Volume 1: Beyond the Horizon: Canada's Interests and Future in Aerospace – November 2012

Part 1:
Review mandate and process

Canada is among the global leaders in the aerospace business. Its aerospace industry is the fifth largest in the world in absolute terms—behind the United States, France, Germany, and Britain, and ahead of Japan, Russia, Brazil, and China—and the second largest when measured against the size of its national economy, behind only the United States.

The structure of the aerospace industry

For the purpose of the Review, the aerospace industry is composed of three segments:

  • Civil aerospace includes the design, manufacturing, and sale of commercial and recreational aircraft, related systems and parts, and civil flight simulators.
  • Military aerospace includes the design, manufacturing, and sale of aircraft used by the armed forces, related systems and parts, and military flight simulators.
  • Maintenance, repair, and overhaul (MRO) includes services such as upkeep, repairs, refurbishment, equipment upgrades, and modifications, for both civil and military aircraft.

Airline operations (except for their MRO divisions) and airports were not included in the Review's mandate.

This success has been of tremendous benefit to the country's wealth, security, and international standing. And it is becoming even more important in an era when technological innovation and diversification are critical to Canada's long-term prospects.

Figure 1: The world's top aerospace powers, by revenues and by production-to-GDP ratios—2010

Aerospace manufacturing GDP as a share of total GDP
Aerospace manufacturing revenues
US$ billions at purchasing power parity
Figure 1a: Aerospace manufacturing revenues
Source: OECD
OECD = Organisation for Economic
Co-operation and Development
Figure 1b: Aerospace manufacturing GDP as a share of total GDP
Source: OECD
GDP = gross domestic product

Description of Figure

Two vertical bar charts are shown side by side. The first chart shows total aerospace manufacturing revenues in the top six aerospace countries in 2010. The United States had by far the highest revenues at $191 billion, followed by France ($60 billion), Germany ($29 billion), the United Kingdom ($22 billion), Canada ($16 billion), and Japan ($11 billion). All figures are in U.S. dollars adjusted for purchasing power parity.

The second chart shows aerospace manufacturing gross domestic product (GDP) as a share of total GDP for the top six aerospace countries in 2010. The United States had the highest ratio, with aerospace manufacturing representing 0.50% of its total economy, followed by Canada at 0.49%, the United Kingdom (0.42%), France (0.35%), Germany (0.31%), and Japan (0.11%).

Changing global conditions, however, mean threatening competitive challenges even as they present new opportunities. In this more demanding and rapidly changing environment, Canada's aerospace sector requires well-designed public policies and programs to meet the challenges and leverage the opportunities.

Canadian governments have long devoted attention to the aerospace sector, motivated by its role in creating high-quality jobs and technological innovations, and the substantial direct and indirect benefits generated as a result. Government involvement has also reflected an understanding that the development of aerospace products is a complex, large-scale endeavour that demands exceptionally large investments of resources and time—investments that have frequently involved the public and private sectors sharing risks and rewards and capturing substantial potential benefits for the country. And Canadian governments' willingness to engage has been a practical response to a world in which other governments routinely invest significant sums in their own aerospace industries through a myriad of measures, some visible, others less so.

But recognizing that a sector has strategic importance does not mean the policies and programs designed to support it should be shielded from scrutiny. In fact, it is more critical than ever that those policies and programs perform at the highest level in response to evolving circumstances—fostering innovation and helping to position the industry to compete in global markets.

Against this backdrop, the government announced that it would initiate "a comprehensive review of all policies and programs related to the aerospace/space industry to develop a federal policy framework to maximize the competitiveness of this export-oriented sector and the resulting benefits to Canadians."Footnote 1

The Aerospace Review was formally announced on February 27, 2012. David Emerson was appointed Review Head, and was joined by a three-person Advisory Council comprising Sandra Pupatello, Jim Quick, and Jacques Roy.

From the outset, a commitment was made to a review that would be independent, evidence-based, grounded in a long-term perspective on global and industry trends, open to innovative but practical approaches and solutions, and aimed at producing concrete, fiscally neutral recommendations. This volume provides the Review's findings and advice with respect to the aerospace sector; a companion volume covers the space sector.

In conducting its research and analysis, the Review relied on four streams of information and advice.

First, working in close consultation with the Aerospace Industries Association of Canada (AIAC), it established industry-led working groups in the following areas:

  • technology development, demonstration, and commercialization;
  • market access and market development;
  • aerospace-related public procurement;
  • small business and supply chain development;Footnote 2
  • people and skills; and
  • space.

The working groups brought together representatives of industry, academic and research institutions, and unions, as well as federal government officials participating as observers. The working groups were given specific mandates, including questions for consideration, and each held a series of discussions that led to the preparation of reports with findings and advice to the Review Head. While working group chairs and vice-chairs were not obligated to achieve consensus, they were encouraged to strive for the widest possible agreement among participants and to ground their counsel in sound evidence and analysis.

Second, the Review Head and Advisory Council members conducted a series of roundtables, meetings, and site visits in Canada and major aerospace nations. Domestic meetings were aimed primarily at understanding the state of the Canadian industry and its views on which policies and programs have been working well or falling short. International meetings were aimed at learning about best practices in other countries with vibrant aerospace and space sectors, and assessing both emerging competitive challenges and opportunities for increased collaboration and market success.

Travelling mainly as a group, the Review Head and Advisory Council members visited Montreal, Toronto, Winnipeg, Vancouver, and Halifax. Travelling for the most part individually, they visited the United States, the United Kingdom, France, Germany, China, Japan, Russia, and Brazil.

Third, the Review commissioned 16 studies from independent experts (see Appendix A) on a range of topics, including the impact of global trends on Canada's aerospace sector; various countries' strategies for facilitating the success of their aerospace industries; export control regimes in Canada and abroad; the financing needs of small and medium-sized aerospace companies; and options for dealing with the impacts of cyclicality on the aerospace industry's highly skilled workforce.

Finally, the Review invited written submissions (see Appendix B) from interested parties through its website, ultimately receiving some 25 documents from a variety of organizations, companies, academics, and private citizens.

Most of the material and analysis generated through these four streams of information and advice are available through the Review's website and, it is hoped, will continue to serve for some time as an important source of information and ideas for those interested in the shape and future of the aerospace and space sectors.

Drawing on all four streams, the Review examined current conditions and long-term trends, and considered the roles and perspectives of all players.

The Review's analysis was guided in part by the principle that in a market economy, industry has the primary responsibility for its own fate and the role of government must be carefully delimited. Public policies and programs can foster conditions that help companies thrive—which is good for owners, employees, shareholders, and the national economy—but they are not a substitute for business acumen and entrepreneurship.

The role of government in supporting Canadian industry is concentrated in a number of key areas:

  • Supporting research and development (R&D) that might take years to produce marketable results but has the potential to generate substantial benefit to the public good, in part through risk-sharing.
  • Improving the functioning of markets and business performance by facilitating communication between firms whose needs and capacities may be complementary—both in Canada and abroad—and between industry and academic and research institutions.
  • Making procurement decisions that strengthen domestic industries, and therefore the national economy, while respecting international trade rules and acquiring the best product for a reasonable cost.
  • Protecting the public—and the industry—by ensuring that Canadian products are safe and that sensitive technologies do not fall into the hands of hostile states or interests.
  • Improving labour market efficiency by supporting vibrant academic institutions that understand the needs of industry and by facilitating recruitment of talent from abroad where serious domestic skills shortages exist.
  • Levelling the global playing field for Canadian companies by negotiating equitable rules of the game, ensuring that these rules are respected in practice, and providing companies with information about foreign markets.
  • Providing financing to support the purchase of Canadian products, as long as the terms of such financing produce a benefit to taxpayers and the economy, and fall within the bounds of international agreements.

Delineating clear boundaries for the role of government is sound economic policy. It is important, however, that Canada not be shy or half-hearted about making full use of the tools available within these boundaries. Around the world, the aerospace business is conducted within an elaborate framework of support, regulation, and incentive, which can sometimes be as pivotal to corporate success as engineering ingenuity and marketing savvy. Canadian aerospace companies face competitors whose governments are determined to build national industries by investing heavily and employing a range of measures in support of their domestic firms. Canada need not and should not adopt all the same approaches, but to compete globally in aerospace, we will have to respond to what other nations are actually doing.

If the government is fully engaged and acts with foresight and focus, Canada's aerospace industry can improve its position, with significant benefits for national security and overall economic and environmental performance. Failure to respond and adapt to changing global circumstances will not mean maintenance of the status quo but rather, steady decline, significant lost opportunities, diminished industrial and innovative capacity, fewer rewarding jobs in advanced manufacturing, and the gradual eclipse of an industry that has been a major contributor to the country's well-being.


Footnotes

  1. 1 Government of Canada, Budget 2011: The Next Phase of Canada's Economic Action Plan, (Ottawa: Public Works and Government Services Canada), 2011. (Return to footnote reference 1)
  2. 2 This working group ultimately submitted two separate reports: one on small businesses and one on supply chain development. (Return to footnote reference 2)