Thank you very much. I appreciate the opportunity to come before the committee to tell you the story that has unfolded with Handling Specialty and Lockheed Martin Aeronautics under the F-35 program.
In short, Handling Specialty is an engineering and manufacturing company. We are classified as what is called an SME--that's a small-to-medium enterprise--where our annualized revenue stream varies somewhere between $12 million and $17 million a year. We're located between Niagara Falls and Hamilton, Ontario, on the Niagara Peninsula.
Our story with the J-35 begins with one of the subcontracted engineering firms out of Chicago, McClier Corporation, which contacted us in 2002. McClier was under contract to develop a number of lean initiatives and processes to help Lockheed Martin reach their objectives, which was to reduce the throughput time in the manufacturing of their aircraft and reduce cost.
Handling Specialty has spent a lot of time in many different markets. In the nineties we specialized in the automotive industry, where throughput time, lean initiatives, mean time between failures, and techniques were an everyday part of our business. We demonstrated this to McClier Corporation. The aerospace industry has begun to gravitate its manufacturing processes over towards the automotive types, as there are some similarities between them as they try to keep the process lines moving on a continuous basis. This excited McClier. We spent about six months investing in specification writing, drawings, conceptualization, which stimulated the interest of Lockheed Martin.
In the year 2003 we made our first presentation to the process engineering group at Lockheed Martin in Fort Worth, Texas. We were called back immediately for a second visit, and shortly thereafter we began to make proposals in rough order of magnitude budget quoting, which led to our first contract in March 2003 for $4 million.
Simply stated, our deliverables are what are called VWACs, vertical wing assembly cells. They are very large lifting structures that elevate tools, IT, and humans so that they may safety and efficiently work around the aircraft wing in its vertical orientation. It's a very large aircraft wing. It could be very dangerous, so the idea of keeping them very safe and having them work up and down with the wing assembly safely was paramount.
The first phase that we got involved in with Lockheed Martin was called SDD, system design and development. It's basically what we call “concurrent engineering”, where you're trying to develop a process and a product simultaneously. This led to a number of change orders. Our initial purchase order of $4 million grew to $8 million in summer 2003. As we moved into 2004, we began to install these systems, where we put staff in residency at Lockheed Martin in Fort Worth. Little did we know they would still be there five years later. Amidst the installation, they came to us with another challenge, where they must take the wing assembly from a vertical orientation and transpose it to a horizontal orientation without damage. This is a very risky manoeuvre because of the centre of gravity in the wing--a very critical piece is the wing--and Handling Specialty was contracted to design, manufacture, and install wing assembly dollies. This led to an additional $1.5 million worth of business for us.
In the year 2005 the J-35 design actually took a hit when they realized that they needed to take some weight out of the aircraft and yet maintain fuel capacity. They looked to the wing and they changed the profile of the wing. As a consequence, all the equipment delivered to date by Handling Specialty had to be remodified. We exercised an additional $2.5 million worth of rework on site in order to match the profile to the new wing.
In 2006 we were invited to Rome, Italy, to participate in the global industry team forum. This is a forum attended by over 100 executives, all in the supply chain of the joint strike fighter program. As an SME, we were humbled to be sitting amidst the likes of BAE Systems, Northrop Grumman, Pratt & Whitney, and such, but it was through the relationships that we were building with Lockheed Martin that we would be invited to meetings involving people who would end up being potential customers and clients of Handling Specialty. In actual fact, Mr. Labbé is one of our target customers as a result of the joint strike fighter.
We were able to have meetings with Alenia Aeronautica. This is a company in Torino, Italy, that is currently set up to mirror the process lines for manufacturing wing assemblies. We have continuous communication with Ercole Strada, who is the head of military aircraft for Alenia. We are hoping to see some excellent revenue streams out of the work they're doing over the next four years as they begin to build J-35 aircraft wings.
On September 25, 2006, we had an open house at Handling Specialty, and we invited our member of Parliament, Dean Allison. We invited our supply chain. This was attended by the head of the joint strike fighter program, a gentleman named Tom Burbage. I'm sure you're familiar with Tom. This is a special individual, who took the time to come visit with us and to shake the hands of every one of the 22 suppliers in our supply chain.
What I really appreciated was that Tom went to every one of the suppliers to pay his respects to them for what they've done. Handling Specialty is the prime contractor, but there are many Canadians and many small businesses similar to mine that are part of this program, that have relied on this program for many years, and that continue to look to us as a means of revenue income and sustainability.
In 2007 we received our second mass order for $10 million—more vertical wing assembly cells, as they began to head towards LRIP, low rate initial production. We installed through 2007, and in 2008 we were once again called upon to view a special application to insert workers into a dangerous void in the fuselage. They had a product made by a United States vendor that was unacceptable. Handling Speciality was doing engineering, manufacturing, and installation.
We've developed a nice relationship and a reputation for being the go-to people for custom-engineered solutions. We are small and flexible, and we are able to change direction when our customers find themselves challenged by some part of a mass manufacturing operation.
In 2009 the highest rate of production went to static platforms, overhead conveyor systems, which required ancillary support and lifting equipment. Handling Speciality was awarded over $750,000 in contracts as a subcontractor to OEM accounts, which took the prime contract with Lockheed Martin.
What is interesting about this is that the folks we're working with are from Michigan, and they're people who we dealt with through the nineties in the automotive industry. Thus, a group of material-handling and solution-based companies come together to create good solutions.
Dürr Automation is the company of choice that produced these overhead conveyor systems, and we are currently under contract with them in many other avenues.
I was fortunate to attend the True Patriot Love Foundation dinner three weeks ago with Steve O'Brien. He's the heir-apparent to Tom Burbage. Steve offered to provide us with any contacts we need in Alenia, in Torino, as we begin to build relationships over there.
In closing, I want to express how proud and how grateful we are to the joint strike fighter program. It has taken my small business and made us bigger and stronger. We are participating in programs with Goodrich Landing Gear, Pratt & Whitney aircraft, and with Rolls-Royce aircraft. The introductions that have been made were all courtesy of Tom Burbage and his team from Lockheed Martin. I don't believe my team would have been able to penetrate the aerospace defence industry without this relationship and without this program. As a matter of fact, I'm almost positive of that.
I have only a few numbers, but they are meaningful. In the seven years that we've been working with the joint strike fighter program, our total company revenues were $67.7 million. The revenue to the F-35/J-35 program is $23.4 million. This represents 35% of our revenue stream over the past six years. In 2004 and 2006 it represented 70% and 80% of our revenue stream, respectively. Those are large numbers.
To close, the manufacturing hours that we exhausted during our entire work with the J-35 amounted to 48,307 labour hours. To simplify that, it represents 23 man-years. For a small business like Handling Specialty Manufacturing, this is an enormous contribution.
Our future with Lockheed Martin is very strong. I speak with executive people at Lockheed Martin monthly about upcoming programs. We have proposals on the table right now with Lockheed Martin, and we are a very large supporter, an honest and genuine supporter, of the joint strike fighter.
Thank you for having me.
