It's no more rocky road for Canada as the country's aerospace industry turns the corner thanks to strengths of quality, innovation and incentive. Flight Daily News' reports on its hope for a downturn-cheating renaissance
As the global aerospace industry enters the third year of an economic downturn, Canada is beginning to turn the corner. Canadian companies are hoping Farnborough 2004 will be their springboard for an aerospace renaissance.
"We will be using Farnborough International as a platform for letting the world know that Canada is still the best place to do business," confirms Jeff Rochon of the government trade body, Industry Canada. "Organisers of the Canada pavilion, Aerospace Industries Association of Canada (AIAC), have told us that they have received an excellent response from companies wanting to come along and meet potential clients at the show."
Rochon's optimism could be well founded. Over the past 10 years Canada has been one of the biggest success stories in aerospace. The Canadians have managed to double their industry's size in the 1990s to become the fourth-largest national aerospace industry in the world, worth around C$20 billion ($15 billion) with more than 400 companies employing 80,000 people.
However, the last three years have been turbulent. Like its competitors, Canada has felt a significant slow-down in the aftermath of 9/11. Ron Kane, vice-president of AIAC, explains: "In 2002 we suffered the first decline in sales after a solid decade of growth. This 7% fall in sales hit us hard and was compounded by more than 90% of our aerospace sales being targeted at the civilian sector."
Thankfully, the industry seems to have come through the worst relatively unscathed. Canada's two leading aerospace centres, Quebec and Ontario, are looking to take a lead by aggressively marketing themselves as the most cost-effective places for foreign investors to base manufacturing and research facilities.
In the vanguard are the smaller manufacturers which are counting on innovation, excellent business conditions and a highly skilled workforce to take them forward.
Cyclone Manufacturing, an Ontario-based parts manufacturer, is one such SME that is positive about doing good business at Farnborough.
"Cyclone has grown by 300% over the past three years - and that's through an economic downturn," says Jeremy Artus, vice-president, business development.
Artus says this has been achieved by adopting a lean business model, which provides the ability to take the fight to traditionally low-cost manufacturing centres in China and Taiwan - matching them on cost, beating lead times and keeping quality high.
"We benefit from being based in a very low-cost country and our workforce is highly educated and skilled. If we can keep labour costs to about 20% of the product, then we can compete on price with anybody."
Exports
And this is happening across Canada. With exports accounting for 80% of all sales - much of which going towards the USA - Canada is relying on the unique selling price (USP) of low labour costs allied to a highly skilled and educated workforce.
Comparative figures from KPMG (The CEO's Guide to International Business Costs, G7 Edition) found that Canada was the least costly place to do business out of 11 industrialised countries.
Despite the cost benefits, Artus says Cyclone and others must do more to stay ahead of international rivals.
"While we remain a low-cost solution, we are looking to move from building to print, to designing and building. We recognise that OEMs now want to spread the risk of R&D. To do this we are investing C$10 million over the next three years and are moving to a 120,000ft2 facility twice the size of our present base.
"We're currently shipping 30% to Europe - which is just a start. We hope that Farnborough will allow us to show that Cyclone is a Canadian gem waiting to be uncovered."
While there are positive aspects to Canada supporting a plethora of small, niche players, Ron Kane of AIAC supports the view that restructuring is required. "There are too many small companies in Canada. They must grow, merge or exit the market. The objective is to find ways of integrating them more closely with the OEMs, in a wider, risk-sharing environment."
Kane adds that small suppliers must learn from the Airbus A380 project and look to the Boeing 7E7. "Canadian firms failed to gain a significant slice of the A380 action - a mere 2% share," he says. "With more SMEs coming together to form integrated suppliers, the 7E7 is starting to look far more promising."
And it is not just the new commercial airline market where this is happening. Successful SMEs are establishing integrated programmes with fellow suppliers. Atlantis Systems, an Ontario-based supplier of training solutions, has teamed up with four other Canadian companies to offer a military flight training and support package for the Canadian Department of National Defence. The contract would be worth C$1.2 billion over 22 years.
Called Allied Wings, the consortium is proposing a turnkey project for flight training on fixed and rotary-wing aircraft. Martyn Exon, general manager of Atlantis, explains that the only way to compete was as part of a larger consortium.
"With only 100 employees there wasn't a chance of us going alone on this project. We recognised our strengths and along with our partners, have created a complete training school solution. Combined, the Allied Wings team has more than 3,000 full-time employees in 35 locations in Canada."
Adapt
Consortia such as Allied Wings represent a step-change for SMEs and are indicative of Canadian willingness to adapt to market conditions. Says Exon: "Innovation and a pragmatic approach is key. Before 9/11 we were 50% commercial and 50% military. That is now 80% in favour of military applications. We've achieved this by adapting products like Virtual Reconfigurable Simulator (VR-Sim) to be even more military-centric."
Another example of a pragmatic approach to partnerships is Field Aviation, a provider of adapted commercial aircraft for specialist use. Having successfully adapted and supplied five Bombardier Dash 8Q-202s for the Australian Customs Service, the Canadian firm has formed a strategic alliance with US company ATK Mission Research, to provide two of the modified Bombardier aircraft for the US Bureau of Immigrations and Customs Enforcement (ICE).
Joar Gronlund, vice-president business development, Field Aviation, believes that nationality need not be a barrier to trade. "To gain access to a client such as ICE we felt we needed to join forces with a US specialist. On this bid we were the primary subcontractor, but for other nations, we might be the lead. Together, I think we can provide excellent solutions for maritime patrol capabilities across the world."
Underpinning all of this success is a supportive R&D and business tax structure. Jeff Rochon says this is just one other area where Canada has stolen the march over its main G7 competitors.
"The provincial and federal support mechanisms in place for R&D make us a very attractive proposition. For instance, tax credits are available through the Scientific Research and Experimental Development programme and we have one of the lowest corporate tax rates. There is also additional legislation in place to ensure that we have at least a 6% advantage over the USA by 2008."
While remaining a distant fourth in the aerospace league tables behind the USA, France and UK, Canada is undoubtedly exerting an influence greater than its size suggests. And with such vision, innovation and adaptability, this trend will surely continue.
ALAN MACASKILL
Source: Flight Daily News
