National Defence Committee on Dec. 9th, 2010

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

We are going to try to visit you.

Mr. Labbé, I understand that you have facilities in Texas, Springfield, Cleveland and Cincinnati. I am a little concerned about the Canadian content and the jobs that will be created in Canada. With the contracts you sign with Lockheed Martin, is there a risk that some of your production will be done in the United States, at one of the sites you just mentioned?

[Gilles Labbé]

It is true that we are working on the JSF in the United States, but we are also working on it here. As for our Canadian content and the value of contracts signed by Canadian plants, it is important to understand that we designed and developed the systems. For example, the uplocks, which are latching devices for airplanes, were designed by engineers in Longueuil. So the intellectual property for these products belongs to us. We intend to build these systems in Canada. Actually, we plan to manufacture them in Quebec.

We work by centre of excellence. We have plants in a number of regions in Canada. We also have some in Texas. Each of these plants is a centre of excellence. They specialize in very specific products. Since we are the third largest in the world in the landing gear industry, we plan to manufacture the parts in Canada and Quebec.

However, the situation is very different when it comes to the framework. Mr. Beach spoke earlier about airplane wings. We manufacture the largest parts of the wing. We obtained these contracts before we even acquired a company in Texas, which happened in 2004. That company already had contracts for manufacturing huge pieces of framework. We are using this company now for the JSF. Based on the value of the contracts and considering that more than 3,000 airplanes will be built, we expect 2,500 jobs to be created and maintained over 20 years, so about 125 jobs a year. Right now, we are talking with Lockheed Martin and with partners in the program to double this number of jobs.

As I said earlier—

now is the time, because at this point, the program is still in a low rate of production. We are building components for around 30 airplanes per year as we speak. But we know the program will ramp up. At that point, this program will be for 200 aircraft a year. There's still time for people like us to join the program as a second source. If we wait until this program will ramp up to 160, 170, or 200 aircraft a year, it will be too late, because the selection of the second source is happening now. After that, it's going to be too late.

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

Okay, but I have to be concerned. I know that you might not have the time to answer this question. Earlier, I gave you a document from the White House. The American president set up a commission to look into decreasing the deficit. The F-35s were affected right off the bat. You already know that the F-35 program for the marines will probably be cancelled. The plan is to cut the production of F-35s for the American air force and navy by half.

So, this week, I put a question to people in Washington. It is important to specify that nine other nations signed an MOU. I wanted to know what consequences this would have on our production. The Bloc Québécois knows that you have the best suspenders in the world, but it would like you to have the best belt in the world as well, so that a good part of the money invested by Canada would come back to us. But the industrial and regional benefits have supposedly not been accepted as part of the MOU.

I am bringing this problem to your attention. I would like you to look into it with your financial experts and let us know what it involves. If the Americans don't take the first airplanes off the assembly line because the cost is prohibitive, it will certainly have a negative impact over the years. As you know, ours are supposed to be delivered in 2016.

I know that my time is running out, but I would like you to send me the answer when you can.

[Gilles Labbé]

Okay.

[The Chair, Conservative, Maxime Bernier]

You still have another minute.

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

Would you like to give a brief answer?

[Gilles Labbé]

Actually, this is an American debate. It is difficult to know how much the United States' deficit will affect the program.

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

No. It says here that there are 300—

[Gilles Labbé]

Discussions are still under way. No decision has been made.

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

Yes, yes. It isn't definite, and that's why we need to follow it closely.

[Gilles Labbé]

We are going to. I think that this will be a very important program. It could be more important or less important; we don't know.

The idea is this: what we manufacture or what Mr. Guitton manufactures, in terms of production, will represent 100% of what Lockheed Martin will need. What is manufactured will be intended for Canadian, Italian, British or American airplanes. If the demand involves 5,000 aircraft, we will manufacture each product 5,000 times. The same principle will apply if there are 3,000 aircraft. It will vary based on the demand for aircraft.

[The Chair, Conservative, Maxime Bernier]

Thank you, Mr. Labbé.

I will now give the floor to Mr. Harris.

[Jack Harris, NDP, St. John's East, NL]

Thank you, Chair.

Thank you, gentlemen, for sharing your very remarkable stories of the success of your companies. I've got to say that I'm very impressed with your ability to make the business contacts and get the confidence of industry.

Mr. Guitton, you listed a whole series of well-known international aviation companies with whom you do business.

Mr. Beach, you clearly have demonstrated an ability to provide a very specialized type of service, which is obviously in great demand, as you say, both in the automotive business and in any kind of manufacturing project.

I understand why you like this concept, the availability of bidding on business. I'm just wondering when you reached the conclusion that this would not be possible without Canada buying F-35 jets.

On May 27 we had the commitment from the Minister of National Defence that there would be an open bidding process, and I have to say I was expecting that. It was said that regardless of Canada's participation in the JSF project we would have this competition. Then we heard nothing. We didn't hear you folks complain about it. We didn't hear any discussion about it. The next thing we heard, six weeks later, was an announcement by the government that they were committed to buying the joint strike fighter without a competition.

I'm wondering where this $12 billion came from. Is that your figure, or is it the figure the government gave you? When did this come about? I didn't hear anything about that between May and the middle of July.

We've had your industry come before us in the past talking about the importance of industrial regional benefits and all of that, and I'm wondering, in all of your cases.... I mean, I hear Mr. Beach talking about the fabulous relationship you have with Lockheed Martin and how much they respect your ability to solve their problem. Lots of software manufacturers say they are in the business of “solutions”, and it seems to me you've provided a lot of solutions for Lockheed Martin. Why wouldn't they continue to use your services for this program, whether Canada is buying all of their jets from them or not?

You can all answer that question; I'm interested in anybody joining into that. I'm focusing on you, Mr. Beach, because you talked about how you earned that relationship and how you felt you were respected by them. You obviously are providing a valuable service to them.

[Thomas Beach]

I think I can speak to that. I really respect the question very much.

The unusual part of our story is that we gave birth to the joint strike fighter relationship in 2002-2003 out of our own sales and marketing initiatives. Then the J-35 arrived for us and became a very dominant part of our revenue stream. But when we look out from this point forward, our successes are done. We're grateful. Our revenues have been realized, and relationships are built. But it's the platform of the JSF that has allowed us, and will continue to allow us, to obtain additional business in the future and keep us healthy and sustainable.

As a business person, I'd like to think that, yes, they would come back to us as an engineering company that they respect, and that they would look to us for custom solutions. We will take the relationships that we have in Fort Worth, and we will try to bridge those into other operations with Lockheed Martin. That's business. That's what we're here to do. We must also strengthen ourselves to be sustainable through difficult times and to give diversification to our throughput, and that's important.

The J-35 is not dead for us. We are at a point that before it goes to high-rate production, and before the Europeans begin to build up, these will all be platforms that we will be quoting. So I look at the JSF, quite frankly, as a very vertical situation that we are involved in right now with Lockheed Martin. But I can assure you that we are working on other programs with Lockheed Martin. We are working on other programs with Pratt & Whitney.

When we were awarded a multi-million-dollar modern aircraft engine test cell by Pratt & Whitney recently in Mirabel--it's currently under construction, and we're installing equipment as we speak, and I have men there--one of the most influential and tactical manoeuvres that we made was to broker conversations and introductions between joint strike fighter staff and the Pratt & Whitney staff. So although that doesn't speak to revenues directly for IRBs on JSF, I think it's worth noting.

I hope I've given some value to your question.

[Maurice Guitton]

I agree with what Tom is saying. As you also understand, because companies like Lockheed Martin or Boeing--those big guys--are big, they have an inertia when developing or building things. They are very lucky sometimes to have companies like us in Canada who have niche markets. Don't forget, we have a lot of engineering competence and people who have been working since de Havilland and the Arrow aircraft. There is know-how; there is spirit among us. We have, I will say, the faith and the desire to capture, to be the best, to be creative, and to be part of those new products.

We all have many irons in the fire, and we have to be as fast as we can in the new programs. We are working on programs that will probably start 30 years from now, but we are there. For example, Composites Atlantic is trying to work--and I'm sure my friend Gilles is working on this--on a new robot that's going to go to Mars. To do something like that, it takes so long. Composites Atlantic, I can say, is the largest producer in the world of helium tanks for space, to launch a satellite, to launch a space shuttle, to launch all kinds of vehicles. It takes 20 years to develop a pressure helium tank.

So we are, as Mr. Beach said, always looking ahead, and we always have to be prepared to support America. As you know, when you talk about one in Canada, it's ten in the United States, and it's ten in Europe. So we are the lucky guys who are here between the United States and Europe, and we win because of the niches.

[The Chair, Conservative, Maxime Bernier]

Thank you.

[Gilles Labbé]

Maurice is talking about markets. We were the first on the moon. We built the landing gear for the lunar model back in 1961.

[The Chair, Conservative, Maxime Bernier]

I have to give the floor to Mr. Braid.

Mr. Braid, thank you. You have the floor.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

It sounds as though perhaps we need Mr. Garneau here.

[Voices]

Oh, oh!

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Thank you very much, Mr. Chair. Even though I don't get the same fanfare with my introduction as Mr. Wilfert does, I still do appreciate the opportunity.

Thank you very much to all of our witnesses for being here today.

Monsieur Labbé, I wanted to start with a series of questions for you, if I could. Of course my riding is Kitchener--Waterloo, and just outside my riding in Kitchener there's an important Héroux-Devtek plant, which I visited, so I sincerely welcome you.

Mr. Labbé, how long has Héroux-Devtek been involved in the F-35 program?

[Gilles Labbé]

That's a good question. We had a very early start on the program. I think we were trying to move on this program from 2001, when we started initial discussions with Lockheed Martin to participate.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Very good. And what set of circumstances created that opportunity in 2001 to get involved with the program?

[Gilles Labbé]

As you know, Canada by that time had made the decision to invest in the program. A company like ours has capabilities like Maurice's and Tom's businesses and many others in Canada. But we are one of the largest suppliers of aerospace products and we do more than 50% of our total volume on the defence side. So we have capabilities. We also have a special relationship with Lockheed Martin: for the last ten years we have been building the landing gear for the C-130 J. We have been building them not only for Canada but the world.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Was that a good decision in 2001 for Canada to get involved in the JSF program?