fighter aircraft.

We have with us as witnesses from the

International Association of Machinists and Aerospace Workers, District 11, Mr. David Chartrand, President, Directing Business Representative Organizer.

Welcome. We are pleased to have you with us.

We also have Mr. Pierre Grenier, President of the Factory Committee, Local Section 712.

Welcome, Mr. Grenier.

We also have with us, from the Canadian Auto Workers Union, Jerome Dias, assistant to the national president; Dawn Cartwright, national representative; and Roland Kiehne, president of Local 112. Welcome.

Each association will have 10 minutes for a presentation, and after that the members will ask you questions.

Maybe I can start with the International Association of Machinists and Aerospace Workers.

Mr. Chartrand, you have the floor for 10 minutes, and after that it will be Mr. Dias.

Thank you very much.

[David Chartrand, President, Directing Business Representative, Organizer, International Association of Machinists and Aerospace Workers - District 11]

Thank you, Mr. Chairman and committee, for hearing us. On behalf of the International Association of Machinists and Aerospace Workers, I would like to take this moment to say it's a pleasure for us to be able to appear before this committee.

We represent working members all over Canada in many trades. There are many different employers, which I mentioned in the brief that I submitted to the committee. I am not going to go down the whole list, because we only have 10 minutes, but just to be short, I will say that we represent Bombardier Aerospace, which is known pretty much by everybody; L-3 MAS, which does military contracts; Héroux-Devtek, which has a chance of obtaining some of the contracts on the F-35; and many other aerospace companies. We are the largest union in the aerospace industry. We also represent members in air transportation and in maintenance for air transportation.

Many of the above-mentioned companies may obtain some work on the F-35 purchase by the Canadian government. I must emphasize the word “may”, because there are absolutely no guarantees of this whatsoever. Although some of the companies have stated they will be getting some of this work, and despite an announcement made by the government to this effect, nothing is sure. I say this because it's merely speculation at the moment when we talk about Canadian content inside of the contract.

I've spoken to two of the companies we represent. I didn't go through every one of the companies, but the two I spoke to, L-3 Communications and CPS Industries, which are among the companies mentioned in the 80-plus companies that may obtain or bid on contracts, both said they have never been approached, either by Lockheed Martin or the government or anybody else, to bid on these contracts and have never had discussions on bidding on any of these contracts.

This brings me to the question: I wonder how many of the 80-plus companies are in the same situation as these two companies. Is it a positive spin or political strategy on the part of the government to say that 80-plus companies can bid? I don't know. I submit that question to the committee.

The other question I ask is the following. Out of the companies that are called Canadian companies for the purpose of this exercise—the ones that will be able to bid on this work and that also have other manufacturing sites outside of Canada—what content of their work will be awarded in or actually be done in Canada? Also, what assurances can the Canadian government get from these companies in this regard?

Take, for example, Héroux-Devtek, which has plants in the U.S., or Rolls-Royce, which has plants all over the world, or Bombardier, which also has plants worldwide, or L-3 MAS or L-3 Communications, which has plants all over the U.S., and so on and so forth. What guarantees does our Canadian government have to the effect that those employers will keep the work that they obtain in Canada? Once they have this work, what will stop them from transferring some of this work over to their plants in other countries, in the United States or in Europe, or wherever? After all, Mexico was in Montreal earlier this year, actively seeking to lure Canadian companies to move their plants south.

How does the government intend to ensure that these corporate commitments are fulfilled? Are there any penalty clauses included in these contracts?

In clause 3.2.1.1.1 of the F-35 memorandum of understanding, I understand, from reading the minutes of the previous meetings, but not from seeing or reading the contract, that it states the following:

Actual procurement of GSF Air Vehicles by the Participants will be subject to the Participants' national laws and regulations and the outcome of the Participants' national procurement decision-making processes.

The responsibility to have a clear policy is bestowed upon us. We must have a clear Canadian procurement policy stating that any taxpayer money spent on equipment bought for the purpose of the government, the military, or even municipal and provincial governments should have at least an equal amount of return in jobs or offset contracts. By offsets, as an example, there could be contracts on the F-16, when we're talking about companies like Lockheed Martin. If they can't give you work on the F-35, they can give you some on the F-16, or on the T-50, the C-130J, and so on and so forth, on any one of those contracts.

I'll move to my next point, which concerns the expertise that we as a country have developed over the last 30 years in maintaining, repairing, testing, and inspecting military aircraft. As you heard from Mr. Dan Ross, in his opening statement on October 19, “I would ask whether you would want your son or daughter or future granddaughter in yesterday’s technology....” Those were his words. They struck me as very pertinent. I asked myself the same questions with regard to the maintenance of the F-35 aircraft, which represents $250 million to $300 million a year for our economy.

Would I want another country to do the maintenance on the F-35s my kids would fly? Would I entrust anybody but the best manpower available to maintain this fleet of 65 F-35 fighter planes? Would I take the chance of having a longer turnaround time on our fighter jets in a time of need, because the Canadian F-35s are not the priority for another country servicing us and themselves? Am I putting in jeopardy my children's lives and my country's sovereignty by outsourcing this work?

Imagine for a minute the U.S government getting their rockets in the space program maintained or repaired and overhauled by another country. All the technology and knowledge they acquired through this program has affected not only their aerospace industry, but also everybody's daily lives. Cellular technology, microwaves, LCD—a lot of technology was developed through these programs, which is why it’s important that we keep programs like that here.

Through three employers—Canadair, Bombardier, L-3 MAS—our members at L-3 MAS over the course of the last 30 years have developed an expertise unequalled in Canada and other countries, an expertise in maintaining military aircraft, repairing and overhauling them, and extending the life of these aircraft. They have capabilities in mission modifications—they've done it for Canada, the United States Air Force, and the Royal Australian Air Force—structural renewal of the Hornet for the Royal Australian Air Force and for our aircraft; replacement of centre barrels; changes in systems, like avionics and night vision; wiring harness testing; and stress and fatigue testing, and at L-3 MAS we created programs for the stress and fatigue testing. They have in-house engineering capabilities, in-house machining capabilities, and one-off capabilities.

One-off capabilities means they can do.... Once 15 years has gone by, and the plane is not being sold by a manufacturer anymore, it’s difficult to build replacement parts for those planes. They have the capabilities to do one-offs, which means not production parts, but a one-off part that they need on an aircraft that has been broken, damaged, or needs to be replaced. It’s not everybody who can do that.

This expertise has permitted the Canadian government to save a considerable amount of money and delay the purchase of new jet fighters for many years. The life expectancy of the F-18s was doubled through modernization, replacement of components, and major repair and overhaul. The ongoing maintenance of the new F-35 fighter planes represents 30 years of work. If we compare it to the F-18s, the cost of the aircraft was in the vicinity of $27 million, but the upkeep over the years represents approximately $39.5 million per F-18. We’re are talking about an incredible economic impact if the same is done for the F-35. And with the 1,000 jobs in Mirabel, at an average of $50,000 a year in wages, we are talking about $18 million in taxes over 30 years, a ballpark figure of about $540 million in taxes, and great jobs created and maintained in Canada.

I don't know about you, but I’d feel comfortable with my kids flying in an F-35 maintained by members at L-3 Com, with the experience they've developed over the years. Any repair or maintenance done by our members will be safer and less costly. It would also permit us to put our planes in the sky when we need to, without being dependent on anyone else. This ensures our sovereignty as a nation.

But don't take my opinion. Look at the facts.

Thank you.

[The Chair, Conservative, Maxime Bernier]

Merci beaucoup.

Mr. Dias.

[Jerome Dias, Assistant to the National President, Canadian Auto Workers Union]

My name is Jerry Dias. I am the assistant to the national president of the Canadian Auto Workers Union. Thank you for inviting the CAW here today.

I am flanked by our director of the aerospace department, Dawn Cartwright, and Roland Kiehne, who is the president of Local 112 in Downsview, which represents the workers at de Havilland Aircraft, SPAR Aerospace, MacDonald Dettwiler, and Northstar Aerospace.

We represent over 10,000 aerospace workers in every region of Canada at top companies, which include Boeing of Canada, Bombardier, Bristol Aerospace, Cascade Aerospace, I.M.P. Group, MacDonald Dettwiler, Northstar Aerospace, and Pratt & Whitney Canada.

You have heard from many of the CEOs of these companies on the proposed F-35 procurement. I am pleased to provide our perspective, which is not always the same as theirs.

I am aware of the concerns about the F-35 aircraft, its costs, its capabilities, and suitability for Canada's needs. The CAW always encourages a vigorous public policy debate.

Today I will focus on what is before me and our union's members: the F-35 stealth fighter.

Members of the committee no doubt realize that Canada's aerospace industry is slipping. In January, CAW national president, Ken Lewenza, wrote to Prime Minister Stephen Harper expressing his concern that Canada has fallen from fourth to fifth place in the world, behind the United States, Britain, Germany, and France.

We need to regain our position, and this can only be done by using federal dollars to leverage investment and jobs in Canada. In his letter, President Lewenza said that a good start would be to select the Canadian-built Q400 as the choice to meet our fixed-wing search and rescue requirement. This would create good jobs in Canada and would make Canadians safer.

President Lewenza further urged Prime Minister Harper to develop and mandate defined levels of domestic content or industrial regional benefits, IRBs, in all Canadian procurement programs.

This priority was reiterated strongly by the entire Canadian defence industry through consultations last year. The report said in recommendation number 1 that the government must:

Use Canada’s IRB program to leverage Canada’s defence and security industries into global OEM supply chains for OEM programs....

But the government has failed to listen.

Instead, it plans to spend an estimated $16 billion of our public dollars on the F-35 stealth fighter program without requiring any investment at all in Canada. There are no IRBs with this procurement. It's a giveaway to the U.S. manufacturer, Lockheed Martin.

Those dollars should require guaranteed investment and jobs in Canada of equivalent value, dollar for dollar. Canadian workers should not be asked just to sit back and hope that Lockheed Martin will send contracts to Canada out of the goodness of its heart. Wishful thinking is not how you build a world-class aerospace industry.

We are not saying that Canadian firms cannot compete. Our members produce the finest aerospace products in the world, but this is a rigged game. The so-called best value acquisition strategy leaves it up to Lockheed Martin to choose the winners and losers with our tax dollars. According to the U.S. Department of Defense, once Lockheed Martin and its top-tier partners have chosen a supplier, they will pursue sole-source contracts with these companies based on schedule, performance, and cost benchmarks. That leaves Canadian firms at the mercy of the U.S. giant, which has a far stronger allegiance to Washington and other big military buyers than it does to Ottawa.

We have already seen the signs of political interference from Lockheed Martin and the U.S. government. For instance, more attention needs to be paid to a practice called strategic sourcing, by which Lockheed Martin gives some countries direct work shares to keep them happy. Canada's military officials and others have already raised concerns about this.

Here is another example. Israel was given a 150% buyback guarantee by the U.S. government for its F-35 deal, and it could go as high as 180%. Defense News called it extraordinary and unprecedented, because according to U.S. commerce department data, offsets in recent years have averaged at about 100% for European, Australian, South Korean, and advanced western countries, including Canada.

I am aware of the debate over the 2006 MOU governing our participation in the project and the controversial section 7. Dan Ross, national defence assistant deputy minister, told you we would need to withdraw from the MOU if we went into a procurement process requiring IRBs, but Alan Williams, Dan Ross' predecessor, disagreed. He told committee members there is nothing preventing Canada from remaining in the MOU and requiring IRBs as part of an actual procurement.

If Israel can negotiate IRBs in the range of 150% without investing a nickel, and Canada cannot, after committing $551 million under the MOU to meet the F-35’s development, then something is seriously wrong. If the MOU is flawed, then the government has a responsibility to fix it.

The industry minister’s assertion that his department has identified $12 billion worth of contracts that we can bid on as part of a global supply chain just doesn't add up. As I pointed out, what percentage of that amount will we win with Lockheed Martin and its first-tier partners making the determination?

A negotiated IRB program for whatever aircraft Canada purchases would give Canadian industry guaranteed contracts up to the value of the acquisition and the in-service support, or ISS, estimated to be $9 billion and at least $7 billion respectively, for a potential total of $16 billion.

Which would you rather have, the chance to bid on $12 billion in contracts or guarantees of $16 billion in contracts?

With an IRB program, the government could also ensure that the work is distributed across Canada fairly, with the regions receiving a proportional amount of work relative to their current share of the Canadian aerospace workforce and Quebec comprising roughly 46% to 50%.

The CAW is concerned that Pratt & Whitney Canada has already sent some F-35-related work to Turkey instead of employing Canadians. Complete transparency and accountability for job creation in Canada needs to be included.

Of course, Canada does not build fighter planes, but we are one of the major commercial aerospace producers in the world, especially in regional aircraft. Civilian aerospace products comprise 83.4% of the $24 billion in annual Canadian aerospace and defence revenues.

With governments across the globe looking to reduce military spending, the civilian market likely holds the greatest promise for Canadian industry. Using both direct and indirect offsets as part of a military-related IRB program would allow Canada to encourage investment in an appropriate mix of commercial, space, and defence aerospace industries.

Finally, CAW national president, Ken Lewenza, has called for the creation of a Canadian aerospace development council involving all levels of government, the CAW, and other stakeholders to design and implement a new aerospace strategy for Canada.

We look forward to working with you to regain Canada’s standing as a global aerospace champion.

Thank you, and I welcome your questions.

[The Chair, Conservative, Maxime Bernier]

Thank you very much, Mr. Dias.

I will give the floor to Messrs. Wilfert and LeBlanc.

You have seven minutes.

[Bryon Wilfert, Liberal, Richmond Hill, ON]

Thank you, Mr. Chairman.

Thank you, ladies and gentlemen, for coming.

We've heard two very interesting presentations today, Mr. Chairman.

With regard to the CAW, first of all, I welcome your comments, particularly regarding the Canadian aerospace development council. At some point, I would like to hear more components or elements that you see going into having the different orders of government, the CAW, and other stakeholders involved in that. I think that is a very interesting idea.

If the government were to proceed with a sole-source F-35 contract without guaranteed IRBs, would such a contract be a significant help for such small and medium enterprises that you represent at the present time? What I'm hearing from you, if I understood you correctly, is that no one will benefit.

[Jerome Dias]

There are clearly going to be benefits. The F-35 is a huge contract. We don't buy the argument that there can't be IRBs as a part of the initial framework.

We just don't buy the argument that somehow it has to be one or the other. We're being told that we can bid on $12 billion worth of work for what we are calling a $16 billion contract. We know the Government of Canada can do better.

We just take a look at the C-130J, the Hercules contract that was negotiated--same company, same government. What did we bargain? One hundred percent offsets. But that included the in-service support. If we can negotiate 100% offsets with the same company and the same government, there's no reason why we can't negotiate 100% offsets that include the in-service support.

We ask in our document, are we better off with the opportunity to bid on $12 billion or the opportunity to have $16 billion?

[Bryon Wilfert, Liberal, Richmond Hill, ON]

Well, there's no question that our party's view has been and continues to be that we support a new aircraft to replace the CF-18, obviously. We support the fact that there should be an open, transparent, and accountable process. Clearly you do as well.

You also have indicated that pursuing a sole-source contract, in your view, would lead to sole-source contracts with companies as well. You talk about Lockheed Martin and the first tier. Basically--I don't want to use the word “rigged”--you would be at an unfair advantage...for your workers. Would that be a fair statement?

[Jerome Dias]

Yes, that would be a fair statement.

[Bryon Wilfert, Liberal, Richmond Hill, ON]

In terms of strategic sourcing, can you elaborate on what you see as the issue regarding strategic sourcing by Lockheed Martin, particularly in terms of what sounded a little bit like giving crumbs to us? Basically, it obviously does not address the key issue of a guarantee of economic benefits across the country.

[Jerome Dias]

Let's be candid. Lockheed Martin is going to control the high technology in the manufacturing of the aircraft. The key fuselage, the Q-bay, and the key technologies are going to be maintained by Lockheed Martin. So what's left over? Machining, composite work, assembly.

For example, we'll take a look at Pratt & Whitney, in Longueuil, Quebec, which is one of the things we mention in our brief. It's not good enough for the government to say that we're going to give you work, Pratt & Whitney. It's more important that we say to Pratt & Whitney that we're going to give you this work and you're going to do this work in Canada.

I'm not so hung up, sir, by the way, for the purposes of this discussion, on sole-sourcing. I'm interested in sole-sourcing when it's a net benefit to Canada. Canada doesn't build fighter jets. If we built fighter jets, I would suggest that they be sole-sourced to Canadian companies. If we're talking about the military buying trucks, we would say that they should be sole-sourced to Navistar, in Chatham. It should be forcing Navistar to build trucks in Chatham. If it's buses.... So I'm fine if it has a net benefit for Canada.

It's a different argument today when we're talking about an American multinational. Clearly, the issue today is jobs.

[Bryon Wilfert, Liberal, Richmond Hill, ON]

If there are no job benefits, it's obviously not going to be a good deal.

Can I ask you to respond to this? Canada must beat competitor countries at their own game by offering subsidies to the aerospace industry, just as the others do, if we want to make it a level playing field.

[Jerome Dias]

The aerospace industry is heavily subsidized, including Canadian aerospace giants. So it's a question of how much you want to participate.

If you take a look at Canada's auto industry, it has declined over the years. Why? Because other countries around the world have been more aggressive in seeking that type of work and that type of technology.

Canada maintaining and growing its aerospace sector comes with sound government procurement policies and sound government contributions to the aerospace sector in our country.

[Bryon Wilfert, Liberal, Richmond Hill, ON]

It seems odd to me, Mr. Dias, that the aerospace industry, in general, seems to be very silent about this whole issue of economic benefits. They're basically saying that they're going to trust the government in terms of this $12 billion.

I'm not asking you to hypothesize. Given the fact that so many job, technology, and innovation issues are at stake, how would you account for the fact that they would simply be quiet? We haven't had them come before us saying that they have those concerns. They're basically saying that they trust the government in terms of this competition.

[Jerome Dias]

Many of the companies we deal with in the aerospace sector have a foothold in Canada but are not Canadian companies. They want the work. I would suggest to you that they're not as determined as we are, and as we around this table should be, to create Canadian jobs. That's why we used, as an example, the work sourced to Pratt & Whitney, which they outsourced to Turkey. Here we have the government saying they are giving work to Pratt & Whitney. And the assumption of the taxpayers is that they're creating jobs in Canada, when in fact they're being offloaded to Turkey.

[Bryon Wilfert, Liberal, Richmond Hill, ON]

In other words, the IRB policy could ensure that subcontracts and work could be spread out fairly across the country. And without that, what you indicate will continue to happen.

[Jerome Dias]

That is correct.

[Bryon Wilfert, Liberal, Richmond Hill, ON]

Thank you.

[The Chair, Conservative, Maxime Bernier]

Thank you very much, Mr. Wilfert.

I will give the floor to Monsieur Bachand, pour cinq minutes.

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

Thank you, Mr. Chair.

I would like to welcome my union friends. I myself am a former trade unionist who was active for 20 years. I think you share my admiration for unions as well, don't you, Mr. Bernier?

[The Chair, Conservative, Maxime Bernier]

Sure, when the workers are free to join, or not, as they please. I believe in freedom.

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

If you mean the Rand formula, we won't get into it; it might take a while.

[The Chair, Conservative, Maxime Bernier]

No, we don't agree on the Rand formula.

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

Put the timer back to zero, please.

[The Chair, Conservative, Maxime Bernier]

We aren't going to talk about unions because it would take too long.