Canada special: Cash critical

General aviation manufacturers are seeking Canadian financial support and certification expertise to bring new products to market quicker and cheaper

Peter Maurer, president of the Canadian subsidiary of manufacturer Diamond Aircraft, likens the building of a new aircraft to an elephant giving birth: "Everything takes longer than expected. It takes time to recapture your investment."

London, Ontario-based Diamond, like other Canadian manufacturers of small general aviation aircraft, finds itself in search of external launch assistance as it prepares to spend upwards of $100 million to develop, certificate and produce its first jet-powered aircraft, the five-seat D-Jet.

Although the Austrian parent company already builds three piston-powered aircraft - the two-seat DA20, four-seat DA40 and DA42 twin - the revenues from sales of the trio, expected to be about $130 million this year, is not enough to fund the development of a new aircraft within an expected three-year window. Government financial aid, if available, can help a company manage cash during the lull between certification and deliveries. If not available, companies often consider relocating.

"We've approached local, provincial and federal government to discuss the programme and its benefit to the community," says Maurer. "If everything works out, there's no reason to not keep the D-Jet programme in London." Diamond owns a 18,600m² (200,000ft²) building on 22Ha (55 acres) adjacent to London International airport, where Central Aircraft built Mosquito bombers in the Second World War. The company employs more than 400 workers at the plant, 100 of them on the D-Jet.

Launch help obtained to date includes the promise of property tax breaks from local authorities if Diamond decides to build additional facilities in London a C$10 million ($9 million) loan from the Ontario government under the Advanced Manufacturing Investment Strategies (AMIS) programme and most recently a C$975,000 matching grant for human resources uses from the Ontario Ministry of Education and Training.

Diamond had hoped for a C$20 million repayable loan from the federal government through Technology Partnerships Canada, but the programme was dismantled at the end of 2006. Canada's new Conservative government has not announced what, if anything, will replace TPC, but Maurer says Diamond has already applied. Self-funding the programme would be an option, "but if you can get subsidies, why wouldn't you take that?" he adds.

Most of the government support mechanisms - federal, provincial and municipal - are linked in some way to jobs, and employment is a challenge for Diamond, the only aeronautical manufacturing company in the London area. The 350,000 inhabitants do not in general have the skills to build aircraft, at least at the moment, and Diamond has become involved with local colleges to set up programmes that will teach the skills necessary to work in the aerospace industry.

Maurer has alternative locations available if a mutually beneficially arrangement is not struck with the provincial and federal authorities, although his preference is to stay put. "Other options are available for building the D-Jet in Canada and the USA," he says, adding: "They're pursuing us."

Expedition Aircraft, another Ontario-based GA manufacturer, is feeling a bit less pursued. "If the company doesn't have a B at the beginning [of its name], it usually gets overlooked," says Andrew Hamblin, director of marketing and sales for Found Aircraft Canada (also known as Expedition), referring to Bombardier, Canada's largest aircraft manufacturer. "We have no help right now. We're 99.99% private equity funded."

Marketing focus

The company is doubling the size of its production line to build the single-engine piston-powered E350 and the E350XC. Although both models can be equipped with floats, the E350XC has a conventional landing gear, making it suitable to be equipped with tundra tyres or skis. Hamblin says the company will focus predominantly on marketing the E350, given its wider appeal.

Found ended production of its single-engined Bush Hawk aircraft in December 2006 after building 37. It launched the Expedition line in February. The company plans to ramp up its staff from 40 to 90 employees, once both models are certificated later this year, assembling as many as 36 Expeditions a year at its 2,300m² facility in Parry Sound, north-west of Toronto. The company outsources much of its manufacturing work, says Hamblin.

At 90 employees, Hamblin says he will still be 10 short of the number needed to qualify for an AMIS loan from the Ontario government, money that would most likely be used to boost manufacturing efficiencies if it were available. But the company is not out looking for benefactors in other locations, even the USA. "We're a permanent Canadian fixture," Hamblin says.

The opposite was true for Epic Air, currently located in Bend, Oregon. The company had been looking for a location to certificate and produce the Dynasty, a six-passenger turboprop single based on its experimental Epic LT. The company is also working on a very light jet design to be built at the new plant, plus other "completely new aircraft" to be unveiled at the annual Sun 'n' Fun show in Florida next month.

Epic chief executive Rick Schrameck decided in 2005 to move the entire operation north of the border, to Calgary, Alberta. "It came down to certification - time is money, time is everything," he says. "It became very obvious to us that the US Federal Aviation Administration was very under-funded for certification work going on in the USA. It's a bandwidth issue - Transport Canada has more bandwidth." In Canada, Schrameck says, he's "one of the few" versus "one of the many hundreds" in line for certification work. "They're absolutely overwhelmed at the FAA," he adds.

The company has a temporary building at Calgary's Springbank executive airport, but is expecting to break ground by summer on a 9,300m² manufacturing facility there. In addition to providing a larger base from which to draw employees - Calgary's population is 1.2 million compared with Bend's 80,000 - the area is also home to good flight-test facilities and "a lot more room" for ice testing, he says. "We found it to be a very interesting place to be hanging around."

Interesting too will be Epic's proximity to the Canadian Centre for Aircraft Certification, a division of the Canadian Centre for Aerospace Development (see box P60). CCAC is building a 4,650m² facility next to Epic's new building, with completion planned late this year, says Schrameck. The centre intends to sell certification services to aircraft manufacturers, in partnership with Canadian and US authorities. Schrameck says the Dynasty will be the first certification programme for CCAC, and that he will probably outsource more than 90% of the testing to the centre - "maybe even 100%".

Epic plans to employ up to 150 people in Calgary by October 2008, ramping up to as many as 600 after certification is complete and production starts. Schrameck says his intent is to "hire locally", but based on the resumés received he expects many of the employees will ultimately come from eastern Canada.

Union instability

Although eastern provinces, particularly Quebec, offer the best enticements for manufacturers, Schrameck says the region suffers more union instability. "It's significantly different in the west," he says. "If you end up with problems with truck drivers, that could impact the ability to deliver our aircraft. That's not the case in Alberta."

Unlike Diamond's situation, launch aid was not a factor in Schrameck's selection of Alberta. "The [provincial] government was very enthusiastic about bringing us up, but no incentives were offered," he says. "Business incentives are not what I look at. As long as the CCAC is open and we use that service, that's enough for me." Schrameck says he may in the future investigate research and development grants if the federal government decides to reinstitute such programmes.

"At the end of the day, incentives go away and you need a reason to still be there," he says. "We found that with the ability to be able to move at our speed, and the resources Transport Canada could bring us, it made reasonably good business sense [to move to Calgary]."

For start-up seaplane manufacturer Advanced Aero, developer of the Seawind 300C four-seat single-engined amphibian, launch aid from Quebec has been a boon. The company received a C$2.8 million loan guarantee from the provincial government to certificate and produce the Seawind in Quebec. The loan will cover almost half of the expected certification costs of the aircraft, previously available only in kit form. The company has 40 employees in a 7,600m² facility in Saint Jean Sur Richelieau.

Dave Arnold, sales director for Seawind LLC, the Pennsylvania-based business and marketing arm of the company, says 75 kit versions of the aircraft are now flying. He says the company has 90 deposits for the 300C - a two-year backlog - and has started building the first customer aircraft. Seawind expects to complete certification with Canadian and US authorities in June.

Financial woes

The Canadian experience has not been as robust for other GA companies. Symphony Aircraft, maker of the Symphony 160 two-seater, is being liquidated after several years of financial troubles. The company's issues were exacerbated last year by delays in certificating a glass-panel version of the aircraft with the FAA. Based in the Trois-Riviers area of Quebec, the company had built 45 aircraft in its 2,800m² facility with a peak workforce of 85 employees before seeking protection from creditors last year.

A source close to the company says Symphony had received training subsidies and tax credits for research and development from local and provincial governments. Another incentive the company had considered, but did not take up, was to contract with vendors from areas where the aluminium industry had moved out. The Quebec government now offers subsidies to companies doing business in those areas, which include Alma in the northeast and Val d'Or in the north-west of the province, as a way to reduce unemployment.

Had Symphony contracted with companies in those areas to build the aluminium wing for the 160 for example, it could have saved 30% on labour costs, the source says. A potential downside of such arrangements is that transport costs in the winter could be higher due to the severity of the weather.

Ultimately, the extra costs associated with glass-cockpit certification, the rise in value of the Canadian dollar, and what Symphony's then-president Paul Costanzo called a "dead" venture-capital market in Canada signalled an end to the funding pipeline. But if the company is ultimately reborn with new funding, those familiar with the company say Quebec will remain the best place to call home.

Source: Flight International