Good afternoon everyone. I will be giving my presentation in English, but we will be able, I hope, to answer your questions in both languages.
[English]
Thank you for the opportunity to appear before you this afternoon and for your interest in hearing CADSI's views on the F-35 program, a subject of keen interest to Canadians and to our 860 member companies.
We fully appreciate the political environment within which the program is being discussed. As you know, CADSI is not a partisan organization, and as a not-for-profit association, we do not have a commercial interest in this or any other defence program. You might well appreciate that because of the depth and breadth of our membership, we do not take a specific position on any given defence procurement, which is why you have not seen us in the media on F-35, nor are you likely to. Furthermore, we don't comment on defence requirements, as we firmly believe that is the prerogative of the federal government.
With that said, in general we believe that defining a requirement should not be used as an opportunity to define a specific platform. We believe that procurement strategies should be chosen in part so as to optimize Canadian industrial participation at the R and D, production, and sustainment phases of a project.
As you may remember from our appearance before you on April 29 this year, we have called on the government to create and implement a defence industrial strategy in the context of general reforms to defence procurement in Canada. If such a strategy existed, we believe questions surrounding the economic benefits derived from any specific procurement, including the F-35, would be easier to answer and evaluate from the perspective of a return on investment for taxpayers.
What can we say about the F-35? First, in principle, we like the project model being used for the F-35 because it includes characteristics akin to a defence industrial strategy. By that I mean cooperation between the defence industry and the Canadian government from the concept phase of a defence program; the commitment and targeting of government-supported industrial R and D from the earliest stage; articulating and promoting domestic industrial policies where Canada can win business at the production phase of a program, including defence electronics; procuring the right to use and disclose intellectual property to benefit domestic industries' involvement at both the production and sustainment phases; and enhancing Canadian access to global supply chains from development through production and sustainment. We believe those characteristics, akin to a defence industrial strategy, are present in the F-35 project.
Second, participating in the development of capital defence programs from the ground up provides Canadian industry with the time horizon to invest in plant, process, R and D, and human resources, and to find partners to enable it to compete successfully when programs ultimately come to market. We believe it also creates an important window of opportunity for government to act strategically to nurture and develop Canada's defence industrial base in areas of sovereign, security, and national economic interest through its participation in such programs.
Third, we support a similar procurement approach to other priorities outlined in the Canada First defence strategy, including but not limited to naval and coast guard requirements. We encourage the government to work expeditiously to move the national shipbuilding procurement strategy forward to the point where construction on these new vessels can begin in the shortest timeframe possible, in collaboration with Canada's marine and shipbuilding industries.
Fourth, there are other project models that can also effectively obtain needed military equipment and build and sustain industrial capability and capacity in Canada's defence industrial base. Regardless of the project model chosen--build, or COTS and MOTS, with strategic industrial and regional benefits--the message we wish to convey is that a collaborative relationship between the defence industry and government, developed from the earliest stages of defining a defence requirement for Canada and conducted in the context of a defence industrial strategy, will improve Canadian industry success in defence procurements at home and abroad and enhance its ability to spin off capability into the commercial marketplace, both domestically and internationally. We believe this is good news for the Canadian Forces and good news for Canadian workers in the defence and security sector of the economy.
Fifth, in the context of the recent Auditor General's report on defence procurements, we note how important program and management cost controls around defence spending are in general, and will be into the future, for ensuring that the Canada First defence strategy can be fully met and implemented on time and to budget, including a fully funded national shipbuilding procurement strategy. Government's recommitment to fully fund its planned investments in land vehicles and soldier systems and naval and coast guard vessels would be an important sign for those within our membership who are concerned that the next-generation fighter program might siphon funds from programs they are investing in.
Sixth, to date, the government reports on early contract returns on the F-35 project would appear to show that Canada has done as well as or better than other partner countries in winning business. If this trend continues, participating companies will do well. We would ask the government to provide regular updates on the continuing progress of Canadian industrial participation in the F-35 project.
Finally, there remain a number of issues around this project, which, when addressed in the fullness of time, will better define the scope of Canadian industrial involvement in the project and the economic benefits that can be realized for Canadian workers. Those issues include the articulation and execution of a domestic industrial plan for the lucrative sustainment phase; how effective the Canadian government can be working with domestic industry to capitalize on access to and use of the intellectual property Canada has purchased within the program; the extent to which Canadian companies and the government can capitalize on additional high-value defence electronics business from the supply chain opportunities that remain to be decided for F-35 production; and how many high-value jobs are ultimately going to be created and sustained within the Canadian economy.
Mr. Chairman, in our view, it is somewhat too early to tell if the model will ultimately work to Canada's benefit. We do not know about job growth or prospects, in part because Industry Canada doesn't keep job data. We don't know contract terms because of commercial confidentiality. And we don't know about contract value, because, in short, we don't know how many planes will ultimately be built and purchased.
That said, CADSI lends its continuing support to ensure that when the day comes and Canada is ready to formally make a procurement request of the program office in Washington to address its next-generation fighter needs, Canadians will know much more than they do today about the extent and quality of economic activity that will be generated over the long term for Canada's defence industry and workers, both at the production and sustainment phases of this program.
Mr. Chairman, CADSI's 860 members and their 90,000 knowledge-based workers remind this committee of what we said in our military procurement report of December 2009, which was that defence procurement decisions should be made in the context of a defence industrial strategy. With a strategy in place that is aligned with the Canada First defence strategy and international market opportunities, industry is better able to prepare for success, and Canadians are better able to judge the domestic economic return on investment from defence spending.
[Translation]
Thank you. We will now answer any questions you have.
:
Thank you for the questions.
Through you, Mr. Chairman, I outlined in our introductory remarks the characteristics that we deem in this model to be applicable to a defence industrial strategy. Those included early engagement between industry and government, and it would appear that that commitment and that undertaking have been met on F-35.
The commitment and targeting of government-supported industrial R and D from the earliest stages--we understand that the government has purchased intellectual property that it has the right to use and disclose, both at the production and at the sustainment phases of this program. We've suggested that a measure of an industrial strategy would be articulating and promoting domestic industrial priorities within a given program, and we believe that has also been the case...and the ability for Canadian companies to access the global supply chain of a major OEM. Again, this program is an opportunity for Canadian companies to do that.
So when we said it's too early to judge whether the model will work, we meant that. There have been opportunities that the government has reported have been earned by Canadian companies. We have enormous confidence in the capabilities and the competitiveness of Canadian industry, and there are at least a couple of years ahead of us to see exactly how much work, at the end of the day, Canadian industry will be able to earn from this program.
We are talking about F-35s, and I can see you like that type of aircraft. You talked about the importance of acquiring F-35s under a defence strategy and developing a domestic industrial base. That is what I understood from your remarks, but correct me if I am wrong.
Do you not think that the government should take a stronger stand by ensuring that the construction process generates more economic spinoffs for the aerospace industry and that Canada gets a fair return? Given that the production of these aircrafts generates economic benefits, obviously, Quebec must receive its fair share. The proportion of jobs this represents is around 55% in Quebec.
Furthermore, do you not think it is important, if not essential, for the government to have a firm contractual agreement in terms of maintenance support? That way, Canada and Quebec would benefit, and the spinoffs for Quebec should be proportional to its economic standing in the aerospace industry. That would guarantee spinoffs for the aerospace industry.
Do you admit that, as we speak, there are no guaranteed economic spinoffs with respect to construction or maintenance, and that that is a problem?
:
Thank you for your question.
Where I come from there are very few real guarantees in life. What we've been trying to suggest to you, sir....
First, if I may respond to your first comment, CADSI has not taken a position on the F-35 because it is a specific program, and we as an organization don't take a position on specific programs, in part because we have 860 members, and to side with one platform relative to another would obviously put us in a tight spot with our membership. It's akin, if you like, to asking us to profess which of our children we love more. It's not a business we feel comfortable being in.
I agree with you, sir, that it is very important for Canada to have a very clear sense of what its sustainment objectives are for the F-35 and to have that sustainment plan aligned to an industrial participation plan. To date, that has not been developed or completed, and in our presentation to you this afternoon we've identified this as an item of outstanding business. We have confidence that between now and the time an order is ultimately made, the government will have arrived at a decision around sustainment and around an industrial plan in that respect.
As it relates to work to be performed in the province of Quebec or in any other province of this great country, our organization is of the view that Canadian industry is capable of competing for work, and that work should go to wherever Canadian companies have won that business. We are confident that the Montreal aerospace cluster is strong, is competitive, and will do an effective job of selling itself to the F-35 program.
And thank you, sir and lady, for coming today.
I want to ask you about the strategy that was described to us by the former ADM Materiel, Alan Williams, to participate in the joint strike fighter development program. As he described it to us, the purpose of Canada's participation was to increase the knowledge base of Canadian companies so that we would have experience in that field and would be able to get contracts to move to the next level of Canadian capability.
Even on a stand-alone basis, he deemed the joint strike fighter development program a success. He also indicated that initially there was no commitment, of course, to buy the particular results of that fighter jet, but that the program on a stand-alone basis was valuable and useful.
From an industrial, defence industry strategy point of view, would your organization agree that this was the result?
Through you, Mr. Chairman, to Mr. Page, you mentioned that you felt that it was the role of Industry Canada to keep track of how many jobs arise to see how we're doing in terms of employment as one of the secondary benefits of having claimed that it will do the best job for our military.
Among your membership I noticed a number of companies that have plants in my riding, such as Arnprior Aerospace, Magellan, Pacific Safety Products, E.T.M. Industries, and Allen Vanguard, through Med-Eng. That's just a few out of your 860 members.
Because we have our primary contractors subbing, it's very difficult for government to know what the chain of contracting is all the way down the line. There may be companies that we would never anticipate would benefit. My question to you is whether you would survey your membership to find out how many person-hours are estimated to be gained as a consequence of this particular procurement.
:
Thank you, Mr. Chairman. My question is through you to Mr. Page.
Mr. Page, you did say that you had 872 organizations in your group. I'm wondering if one of those is Meggitt Defense Systems, which is in my riding. My colleague, Ms. Gallant, talked about subcontractors. I can tell you that Meggitt, a small organization in our riding, has 122 suppliers. So if you think about that in terms of other organizations, I can just see that this thing is huge.
In the CADSI report, it states on page 7 the importance of R and D as “a key driver of industrial base competitiveness”. While in some instances the IRB can be applied to cover this requirement on many of the off-the-shelf defence procurements, the uniqueness of this MOU in the JSF program offers exactly what CADSI requests, and I quote:
[CADSI] understands that Canada's industrial base adds significant value to Canadian defence systems acquired from foreign suppliers, a market that cannot be effectively sustained unless such acquisitions include intellectual property (IP) rights to permit Canada's defence industry to function effectively.
Could you explain to the committee why the intellectual property right transfers in the MOU are a significant breakthrough?
:
Mr. Page, the one thing I want you to come away with is that the official opposition, as I said at the beginning, is strongly in favour of a vibrant aerospace industry in this country. Our concern is whether or not the process to date has in fact been transparent and whether there has been a real competition. Mr. Williams was before us and indicated there really was no real competition. Obviously, he had been in this business a long time.
Some of my friends on the other side may not agree, but the fact is that we are for a strong national defence and we don't take second place to anybody when it comes to that. We don't take second place on the issue of believing that there should be planes that will do the job. Well, I'm still not quite sure why this plane is the plane to do the job, but the fact is that some argue that it is.
We want your industry to be extremely competitive. We want your members to do very well. We just want to make sure, though, that there are the economic guarantees out there, so that at the end of the day no one in this country is shortchanged. Up till now there are questions as to whether or not that is actually taking place, but I don't want any members of your industry to come away with any other thought than that the official opposition, this party, is supportive. I say this because there have of course been some comments made and derision by some suggesting that somehow we are weak on defence. I again remind everyone that it was the Martin government that put $15 billion, the largest amount of money in Canadian history, into national defence.
So we will continue to explore these issues because we believe that at the end of the day it will be good for your members, and, most important, it will be good for Canadian taxpayers.