March 29, 2022

Why are Canadian defence dollars going to non-Canadian firms?


Russia’s diabolical invasion of Ukraine is heightening interest in national security, and even Canada, along with other NATO allies, is hinting at increased defence spending which, at 1.39 per cent of GDP, is one of the lowest in the alliance. Canada’s record on defence procurement is a sad litany of political paralysis (e.g., on fighter jets) and bureaucratic fumbling giving rise to erratic decisions and massive cost overruns. Strategic national security reasons and the national interest should be front and centre in all future decision-making on defence procurement.

All other G7 countries use major defence contracts to stimulate innovation and industrial benefits in their home markets. Canada does so on selective occasions, as with the Canadian Surface Combatant (CSC) program, but in that case cabinet ministers had to overrule Public Services and Procurement Canada (PSPC) and military officials who preferred an international competition. The politicians rightly insisted that the largest procurement in Canadian history ($77 to $82 billion) had to be Canadian.

In the U.K., almost no warship is ever built that is not sole-sourced to BAE. In Italy, almost no warship or non-fighter military aircraft is bought from anyone other than Leonardo (formerly Leonardo-Finmeccanica). Both have become substantial global businesses, selling to many countries, including Canada. The U.S. has also mastered the practice, which is why Lockheed Martin and Boeing are leading global defence giants.

Whether because of bureaucratic zeal or “boy scout” predilections, Canadian officials prefer that all defence contracts be subject to global competition with the lowest price being the prime determinant.

“Bait and switch” tactics are all too common. Soon after the ink is dry on contracts, companies find reasons to increase cost estimates, often aided and abetted by changes to the specifications. Long-term contracts are particularly susceptible to these practices despite attempts by the auditor general to rectify matters.

The dismal record speaks for itself.

A final decision on the fighter jet purchase was delayed for decades, debilitating the capability of Canada’s airforce, whose F-18 fleet is likely almost twice as old as many of its pilots. After years of procrastination, the government has now announced that it will purchase Lockheed Martin F-35s to replace the aging F-18s, but at a higher price for taxpayers after futile attempts to identify an alternative.

A contract for new search and rescue aircraft was won by Europe’s Airbus. The planes were supposed to be operational last year but have been delayed, reportedly partly due to technical problems including a centre-of-gravity issue related to the cabin configuration as well as problems involving search-and-rescue personnel parachuting from the plane’s back ramp.

Then there was the Sikorsky maritime helicopter program, which was billions of dollars over budget and a decade late.

The current case at issue is a 30-year, $12 to 15-billlion extension of the Future Aircrew Training (FAcT) program. The winner of this contract will train all Canadian military pilots. The existing contract, held by CAE Military Aviation Training together with KF Aero in Kelowna, is up for renewal. CAE is widely regarded as the best in the world at flight simulation and training pilots, both for military and commercial operations. It is arguably the only substantial, publicly traded and Canadian-owned defence company. (Full disclosure: I was the CEO of CAE from 1999 to 2004 but I have no current affiliation with the company.)

CAE and KF Aero have joined forces with other partners to form a Canadian consortium — SkyAlyne — for the new bid. However, SkyAlyne is being forced to compete with Babcock of the U.K. and Leonardo of Italy, both heavily subsidized by their home governments. Leonardo Helicopters has a long-standing relationship with Russian businesses, including a state-owned energy giant and a defence conglomerate both led by oligarchs who are allied closely with President Vladimir Putin. Given events in Ukraine, why should any Russian-associated firm be even eligible to bid on a major Canadian defence contract?

The Canadian government has the authority to change the terms of the Request for Proposal for the training program and it should do so. For national security reasons and for reasons similar to those adopted for the CSC program, it should announce that SkyAlyne has been selected for FAcT. The training and simulation would be done in Canada by Canadian companies, so that Industry, Science and Economic Development Canada, which is responsible for industrial and regional benefits, would gain Canadian aerospace investment, jobs, innovation and capability from a sea-to-sea, national consortium.

For whatever reason, PSPC and DND officials approach large procurements in a manner that seems hostile to Canadian industry. PSPC had no difficulty deeming Airbus as the only qualified supplier for new RCAF refuelling and VIP aircraft possibly costing up to $5 billion. No red flags from officials, nor from Opposition parties nor the media.

With insufficient consideration given to Canadian content, SkyAlyne could lose the bid — a result that would run completely counter to any rational appreciation of the direct link between national security and the national interest.

We need ministers at the cabinet table to defend the “key industrial capability” policy that both the Harper and Trudeau governments endorsed, and not hand over jobs and innovation to the U.K. or Italy. If the situation were reversed, Canadian firms would not get a look through the door.

No Canadian cabinet minister should want to announce that, since Canadian industry is not up to the task, we are using our tax dollars to enable foreign companies to train Canada’s pilots.

Equally, Canadian officials who seem to have an allergy to supporting Canadian champions should be invited to find a different line of work.

National Post

Derek H. Burney is a former, 30-year career diplomat who served as Ambassador to the United States of America from 1989-1993.

This article originally appeared in the National Post