Monday, September 16, 2013

Government Should Support Small Aero & Space Firms

An example of how large companies outsource aircraft manufacturing to a variety of international subcontractors, often to the detriment of local job creation. Graphic from the July 29th, 2011 Wall Street Journal article "the New LearJet: Now Mexican Made."

          by Brian Orlotti

As outlined in the September 9th, 2013 post “Emerson Update: Aerospace is Go but Space Still Stalled!”, Industry Minister James Moore has announced the rollout of a $110 Mln CDN technology demonstrator program for aviation companies as originally recommended by the Emerson Review.

Add that to the $1Bln CDN promised over the next seven years under the Strategic Aerospace and Defence Initiative (SADI), as allocated in the March 2013 budget, and the emerging general consensus is that large aerospace firms have done quite well from the review.
Then Heritage (now Industry) Minister James Moore responding to a question in the House of Commons on June 11th, 2013. Photo c/o Sean Kilpatrick/ Canadian Press.

However, the funding recommendations from the second volume of the review, (titled "Reaching Higher: Canada's Interests and Future in Space"), especially those targeted at smaller engineering firms and NewSpace startups, have simply not been implemented by the current government. This neglect of smaller companies is to Canada’s detriment. The deferring of aid for small start-ups and emerging companies not only inhibits growth and increases risk, but also prevents the development of Canadian manufacturing capability.

As well, the Canadian government’s apparent focus on large firms ignores a key fact: large firms don’t last forever. The history of Canadian business abounds with stories of once-mighty giants withering away. Firms with names like Mitel, Northern Telecom, and Research In Motion spring to mind.

The Canadian government would do well to incorporate attrition into its planning, grooming many small start-ups, so that a handful may emerge as large players. In an ever-more-competitive global marketplace, such diversity will be essential for long term survival. Canada will face a variety of challenges. An emerging global sector of freelancers is enabling business, engineering, design and production talent to be harnessed from anywhere on Earth at extremely competitive prices.
Peter Diamandis is scheduled to speak at the next Ideacity in Toronto, Ontario from June 18th - 20th, 2014.

Peter Diamandis of the X-Prize Foundation examined this phenomenon in the August 20th, 2013 X-Prize blog post "How to Tap 7 Million People to Solve your Problem" and the follow-up September 4th, 2013 article "An $1,000 Investment to Millions in Profit: Four Key Ways Entrepreneurs Can Use Freelancers to Profit." In essence, Diamandis is a strong advocate of small entrepreneurial teams and freelancers in technology, manufacturing, aerospace and even space.

There are those who would argue that the emerging freelancer culture is not up to the task of designing and building air/spacecraft and their subsystems. However, we are only at the beginning of a transition towards a truly global product development and production cycle. As the pool of freelancers grows and relationships mature, high-end design and fabrication will be incorporated. Small scale firms will be as easily able to tap into the worldwide talent pool as large ones, thus leveling the playing field.
Selected components and systems suppliers for the Boeing 787 Dreamliner. Graphic c/o the January 15th, 2013 Business Insider article on how "the Boeing 787 Dreamliner isn't very 'Made in the USA.'"

The Emerson Review itself describes the changes that have occurred in aircraft manufacturing. At one time, aircraft makers made most components themselves and purchased the rest from other firms in their own country. Nowadays, the Boeing 787 Dreamliner and new Bombardier C Series aircraft (as highlighted in the review) are produced mainly outside of North America, with Canada and the US now limited to final assembly – with no guarantee that this will remain so.

Bombardier Aerospace, owner of Learjet, produces nearly all of its new Learjet 85 in Queretaro, Mexico except the wings, which are produced in Belfast, Northern Ireland. After assembly in Mexico, the aircraft are shipped to Wichita, Kansas for final assembly which involves attachment of the wings, installing the cabin interior, flight tests and delivery to the customer.

Opened in 2006, Bombardier Aerospace’s 500,000 sq. ft., 2500 employee facility in Queretaro, Mexico also produces the fuselage sections of the new Global 7000 and 8000 corporate jets as well as the flight control work package for the Q400 NextGen aircraft. Many of Bombardier’s suppliers have followed them, building new facilities and expanding existing ones in Queretaro.
With over 60 companies from 14 different countries, the 865-acre Queretaro Industrial Park in Mexico "offers the highest quality international design, engineering and construction to comfortably and effectively accommodate world-class manufacturing and warehousing/distribution facilities" according to the Hines investment, development and management website.

In addition, this expansion is by no means limited to aerospace. Bombardier Recreational Products (privately owned by the Bombardier family and no longer part of Bombardier Group) has recently built a 600,000 sq. ft. factory in the Queretaro Industrial Park to supplement its existing 400,000 sq. ft. facility in Mexico City. Bombardier Transportation (rail) has even larger facilities in Mexico (about 5,000,000 sq. ft).

In February of this year, Bombardier announced transfer of some assembly of their new C Series airliner to a new “temporary” 23,000 sq. ft. facility in Morocco. Bombardier’s Morocco facility has been given 10 hectares of land, is building out another 200,000 sq. ft. of factory space and is nearing 850 employees. In the interests of fairness, Bombardier is adding 667,000 sq. ft. of C Series airliner final assembly and service centre space to their Montreal (Mirabel) facility. The conclusion, however, is clear; other nations are expanding their industrial bases (with associated benefits) at the expense of Canada’s.

If the Canadian Government truly wishes to encourage the creation of jobs and growth in the domestic aerospace/space sector, diversification is needed. Implementing the funding recommendations in the second volume of the Emerson report will help foster the development of many small firms. Having a variety of smaller firms will help keep production (and jobs) in Canada. Canada’s aerospace/space sector will not only have breadth, but depth.

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