Defense Industry

When Wilfrid Laurier said "The 20th Century belongs to Canada" there was still hope. Now, as the 20th century is over, this prediction fell short. But there was a time where Canada's future in the military and in aviation was going to be bright. Canada would become a leader in those fields and would be, as many say, would be richer now. But Canada failed and some point to one man, the 13th Prime Minister, The Right Honourable John George Diefenbaker. Why? Because cancelled the AVRO Arrow, he canceled a revolutionary program in aviation. Or so it is said, by some.

The composition of the Canadian defense industry is mainly companies that serve market niches and have other commercial interests outside defense. The industry and its companies have developed in this manner due to trade agreements with the United States, such as the Defense Development Sharing Agreement (DDSA) and the Defense Production Sharing Agreement (DPSA). Because of this growth style and the relatively small domestic defense market, much of the defense R&D funding has pushed along other commercial technological development. With restraints on defense spending growing, concerns of a chain reaction that may impede growth in related sectors continue to develop. One possible bright spot, however, is the creation of the new Technology Partnerships Canada fund.

In the 1980s the export defense market for Canadian manufactured products was 50 percent larger than the domestic market, and defense related products accounted for 98 percent of all Canadian industrial exports. At that time, aircraft and parts comprised 37 percent of defense exports, motor vehicles 17 percent and communications equipment 33 percent. In the motor vehicle field especially, the export market comprised over 90 percent of all defense production, and without those exports that sector of Canadian manufacturing would not survive. Perhaps the most important major item of Canadian produced equipment was the 8 wheeled armored car built by General Motors Canada known as the Light Armored Vehicle (LAV 25). The LAV illustrated clearly the degree to which the Canadian defense industry depends upon exports. The Canadian Forces used just over 450 vehicles of the light armored wheeled vehicle class (195 Cougar, and 269 Griszley). The US Marine Corps operated more than 800 LAVs.

Canada's defense sector consists largely of electronics companies and aerospace firms that produce sub-systems or sub-assemblies for inclusion in final products. They cover areas of the industry such as: communications and radar equipment; navigation systems; sensors; computer systems and software; anti-aircraft defense systems; major sub-assemblies (wings, fuselage components, flight controls, landing gear); and, other special purpose electronic components. Some sectors, such as ammunition and light armored vehicles, have a large percentage of goods produced by sole-source contract holders or by companies that possess a large share of the market.

As of 2007 the Canadian aerospace industry had civil sales of $17.7B (78%), and military sales of $5B (22%), with total direct jobs numbering 82,000. Canadian aerospace companies are global market leaders in regional aircraft, business jets and commercial helicopters. Canadian companies that produce aircraft include Bombardier Aerospace and Bell Helicopter Textron.

Foreign interest in the Canadian defense market was evident in two fashions: suppliers and ownership. Foreign sources account for approximately 60 percent of the supply, with the United States representing the vast majority. Parent companies of firms operating in the Canadian defense industry are primarily Canadian or U.S.-owned. Nonetheless, companies of third countries operate in Canada as well. The major international competitors in this market include divisions of General Motors, Boeing, Pratt and Whitney Canada Inc., Bell Helicopter Textron, Rolls-Royce Canada Limited and McDonnell Douglas Canada Limited. The largest domestic suppliers of defense equipment include CAE Electronics Limited, Canadian Marconi Company, Computing Devices Company, Spar Aerospace Limited and Bombardier Inc.-Canadair Limited (including De Havilland).

Because of the unique relationship existing between the US and Canada, the Canadian defense industry is recognized as part of a single North American defense industrial base. The capabilities of Canadian industry may be included in US industrial preparedness planning.

For GoC aerospace and defense procurement contracts valued at over CDN$100 million, suppliers required to fulfill the requirements of the Industrial Regional Benefits (IRB) policy. In the United States, IRBs are commonly referred to as "offsets."

The GoC implemented the Canada First Defence Strategy May 12, 2008, an action plan that will dedicate itself and its budget to the Canadian Forces and the Department of National Defence (DND) over the next twenty years. This plan allows the GoC to finalize procurements faster, and obtain defense equipment fairly and at the right price.

Canada's government uses Advanced Contract Award Notice (ACAN) buys for major defense purchases, producing rigged sole-source decisions instead of competitions. An Advanced Contract Award Notice (ACAN) is a public notice indicating to the supplier community that a department or agency intends to award a goods, services or construction contract to a pre-identified supplier, thereby allowing other suppliers to signal their interest in bidding by submitting a statement of capabilities. If no other supplier submits a statement of capabilities that meets the requirements set out in the ACAN, on or before the closing date stated in the ACAN, the contracting officer may then proceed with the award of the contract. An ACAN may be published only for requirements where Canada is able to accept a statement of capabilities from another supplier. Contracting officers must ensure that Canada is in a position to accept a statement of capabilities before publishing an ACAN. In circumstances where there is no possibility of another supplier submitting a statement of capabilities or where Canada cannot, for program or policy reasons, accept a statement of capabilities from another supplier, an ACAN is not to be published. ACANs are posted for a minimum of 15 calendar days on the Government Electronic Tendering Service (GETS).

Canada's defense budget for 2008 was $18.2 billion, with a planned increase of spending of $19.1 billion in 2009. Budget 2009 has awarded an automatic annual increase of 2 percent, to defense spending that will assist in the implementation of the Canada First Defence Strategy. This increase from the previous 1.5 per cent will provide the Canadian forces and additional CDN$12 billion. Budget 2009 has also allocated an additional CDN$100 million for the reconstruction and development in Afghanistan and CDN$89 million over the next two years for adding new embassies and missions overseas. The additional defense spending through the Canada First Defence Strategy will generate millions of dollars in procurement opportunities, with the GoC purchasing equipment for the Canadian Forces. IRBs are mandatory on all defense projects over CDN$100 million, and are discretionary on defense projects between $2-100 million, allowing the GoC to lever long-term industrial and regional development from defense investmentsi.

The market demand for defense products is continuing to grow with the Canada First Defence Strategy. The large amount of additional funds provided in the Canada First Defence Strategy will have IRB provisions on procured goods from U.S. contractors. Over the next 12-14 years, procurement that will have IRB requirements is estimated at CDN$40-60 billion in acquisition figures.

The Canada First Defence Strategy set the stage for a renewed relationship with Canadian defence industry and research and development organizations across the country. The Government will take specific measures to enhance its interaction with industry. For example, it will continue to improve the way it procures new equipment, fostering greater transparency and engaging industry earlier in the process. These ongoing procurement reforms will further streamline the contracting process and ensure that it continues to remain open and fair. In addition, the Government will revise the current industrial benefit policies attached to significant procurement projects with a view to encouraging industry to make long-term investments in Canada.

With the Government's significant investment in the Canadian Forces, Canadians will profit from the development of high-tech, high-value sustainable jobs in all regions - directly through the development of military capabilities and indirectly through technological spinoffs and commercial applications. This will put Canadians to work protecting Canadians. Universities and colleges will also benefit through increased opportunities to undertake cutting-edge research.