Canada's growth as an aerospace manufacturer is mirrored by that of its primes. Now companies are emerging from the industry's mass of smaller firms with hopes of matching, through consolidation and growth, the success of those primes.
They are tough acts to follow. Bombardier entered the aerospace industry as recently 1986, but has grown into the world's third largest civil aircraft manufacturer by launching one new product a year since 1991. Pratt &Whitney Canada has followed a similar path of heavy investment in new programmes to take more than 50% of the small turbine engine market. CAE Electronics has secured an equally dominant share of the flight simulation market, while Bell Helicopter Textron's 1983 agreement to move its commercial helicopters to Canada has proved remarkably successful.
Together, these four companies are the engine of Canada's aerospace industry. Their ability to compete successfully in the global marketplace has brought both business and challenges home to the domestic industry.
Bombardier entered the aerospace business with the purchase of Canadair from the Canadian Government, later acquiring de Havilland, Learjet in the USA and Short Brothers in the UK. But most of its growth has been from new products and services. The company's sales have almost doubled every five years with the introduction of new aircraft, beginning with the Learjet 31A in 1991 and following with the Canadair Regional Jet (1992), Learjet 60 (1993), CL-415 (1994), Dash 8-200 (1995), Challenger 604 (1996), Learjet 45 (1997) and Global Express (1998).
The pace is continuing. The Dash 8Q-400 will be certificated this year, and the Canadair Regional Jet Series 700 in 2000. Bombardier is expected to launch the Continental business jet later this year, for certification in 2002, and by year end it will decide whether to proceed with a 90-seat regional jet, the BRJ-X, aiming for first deliveries in 2003.
Aerospace accounted for more than half of Bombardier's C$8.5 billion sales in its 1997-8 financial year. Figures for 1998-9 are not yet available, but are certain to show further substantial growth. The company ended the year having delivered 227 aircraft and booked 248 orders, up from 178 and 151, respectively, the previous year.
Bombardier has tried to maintain the balance between regional and business aircraft as it has grown. Deliveries of each broke the 100-aircraft barrier for the first time last year. The sales success of the Canadair Regional Jet is responsible for the growth in Bombardier's regional aircraft division - 223 CRJ orders were booked last year - while the business aircraft division has grown by renewing and expanding its product line.
Bombardier's success has been a double-edged sword for Canadian industry. While the company's C$4.6 billion in aerospace sales constituted the single largest contribution to the industry's C$13.4 billion total in 1997-8, the Canadian content in its products is decreasing in percentage terms. "In 1997, we bought C$530 million in aircraft parts from Canadian suppliers. That is increasing at a slower rate than our overall business because we are buying larger systems offshore," says Dave Thomas, senior administrator, supplier developments.
"We are becoming a system integrator, dealing with suppliers who provide large chunks of the aircraft, including complete subsystems," he says. "We are not buying parts from local manufacturers, although our existing aircraft and being produced at a good rate, which keeps the local shops busy."
While Bombardier has off-loaded fabrication work on its current aircraft to local companies, its new designs involve risk-sharing partners, most of them offshore.
"We like to have local suppliers where possible - it improves the logistics," Thomas says. But gaps in the industry's capability are an obstacle. "Canada is a little thin in major subsystem suppliers. It would be good for us to have additional local capability," he says. Bombardier is working with the government on the issue of investment to increase the capability of local firms, and to attract to Canada companies with the required capabilities.
He cites Sextant Avionique's decision to establish an avionics integration facility in Montreal, with C$9.9 million in TPC investment. Sextant is supplying the complete avionics for the Dash 8Q-400 and the flight control system for the CRJ-700.
Pratt & Whitney Canada faces many of the same issues as it strives to bring down costs and cycle times to stay competitive. The Montreal-based company is the world's leading supplier of small and medium-sized turbine engines and, with sales of around C$2 billion last year, is Canada's second largest aerospace firm. P&WC has launched roughly one new engine a year over the past five years, and has several designs on the drawing board.
The company built its success on the PT6 turboprop/turboshaft and JT15D turbofan, but has broadened its product range with the addition of five engine families: the PW100 turboprop, PW200 turboshaft, PW300 turbofan, PW500 turbofan and PW900 auxiliary power unit. Currently, P&WC is completing development of four new engines: the PW150 powering Bombardier's Dash 8Q-400; the PW207 for Bell's Model 407; the PW308 for Raytheon's Hawker Horizon; and the PW535 for Cessna's Citation Ultra Encore.
If that was not enough, the company is studying new products ranging from a small turbine for general aviation aircraft to a bigger engine for 70- to 90-seat regional jets. The smaller engine, which could be produced as a turboprop as well as turbofan, would fit below the PW500. The larger turbofan would be developed jointly with Snecma as the SPW14.
"The SPW14 is at the top of the thrust mandate for P&WC," says chairman and chief executive David Caplan. P&WC's aggressive schedule of engine launches has paid dividends in winning programmes, but has placed heavy demands on the company's research and development resources. "For two years running, we have spent over of 20% of sales on R&D. That's a heck of a lot," says Caplan.
Partnerships
This heavy expenditure is the reason P&WC has criticised the underfunding of the government's Technology Partnerships Canada programme. The company received C$147 million from TPC in 1997, including C$100 million towards development of the PW150, but has spent over C$400million on R&D in each of the last two years. "We fund R&D from our sales and largely develop our own technologies," says Caplan. Because of the continuing need for investment, "..we are using more partnerships to launch programmes," he says.
Bell Helicopter Textron Canada, with sales of around C$1 billion, is the industry's third largest prime. The US parent company has transferred not only production of its entire commercial helicopter line, but also development to the Mirabel plant, near Montreal . The Canadian operation developed the highly successful Model 407 light turbine single, and is completing certification of the 427 light twin.
The Canadian plant produces over 200 aircraft a year. But there are challenges, and Bell also has begun looking offshore for partnerships on its newest products. The 427 is being produced jointly with Samsung of South Korea, and Bell is talking to Italy's Agusta about joint development of an improved derivative of its Model 412 medium twin.
CAE, meanwhile, has been acquiring offshore operations to increase its penetration of the international market. The Toronto-based company has purchased simulation companies in Australia and the UK to add to its successful operation in Germany and to support sales efforts by Montreal-based simulator manufacturer CAE Electronics.
CAE is the leading supplier of commercial flight simulators, and a significant player in the military market. The company also accounts for a substantial share of associated visual systems sales. Staying competitive in the market requires substantial investment in R&D, and CAE received C$32 million from TPC in 1997 to support visual simulation development, but recently decided to link with France's Sogitec rather than develop its own high-end system.
Against this background of increasing links between Canada's primes and offshore suppliers, some of the country's second-tier players are rising to the challenge. The largest of these is Magellan Aerospace, which came into existence as recently as 1996. Another is Avcorp, which has recovered from near-bankruptcy to become a strong performer.
Magellan is the result of the consolidation of several second- and third-tier suppliers, including Fleet Industries, Orenda Aerospace and Bristol Aerospace. The Toronto-based company has also acquired a number of US-based firms, including Aeronca and Middleton Aerospace, as well as several small firms.
Acqusitions and internal growth boosted Magellan's sales by two-thirds last year, to C$427 million, making it a major player in the Canadian industry. Engine parts manufacturing accounts for almost half of the company's business, and aerostructures almost a third. Magellan provides engine parts to AlliedSignal, General Electric, Pratt & Whitney and Rolls-Royce, and is a major supplier of aircraft structures to Boeing.
Over the past year, the company has boosted its business with both aircraft and engine manufacturers. Magellan signed additional aero-structures contracts with Boeing, and now supplies components for the US manufacturer's complete commercial aircraft line. The company also secured its first work for Airbus, a C$30 million-a-year deal to produce engine exhaust nozzles for the A340-500/600.
In another significant move, Magellan has agreed to take a risk-sharing stake in Allied-Signal's new AS907 turbofan, which will power the Bombardier Continental business jet. Its Orenda subsidiary will develop and produce selected critical components.
Magellan's approach to risk sharing has so far been conservative, admits president Richard Neill. Through Fleet, the company took a small stake in the Boeing 717, producing components for wing supplier Hyundai. TPC provided C$3.25 million in support to improve production methods. The company continues to evaluate risk-sharing "where it makes sense".
While winning Airbus business has been a major thrust for the company, another has been to develop proprietary products. This led to certification last year of the Orenda OE-600 V8 piston engine. Several re-engining projects are under way, and the OE-600 will power a single-engined agricultural/firefighting aircraft under development by Turkish Aerospace Industries. Orenda Recip has been formed to manufacture the engines at a new factory in Nova Scotia. The plant is also expected to refurbish and re-engine aircraft, and could form the basis of an eventual airframe group, says Neill.
Magellan received federal and provincial government support totalling C$26.5 million to help build the new plant. Another C$7.8 million was received to help turn Winnipeg-based Bristol Aerospace into a centre of excellence for composite aerostructures.
Acquired from Rolls-Royce in 1997, Bristol makes up about 40% of Magellan. It is best known for the CRV-7 unguided rocket, Black Brant sounding rocket, Northrop F-5 upgrade work and the ubiquitous helicopter wire strike protection system. But one-third of Bristol's work is on aero-engines, and its aerostructures business is growing, with contracts from Boeing on the 737, 747 and 777 and with Bombardier on the Dash 8Q-400.
Magellan plans to build the aerostructures business at Bristol and across the company. It expects to be a major player on EH Industries' Cormorant search-and-rescue helicopter programme for the Canadian Forces. "We continue to build on the capabilities across the company," says Neill.
A burgeoning aerostructures business is also the key to the remarkable recovery at Avcorp, which just five years ago was "in the toilet", says Dale Hunt, vice-president marketing and business development. The company, which has operations in Vancouver and Montreal, posted sales of almost $67 million for 1998, a three-fold increase over five years.
That turnaround is the result of a restructuring of the company under the leadership of chief executive Peter Jeffrey that has attracted the attention of customers and boosted the confidence of investors. Akey element, Hunt says, is a "gain sharing" agreement with the company's unionised employees which provides for profit sharing in return for compensation concessions and productivity improvements.
Bombardier, Boeing and Bell accounted for 86% of sales last year. A long-time Bombardier supplier, producing horizontal tails for the Challenger, CRJ and Dash 8, Avcorp took the bold step of become a risk-sharing partner in the CRJ-700, responsible for design and manufacture of the horizontal and vertical stabilisers. The C$170 million contract required an investment of C$7 million, with C$4.4 million from TPC, to install a Dassault-built assembly robot for production of the CRJ-700 tails.
Five years ago Avcorp was not a Boeing supplier. Now the company performs sheet-metal fabrication and assembly. "We have become a valued supplier, because of our proximity - and our persistence," says Hunt. Avcorp now works on all the Boeing products, from the 717 to the 777. The growing Boeing and Bombardier business has necessitated a C$24 million capital investment, including a new plant.
Avcorp's Montreal operations, meanwhile, make helicopter parts for Bell, composite simulator structures for CAE and detail parts for Northrop Grumman. The company is looking for more risk-sharing opportunities, and has bid to supply the empennage of Bombardier's Continental. Avcorp is also looking for acquisitions - not necessarily in Canada or aerospace. "We need to reach greater critical mass," says Hunt. "We could do this with acquisitions that are compatible with our current operations and bring proprietary products."
Other major players could yet be created by the acquisitions and divestitures that are reshaping Canada's industry. Privately owned IMP Group has expressed interest in taking over financially troubled Spar. Halifax-based IMP has annual revenues in the region of C$350-400 million, and its aerospace business includes support of Lockheed Martin P-3s.
Spar has seen revenues shrink from C$500 million to around C$250 million last year. Its Spar Aviation Services unit - which includes a Lockheed C-130 service centre acquired from CAE last year - has more than doubled in size and is moving into commercial aircraft maintenance. IMP, meanwhile, is looking to expand its aerospace operations, both in maintenance and, potentially, into manufacture.
Source: Flight International
