AN INFORMATION FEATURE

T U E S DAY, D E C E M B E R 4 , 2 0 1 2

Special
induced and direct jobs
in revenues across multiple Canadian supply chains

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Aerospace
Canadas aerospace industry is at a crossroads. A new report is calling for urgent action to protect Canadas global competitiveness. Will industry and government act? Here is whats at stake:

160,000 $41.2 billion #5 #5 #1 $22.1 billion 20%+

Canadas aerospace productivity growth rank among G7 nations OECD ranking of Canadas aerospace manufacturing sector based on revenue and GDP of direct revenue
espite growing global demand for aircraft and other aerospace technologies, increasingly tough competition is threatening Canadas coveted position in this sector. With some 700 companies generating approximately $22 billion annually, Canada holds rank among the worlds top ve aerospace nations, a group that also includes France, Germany, the UK and the U.S. While global aircraft demand is expected to top $3 trillion over the next 20 years, Canadian aerospace experts warn that Canada and its aerospace companies must make the right choices now in order to stave off rising competitors. We have four countries ahead of us, and they are determined to stay ahead, says Jim Quick, president of the Aerospace Industries Association of Canada. Russia, China and India also want what we have. All of these countries are investing billions of dollars in their aerospace sectors. In the global aerospace dynamic, nations and their aerospace industries work together, with governments typically providing nancial support and other incentives to help companies build capabilities and land lucrative contracts that deliver broad benets. Canadas high-tech aerospace sector, for example, not only provides over 160,000 well-paying jobs (including direct, indirect and induced employment) it also invests heavily in R&D. Mr. Quick notes, for example, that industry funds 75 per cent of the sectors $2.7 billion R&D investments annually, with spillover benets including those enjoyed by universities and other institutions involved in aerospace research. He says the federally mandated Aerospace Review undertaken independently by a committee led by former federal Cabinet Minister David Emerson sends a very encouraging signal that Ottawa is taking Canadas aerospace challenges seriously. The resulting report penned by Mr. Emerson Beyond the Horizon: Canadas Interest and Future in Aerospace (see Q&A on page AIAC 2) offers many answers. As the Aerospace Review notes, we have be more nimble, exible and smarter with the funds we have. We have other tools in our toolbox too. We must use them to Canadas maximum advantage to up our global position. Among those tools, Mr. Quick says having the right set of policies will help Canada to compete in this erce environment. David Curtis, the president and CEO of Victoria, B.C.-based Viking Air, says, for example, that International Trafc in Arms Regulations (ITARs) a set of U.S. regulations that control the export and import of defencerelated technologies pose a serious burden, especially for smaller rms like his. Viking has enjoyed rising international success in recent years since it re-launched the iconic De Havilland Twin Otter aircraft several years ago and began selling the planes in emerging markets globally. Today, the company is building and shipping one Twin Otter every 15 days, a laudable effort. Many of Vikings buyers are nations such as Vietnam that use non-weaponized Twin Otter Guardian Series 400 aircraft for surveillance and search and rescue.

Industrial rank in Canada based on strategic importance over total manufacturing

Percentage of aerospace manufacturing activity in Canada dedicated to R&D more than pharmaceutical manufacturing, manufacturing and industrial averages

Mr. Curtis says, We have to ensure that standard equipment controls, software, guidance equipment, etc. is ITAR compliant. This an especially sensitive matter if the plane is going to a country that is on a U.S. watch list or to one that requires an export control permit. The challenge for Viking is that meeting ITAR compliancy isnt just about building and customizing a plane to match exacting, country-specic ITARs; it can also mean having to subsequently disable that equipment in order to ship the aircraft and meet other ITARs. Now we are doubling the engineering and labour, which directly impacts the cost and our competitiveness, says Mr. Curtis. The challenge from an aero-

space point of view is because we are selling in the shadow of rms in China that are now working with companies in the EU, where the regulations are easier to deal with. We are losing opportunities to the EU. Noting that market issues such as duties, taxes, certications and ITARs are just part of the global aerospace industrys complicated landscape, Mr. Curtis says he is pleased with Mr. Emersons recommendation that Canada should adopt a more balanced approach to export and domestic controls. Overall, he expects the federal response to the Aerospace Review will help streamline things and make it better and easier for Canada to compete globally. Crossroads, Page A2

Online?

AIRPORTS

Centres of excellence at heart of regional aerospace hubs

or millions of travellers Canadas airports are global gateways. For Canadas aerospace sector and nearby communities, airports are sources of gainful employment. In Quebec, Aroports de Montral (ADM) president and CEO James Cherry says Montral-Pierre Elliott Trudeau International Airport and Montral-Mirabel International Airport are key aero-industrial hubs located in a city recognized among the rare places in the world where all the main components of an aircraft are manufactured within a 20mile radius. A 2011 economic impact study noted that ADMs airports host some 250 enterprises and provide some 60,000 direct and indirect jobs. In B.C.s Okanagan Valley, what began in 1970 as a one-man operation based at Kelowna Airport has grown into Kelowna Flightcraft (KF) Group of Companies an enterprise that services corporate, commercial and military aviation clients worldwide. Beyond running MRO facilities in Kelowna and Hamilton, OnFor more information, visit

Kelowna Flightcraft is one of hundreds of aerospace firms located at or near Canadian airports. SUPPLIED tario, and owning and operating Purolators air cargo eet, KF is also responsible for the Royal Canadian Air Force Military Flight Training Centre at Southport, Manitoba. We manage the entire base from the pilot training and aireld to the reghting services and air trafc control right through to housekeeping, says Bryan Akerstream, KFs senior manager of business development. All told, KF employs nearly 1,000 skilled people, including 600 in Kelowna, making KF that citys largest private-sector employer. Kelownas growth as an international airport has helped KF land even more business, including being WestJets MRO services provider. The runway extension allows us to serve large aircraft, more airlines and link with other major aerospace centres such as Seattle-Tacoma, says Mr. Akerstream. In 2004, when ADM decided to transfer passenger trafc to Montreal, local communities expressed concern. But MontralMirabel International has since ourished as an industrial hub. Centres of excellence, Page A4

www.aiac.ca

Their future.

Our responsibility.

Leaving a light environmental footprint means leaving a better world for our children.
At Aroports de Montral, the environment matters. Thats why were constantly trying to increase energy efciency and reduce greenhouse gas emissions wherever and whenever we can. Not only have we improved our HVAC efciency by 70%, but weve installed motorized smart shades in airport jetties and weve made our vehicle eet more eco-friendly. Whats more, we continue to promote green spaces near our site to encourage the reproduction of monarch butteries. Fortunately, we dont need to leave a big footprint to make our mark.

INSIDE
AEROSPACE REVIEW A Q&A with former federal Cabinet Minister David Emerson offers insight. Page A2 SPACE New hope for the final frontier of Canadas industrial future. Page A4

This report was produced by RandallAnthony Communications Inc. (www.randallanthony.com) in conjunction with the advertising department of The Globe and Mail. Richard Deacon, National Business Development Manager, rdeacon@globeandmail.com.

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t h e g l o b e a n d m a i l t u e s d ay, d e c e m b e r 4 , 2 0 1 2

AEROSPACE
Q&A

Review yields strong call to action

secure its competitive position. What information sources did you tap? Independent consultants undertook 16 reports. The Aerospace Industries Association of Canada helped organize six working groups. We conducted roundtables in Atlantic Canada, Quebec, Ontario, Manitoba and B.C. We did a lot of bilateral meetings and site visits to companies. At the global level, we looked at what other countries including China, Brazil and the U.S. are doing and how they are doing it. Any key observations of the international dynamic? In aerospace, governments are big players, but the rules of international trade in this sector are not always clear; there are a lot of subtle protectionist measures and alleged subsidies. As well, you are operating in a world of dual technologies systems that have military and security as well as civilian applications. This brings other trade complications. Generally, its an environment in which a governments ability to incent its indigenous production base is quite extensive. This creates difculties for countries like Canada that have smaller budgets than larger nations. For example, the amount the Chinese are spending on aerospace infrastructure is just incredible. They are positioning themselves to tap into their own demand growth. What is the reviews central nding? We said that its critical to keep pace with rapidly changing global conditions if we want the aerospace and space sectors to remain competitive over the next 20 to 30 years. We urged the government to be realistic in terms of what trade rules are being stretched by other countries. You cant be a boy scout in a world where others are playing by a different set of rules, or you will watch your industry slide. There is a host of issues around policies and programs that need some tweaking for example, better targeted research support, more balanced export controls and stronger bilateral trade agreements. How may Canada maintain its competitive edge? Its critically important to recognize that globalization is causing a major shakeout of supply chains. Original Equipment

In February 2012, the Government of Canada launched an independent review of policies and programs affecting Canadas aerospace industry and its competitiveness. We talked with Aerospace Review Head and former Minister of Industry, of International Trade, and of Foreign Affairs, the Honourable David Emerson, about the review process and its results.
What was your mandate? The reviews mandate was to identify key global trends that would affect Canadas future competitiveness in aerospace over the next 30 years. We looked at things like globalization and the rise of emerging powers like China, new sources of demand and competition, and new sources of people power and technology that will have a fundamental impact on the way we do business. The question is how can Canada adjust its policies to adapt to changing conditions and

A key issue for the space industry is the governance framework. Countries increasingly recognize that space assets are essential for protecting sovereignty. Commercial space applications are also helping to drive the global economy.

Makers like Boeing used to have thousands of suppliers. Now, theyre consolidating, with fewer suppliers in their chains. And theyre devolving R&D to their suppliers too. Todays successful participants have to be stronger and more innovative and mature as suppliers and manufacturers than was the case 10 years ago. Canada can do more to help train smaller and mid-size supply chain participants, so they can compete in this environment. Canada also needs to recognize that getting into overseas markets means you have to be willing to invest overseas. The challenge is to do this while not jeopardizing our critical mass in Canada. This is going to require more overt and formal collaboration at a state-to-state level. What about the space sector? A key issue for the space industry is the governance framework. Countries increasingly recognize that space assets are essential for protecting sovereignty. Commercial space applications are also helping to drive the global economy. The importance of space warrants Cabinet-level input to determine national strategies. Canadas space-related needs are particularly strong. In a country as vast as ours, space capabilities are critical to environmental monitoring, precision farming, resource development and management, and secuity. We have the worlds longest coastline and space technologies are the best way to protect it. Canada had a fairly focused approach to space in the 20th century, but in the 21st century it hasnt been as rigorous. We need a disciplined process for identifying strategic priorities in space and the organizational capabilities to deliver them. Anything else? Developing space and aerospace technologies demands large amounts of money and long-term, high-risk projects. You have to build as much collaboration and certainty into those activities as possible. Canada has to do better.

FROM A1

Crossroads: Industry and government must act

Jim Quick says, We believe we have huge opportunities for growth and positioning Canada in the global supply chain. Carl Marcotte, vice-president, Transportation Group at Export Development Canada, shares that view. He says, The aerospace industry as a whole is moving toward a more globalized production approach. Thats where we see the new opportunities, and where Canadian aerospace SMEs are beginning to look. Mr. Marcotte notes, for example, that Canadian sub-suppliers that serve companies such as Bombardier, Pratt & Whitney Canada, CAE, Viking and others work with the most advanced materials and processes, and that experience is in high demand around the world, especially in growing aerospace markets like China. Because of that level of expertise, Canadas aerospace suppliers might be surprised how easy it could be for them to grow their international sales. Mr. Marcotte says help is available for Canadian companies seeking growth abroad. Take the time to talk to us, to the Canadian Trade Commissioner Service, to BDC and your bank, and to your industry association partners. Thats the way to start making introductions to foreign enterprises and gaining access to foreign markets.

Jet engine maker Rolls Royce is one 700 firms that comprise Canadas aerospace industry. Beyond expertise in propulsion systems, Canada is also a recognized world leader in disciplines ranging from aircraft production and flight simulation and training to space technologies, maintenance, repair and overhaul services and more. ROLLS ROYCE CANADA

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A4 AN INFORMATION FEATURE

t h e g l o b e a n d m a i l t u e s d ay, d e c e m b e r 4 , 2 0 1 2

AEROSPACE
SOVEREIGNTY

New hope for space industry in Canadas future

nce a leading space-faring nation, Canada is falling behind its competitors in almost every measurable aspect of the space industry. A federally appointed Aerospace Review led by former Cabinet Minister David Emerson, informed, in part, by input from a working group comprised of space industry leaders, has yielded recommendations for a long-term space policy framework aimed at reafrming the strategic signicance of space to Canada and the importance of a domestic space industry. In a comprehensive report submitted to Mr. Emerson, the Space Working Group said Canada has not had a space policy that outlines overarching government priorities or that emphasizes the importance of industrial development since 1994. During the same time, other nations have set policies focused on economic and export-driven space industry objectives. We are reducing our space expenditures while our competitors are increasing theirs, the report stated. Dave Caddey, chair of the working group and executive vice president at global communications and information company MacDonald Dettwiler, says Canada has a tremendous heritage in space ranging from communications satellites to the Canadarm used on NASAs space shuttles, but thats now threatened. states that where costs are modest and there is no risk to public safety, the government should create conditions conducive to the expansion of space-related commercial activities. Iain Christie, co-chair of the working group and president and CEO of Neptec Design Group, which makes sophisticated vision systems and provides systems integration for NASA, CSA and major space contractors, says Canada has signicant advantages in the global space industry including a highly qualied workforce, a favourable geographic position in North America, close ties to Europe, and a history of success in space. Space is not only a technical arena, but also a business in which prior experience is very valuable. Having a large cadre not only of the engineering and quality control and technical staff who know what it takes to build successful spacecraft, but also having people who understand how to run a space business is very valuable from an industrial perspective, says Dr. Christie. However, he agrees that Canadas advantages in space have been eroded over the past few years. I think, in part, thats why the Aerospace Review was welcomed so heartily by the space community. It represents the start of a government effort to stop that erosion, he says, noting that he hopes that the actual review and the actions taken in response to it will successfully counter the threat that we see. Dr. Christie points out that space is by and large a government-led and funded activity, and even private-sector competition tends to be between companies that are proxies for national interests. Mr. Emerson recommends the Minister of Industry bring a 10-year, ve-year and annual space priority list to Cabinet for discussion and approval. He has also proposed the creation of a Canadian Space Advisory Council composed of industry, research and academic participants, as well as provinces and territories that will report to the Industry Minister. This measure aims to end the ad-hoc fashion in which most space-related decisions have been made in the past and ensure awareness of Canadas space capabilities, provide better monitoring of the state of the industry and enable the government to make more enlightened choices about priorities and how they relate to space. Other countries have worked very hard to put strategies in place, China being an obvious example. Competitor countries are more efcient than we are at generating those strategies and executing them. So, to the extent that we dont have a strategy and they do, theyre going to win, warns Dr. Christie.

This photo of the Space Shuttle docked to the International Space Station shows the space station arm, the shuttle arm and the shuttles inspection boom all made by MDA. At the end of the shuttle arm and boom is a Neptec Laser Camera System sensor used to inspect the Space Shuttle for damage in orbit. SUPPLIED Historically weve always had a robust space program, but in recent years it has not received the same level of government attention as in the past, says Mr. Caddey. This matters because in the space business, if you cant sell to your own country and you are not satisfying domestic needs, you are really at a disadvantage in trying to sell internationally. He notes that there has been a massive increase over the past 25 years in the number of countries that have assets in space. Theres a race to the top; thats what were up against. We need our country and our government to see space the same way, he says. Mr. Emersons report has responded with recommendations that encourage the federal government to engage with Canadas space industry to promote innovation, drive exports and grow industrial capacity. Among its points, the review proposes to stabilize the funding of the Canadian Space Agency (CSA) and increase investments in technology development over the next three years to help promote innovation and exports. Mr. Emersons report also

EXPERT OPINION

Canadas industry ready to act on recommendations

The shifting world economy presents an impending test for Canadas government and aerospace industry alike. Protecting Canadas coveted position in this high-value, hightech industry is going to require aggressive leadership and urgent action from policy-makers and industry alike. Only this will enable Canada to address impacts including the international nancial crises and the persistent rise of emerging markets, including Asia, now affecting our aerospace sector. Canadas aerospace industry is ready and willing to do its part. There is much at stake, especially in a rising era in which Canadas global competiveness increasingly rests in our ability to succeed in knowledge-intensive industries. When it comes to global success, few Canadian high-tech sectors match aerospace, an industry whose achievements include rank as the second largest industrial investor in Canadian R&D. Canadas aeronautics and space industries generate close to $40 billion in total economic output, with direct annual revenues of $22 billion, and are responsible for 160,000 jobs at more than 700 rms across the country. We salute the federal government for its action, both in commissioning the Review of Aerospace and Space Programs and Policies earlier this year and its insistence that a nal report be completed by the end of 2012. Led by the Honourable David Emerson, the resulting Aerospace Review is now complete. The report articulates a truly global vision for Canadian aerospace and supports it with strong recommendations for both industry and government. As Mr. Emerson states: In an international economic environment where change has been breathtakingly rapid, the greatest risks are posed by complacency and failure to adapt. Inertia would place in jeopardy, unnecessarily, one of the countrys most important sectors and along with it the critical economic, technology and security benets that ow from a healthy and competitive aerospace sector. While the reviews pragmatic recommendations are long-term in nature and designed to be scally neutral, several are potential game-changers for Canadian aerospace competitiveness. For example, doing a better job of prioritizing technology investments and creating large-scale technology demonstration capacity will boost Canadian competitiveness by ensuring we develop the capabilities to meet the growing demand for more efcient aircraft and spacerelated technologies. Streamlining programs, including the Strategic Aerospace and Defence Initiative (SADI) and transforming it into a sound, risk-sharing instrument will allow us to fully exploit our aerospace and space R&D potential and help small businesses better access resources they need to succeed. In addition, fully leveraging procurement tools such as Industrial Regional Benets and In-Service-Support will bolster industry capabilities through transfer of intellectual property and technology. Further, with more than 20 per cent of aerospace jobs engineers, scientists and other specialists requiring high levels of skills training, investing in these and other aerospace disciplines will help support better jobs for Canadians. Canadian aerospace must also adapt to evolving supply chains, the emergence of new economic powers, and changing procurement and market realities. Bolstering innovation in both aeronautics and space, improving market access and skills development, better leveraging the benets of procurement, enhancing national R&D collaboration and ensuring supplier development to help them climb up the value chain are all keys to ensuring Canada remains a leader in the aerospace and space sectors. Yes, early and effective implementation of these policy and program changes will be critical to achieving their intended results. Canadas aerospace industry is eager to contribute by providing rm commitments to enhanced collaboration, smart transformation and by investing in high-tech jobs that will make Canada proud for generations to come.

By David Schellenberg, CEO, Conair Group Inc. and Cascade Aerospace, Inc. Chairman of the Board, Aerospace Industries Association of Canada

By the numbers
Canadas aerospace sector is a major contributor to national interests.

Flight Ops

75%
Industrys contribution to total $2.7 billion invested annually in aerospace R&D in Canada.

Fleet Management

73%
of Canadian aerospace products are exported.

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FROM A1

Centres of excellence: Airports play central role

There are as many jobs and higher paying jobs in Mirabel today than there were back then, says Mr. Cherry. He says even more jobs are likely to come. Bombardier will test its C-Series aircraft in Mirabel in 2013 and will eventually assemble the aircraft there. Pratt & Whitney Canada also established an advanced R&D and manufacturing centre here, where the company will ultimately produce its revolutionary geared turbo fan engine. Mr. Cherry says the networks of sub-suppliers that operate nearby such majors add further value and jobs. There are now between 3,500 and 4,000 employed directly on the airport site. L-3 Communications alone employs about 900 people here. Canadas airports have also become preferred sites for aerospace training centres that generate much needed talent. We have had really good support from Okanagan College, says Mr. Akerstream, noting that KF co-hosts Okanagan Colleges Aircraft Structural Repair Technicians Course. The students train right here on site. In time they become licensed technicians, and we have a chance to hire them. In Mirabel, Mr. Cherry says ADM transformed a building into a training centre now used by three schools that churn out pilots, key trades such as electricians and mechanics, and others with aviation management skills. While ADM is also expanding its lineup of non-aerospace tenants, such as a re-opening of the hotel at Mirabel, building its core strengths remains ADMs key focus. We attend all the aerospace shows. We are constantly looking to attract companies that need facilities in and around airports.

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