Transport Committee on May 3rd, 2012

[Rénald Fortier]

May I add?

[Joyce Murray, Liberal, Vancouver Quadra, BC]

Sure.

[Rénald Fortier]

There is some biofuel research being done in Canada, because some of the plants that will be used for that will grow here. I completely forget the names of them, but they're mustard-like plants. You sort of take the seeds—Camelina and Brassica, I think—that can be used for that. There's research being done in Canada. Actually, some Porter flights, I believe, use fuel that was produced from Canadian-grown plants. You also have algae that can be used, so the idea of biofuels is certainly with us.

The cost would be huge, but it's planning to sort of get over.... The idea is not to produce 100% of the fuel needed for aircraft using plants. The idea is to gradually increase the percentage. It's quite likely that some government money will be required somewhere, either in Canada or the U.S., if not somewhere else, in order to get these things under way. Then you also have synthetic fuels, which are not biological in nature, that can be used, anything from fuel made from coal, natural gas, or methane. There's a variety of hydrocarbons that can be used for that.

[Joyce Murray, Liberal, Vancouver Quadra, BC]

Excuse me, I'm sorry, but I'm going to use my time for another question.

There are other countries that do actually price in the cost of pollution and carbon in their energy costs, so there would be more motivation for industry there to do the kind of innovation and make the deep investments in revolutionizing their products. Do you see this being a possible barrier to Canada continuing to have a leading-edge industry on issues like transportation, transportation fuels, innovation? Aviation is going to have to solve its greenhouse gas emission problems. Will this make it more difficult for Canada to have a competitive advantage on these issues—that our oil industry is subsidized and that there is little pricing on carbon?

[Rénald Fortier]

If I may, commercial aviation has a relatively small impact at the moment. I think it's around 3% or 4% of the overall global emission. The problem is, if you increase the number of aircraft, then the expectations, hopes, provisions, are that the number of airliners will sort of double within the next 20 years when you have markets like India and China that are developing, because you have middle-class people and they want to travel, they want to do things. The number of aircraft will grow, so the potential for the amount of carbon monoxide and other pollutants will sort of double from 3% to 6%. You're looking at an increase, but it's still relatively small. It's a huge amount, but it's still relatively small compared to the rest. Whether or not there will be an impact on that.... Well, there will be some impact.

In terms of causing problems through export, because we mainly export our aircraft, we don't use as many aircraft as we produce. That's the difference. It's a fairly small percentage—it's hard to say. I have the feeling that it probably won't have too much of an impact because if you look at the new Bombardier CSeries, it was designed to be fuel-efficient because it's good for the industry.

There are two aspects here. The industry realizes they must have fuel-efficient aircraft in order to sell the aircraft and use the aircraft. It's also very good for them from a PR point of view, if I can use that expression, to have greener aircraft. It makes them look better and everyone wants that, so it's a bit of a win-win situation. They want fuel-efficient aircraft because they're cheaper, and they want greener aircraft because it makes them look good. Their new CSeries is sort of a winner in both cases. That's one thing they're trying to push—that it's a green aircraft, it's a modern aircraft, very fuel-efficient, it will have less impact—and the market is growing. Therefore, buy our aircraft; it's much more fuel-efficient and much better than the old clunkers you are using now.

[The Chair, Conservative, Merv Tweed]

Thank you.

Before we go to Mr. Adler, we'll take a one-minute recess. We've had a bit of a technical problem, so we have to take a one-minute break. We're going to reboot, then we'll come back to you, so we'll suspend for one minute.

[The Chair, Conservative, Merv Tweed]

We are back and technically sound again, so I'll go to Mr. Adler.

[Mark Adler, Conservative, York Centre, ON]

Thank you, Chair.

Thank you to the witnesses for appearing today.

Mr. Fortier, as a historian, could you review some of the history of the aerospace and aircraft industry in Canada?

I just want to preface my comments by saying that I represent the riding of York Centre, where Bombardier is located, the largest private sector employer in the GTA, and they were just awarded yesterday, as you probably know, a contract from WestJet to produce 20 Q400s with an option for an additional 25. We're all very happy about that and York Centre is bringing lots of jobs and investment to my community.

Mr. Fortier, I just want to ask you how has the history of the development of the aerospace and aircraft industry in Canada been skewed, if you will, by involvement from government, notwithstanding wartime production but during peacetime production?

Let me give you an example. In 1986 when the CF-18 maintenance contract was awarded to Montreal instead of Winnipeg, it caused a whole big political scandal. Then in the early 1990s when Boeing owned de Havilland and wanted to sell it, there was a consortium from Europe that was interested, and the Ontario NDP government of the time wanted to be a partner and own an aircraft industry. Could you talk a bit about that, and in light of those examples, about how government involvement can really skew the private sector development of Canada's airplane or aerospace industry?

[Rénald Fortier]

It can happen. It's probably not only Canada; that sort of thing can happen in different countries.

You might have to remind me about the first aspect of your question.

On the second one, the purchase from a European consortium, I'm not all that familiar with all the details, but there was certainly an interest, as you said, and eventually when the federal government approved the whole thing, eventually Boeing disposed itself of de Havilland because it was sold to the Ontario government and to Bombardier, and eventually the Ontario government pulled out and Bombardier became the sole owner.

My understanding as far as that general sale was concerned was that the Ontario government was certainly concerned, but Boeing had great problems with de Havilland because Boeing had experience with big airplanes, long-range aircraft, jets on their own soil, and they had this little company that had its own culture. You have company cultures, and they had massive problems so they were trying to find a way to divest themselves of it.

Why exactly the Ontario government objected might have been a question of job loss. It's possible, and I'm not just fabricating here, but it's possible that the European consortium might have decided that since they were making regional airliners that in a way competed with something that de Havilland could build, they might have wanted de Havilland to become more of a subcontractor to them—that is to make parts rather than make complete aircraft. That might have been part of the concerns that the Ontario government was involved with.

[Mark Adler, Conservative, York Centre, ON]

It turned out it wanted to be a partner with the European consortium. The Ontario government wanted to be a partner with the European consortium initially.

[Rénald Fortier]

Okay, that's my mistake. I was not aware of that, but eventually it became partners when it was sold to Bombardier. The idea might have been they wanted to have some sort of control over it.

[Mark Adler, Conservative, York Centre, ON]

At the de Havilland facility, 90% of what Bombardier produces is for export. They also produce all of the planes that Porter Airlines uses.

They have told me that they have benefited by the free trade agreements that our government and previous governments have negotiated, but particularly the nine that we have negotiated since we've been in power.

Could you talk about the advantages historically of how free trade can benefit the aerospace industry and the airplane industry in Canada?

[Rénald Fortier]

Historically speaking, I'll give you a foreign example. The airline industry in the interwar years in Europe very often was government-owned, and very often they ordered aircraft that were built in their country.

In some cases, they were not necessarily the best aircraft available, but they were the aircraft that were built in the country, whereas in America from the mid-thirties onward pretty much until Airbus came along—with some exceptions—the airline industry was dominated by U.S. airliners. So there were cases where European airlines were stuck with European airplanes from their own countries. They were not bad airplanes, but the American ones were better.

So we certainly have that aspect to it. In Canada TCA/Air Canada was in a rather different situation. There was no airline manufacturing here in the late thirties. There was some after the Second World War, Canadair and the North Star, for example, but by and large, the policy—because it was a crown corporation, owned by the government—was don't get us into trouble, don't embarrass us, don't have deficits, and if you want to buy American or British, you buy the best airliners available.

There was something about the North Star. There was some encouragement to buy it, but TC was involved in the development of the aircraft. They were able to get what they wanted and eventually it proved to be a reliable airplane. TC was also involved in the development of the jetliner by Avro and that didn't pan out, but they tried certainly to keep the airline.... You're an airline. You do the airline stuff. We're the government. We're paying you, but do what you have to do.

[Mark Adler, Conservative, York Centre, ON]

Could you just jump back to the CF-18 maintenance contract and how that really skewed not only the political environment, but how Winnipeg really suffered and the industry really suffered in Winnipeg for that political decision?

[Rénald Fortier]

Politics do play a role and you have large players like Bombardier. In the United States it's the same thing. You have “senators from Boeing”, they're called, probably behind their backs. There's a lot of lobbying that takes place. In some cases, some areas of the country will come up in second position.

[Mark Adler, Conservative, York Centre, ON]

But all things being equal, letting the marketplace decide where those jobs should have gone, it should have been Winnipeg, right?

[Rénald Fortier]

I have to say I'm not familiar enough with the file to actually look at it.

[Mark Adler, Conservative, York Centre, ON]

With hindsight, it's possible.

[The Chair, Conservative, Merv Tweed]

I'll have to stop there, but thank, Mr. Adler, for the support for Winnipeg, and my province.

Ms. Rempel.

[Michelle Rempel, Conservative, Calgary Centre-North, AB]

Good morning, and thank you to the witnesses for their presentation.

We're here today to talk about innovation in the aviation sector. Maybe I'll start by talking about the difference between invention and innovation. Invention is commonly referred to as creator-driven. It's the creation of something new whereas innovation is usually something that responds to a market demand, something that provides some sort of a public benefit, be it a social benefit or economic growth.

So with that concept in mind, we also have to look at the difference between market pushes and market pulls. Market push is the push of an invention into the market to try to create a demand, whereas a pull is where there's an existing demand that you can easily adopt a technology to. So bearing those four principles in mind, how do you think that Canadian aviation could allow for better adoption of technology, knowing that the path to adoption is usually a market pull factor?

[Rénald Fortier]

Being more of an historian than an economist, I might have problems with that one.

In the industry, Pratt & Whitney Canada, for example, have very close relationships with their customers. They're very attuned to what the customer wants, and that can be the airline or the aircraft manufacturer, because they tend to sell to the aircraft manufacturer, which then sells to the airlines. They have some sort of close connection.

So on the push and the pull and the ideas, they're certainly very closely connected in that aspect, in order to develop new ideas using their existing designs and to improve them, and mainly to improve fuel efficiency. Because that's the main thing. It's to reduce costs. You want to have an engine that performs as well as possible and that's as simple to repair as possible, as long-lasting as possible, and as cheap as possible. You want it to have everything. It is squaring the circle.

But with every product in aviation, whether it's a seat, radar, an airplane, or an engine, it's a compromise. You cannot have everything, so eventually you have to choose. But there are certainly close relationships within the industry and also outside the industry with regulatory agencies—or with the NRC as far as research is concerned—in order to get the best product available.

As for new ideas and innovation, and the push and pull, being export-driven, there's certainly a great deal of interest as far as innovation is concerned, because there's no internal market. So if MPs—no offence intended—wanted to push Air Canada to buy a Canadian airplane, it would help, but most of the airplanes are exported anyway, so it would not have that much of a pull.

They have to be as open-minded and as innovative as possible in order to produce something. As far as aircraft manufacturing is concerned, in anything from the simulator manufacturers to the aircraft manufacturers, they've been extremely successful at innovation.

As for revolutionary ideas, we did not invent the jet engine. We did not invent the airplane. Canada is not a superpower, so we don't have to invent things. We certainly have invented ideas, such as, for example, the regional jet—the Canadair Regional Jet—which is now the Bombardier regional jet. There were regional airplanes before, but the idea of having a jet-powered one—pure jet, not turboprops and propellers—was very innovative. In a way, it was risky. They didn't quite risk the business, but they certainly risked a great deal when they went to that.

It proved to be highly successful, in the same way that Boeing was when they went with the jumbo jet. That was still an airliner, and it still looked like an airliner with swept wings, but it was revolutionary in the size of the thing. They were very innovative.

[Michelle Rempel, Conservative, Calgary Centre-North, AB]

Along the lines of that example, earlier today we talked a bit about locking in a national strategy, yet you've just outlined the fact that in order to achieve sustainable adoption of innovations, you do need to have that market-based demand, right?

There have been some allusions to government creating that demand. Would you characterize long-term sustainable demand for technology adoption as being more successful when there are actual market factors pushing it or when government's pushing it?

[Rénald Fortier]

When Canada and Bombardier came up with the design, they had to sell it, but the airlines realized there was a market for it, because this was a nice idea, in that you could actually fly a lot faster. The market was there and floating, but it was sort of nebulous. Through having the aircraft, the market materialized and became solid, and eventually it sort of....

So as for having government do that sort of thing, they might push it at air shows and talk ambassador to ambassador, or trade attaché to trade attaché, but you must have the product and push it. With regard to government assistance, it's possible with the trade attachés, etc., but you must have a product to sell, or at least an idea to sell.

In the case of the regional jet, it caught fire. The thing sold like hotcakes. It's still selling like hotcakes. In other cases, you may have a smaller niche—for example, the water bombers. The Bombardier water bombers are superb aircraft and very well adapted to their role, but it's a fairly small market. You won't produce hundreds of them, but the people who buy them... They might have sold 200 in the past 40 years. That's not a lot, so the company won't survive on that, but it's one of the aspects of the manufacturing industry.

That's another aspect of aircraft manufacturing—and I plead guilty to this because for a long time I neglected it—in that you have subcontracting. You don't have the big, sexy projects. Subcontracting may not be sexy, but you have cars, spare parts.... It's very broad.

[Michelle Rempel, Conservative, Calgary Centre-North, AB]

So then you would characterize the adoption of technology as better suited to responding to market needs or responding to a policy environment that is flexible, as opposed to locked in, as we've heard in the terminology used this morning.

[Rénald Fortier]

We're also realizing that there's a market there to buy the turboprop, the propellor-driven aircraft, to fill that market, but having a jet, no one has thought about it, but let's try that. They have already had the Challenger, which served as a basis for the regional jet, so there was a market there, but it didn't really exist. They sort of invented the market. They realized there was something there, and it worked. I some cases it may not work, and that's also the case with aviation. It's a high-cost industry. It's a high-tech industry. Everything is expensive. Not everything that you do to help will work. It will work a little bit, medium, some will work like hotcakes, but you don't know that in advance.

Concorde was a great idea, but—