Monday, March 28, 2011

The Difference Between "Aviation" and "Space."

The Monday announcement by the helicopter unit of the European Aeronautic Defence & Space Company (EADS) of it's intention to buy all the outstanding shares of Canada's Vector Aerospace highlights the obvious differences between the aviation industry and the space systems sector which some federal politicians and lobbyists have artificially (and perhaps accidentally) slapped together into a confusing business "mashup" they call the Canadian "aerospace" industry.

And they've done it just in time for the next federal election.

But to get some background on the issue, we need to look at the March 23rd, 2011 press release from the Canadian Space Commerce Association (CSCA) which states that the proposed 2011 federal budget, which contains provision for a 12 - 18 month strategic review of the combined "aerospace" industry, is "not optimal" for the requirements of the "space" component of the "aerospace" industry.

According  to the press release "the smaller, but growing and primarily Canadian owned space systems sector has a different set of planning and policy requirements than those appropriate for the much larger aviation industry."

The press release also suggests that the the Canadian Space Agency (CSA) already possesses a completed review of the space industry in the ever elusive long term space plan (LTSP), first mandated as a priority by then Industry Minister Jim Prentice in his September 2nd, 2008 speech introducing astronaut Steve MacLean as the next CSA president.

The press release concludes by stating that the never released LTSP (which has been sitting in Ottawa patiently waiting for approval since 2009) should "be utilized immediately as the basis for a space policy review, and such a review should not be tied to, or delayed by, any new government review of the aviation industry."

So what's the difference between aviation and space systems?

That's easy. The aviation industry is defined and driven by international access to new markets, the number of domestic jobs created and the foreign investors which have contributed to this job growth by providing contracts and buying up or integrating local companies like Vector into the international marketplace.

These priorities and policies are in evidence when you look at federal government promotional websites like the Government of Canada - Invest in Canada - AEROSPACE website, which focuses on recent global investments in Canada from Esterline/CMC Electronics, Boeing Canada, Pratt & Whitney Canada (all three subsidiaries of US based  companies) and Goodrich Aerospace of North Carolina, plus provides a listing of major, global and mostly foreign investors in Canadian aerospace industries and a much smaller listing of Canadian based aerospace companies.

These policies and priorities are also in evidence when we look at the Vector deal.

It's valued at $625 million Canadian CDN according to the March 28th AFP News article "EADS' Eurocopter to buy Vector Aerospace." It's also "the most significant acquisition for EADS since its creation in 2000" according to EADS CEO Louis Gallois and as a bottom-line perspective, this compares quite well with the attempted 2008 acquisition of the space focused portions of Canadian firm MacDonald Dettwiler (MDA) by US based Alliant Techsystems (ATK) for $1.3 billion.

Of course, the 2008 MDA acquisition was blocked by the federal conservative government to insure ongoing Canadian access to RADARSAT data and for national security and economic infrastructure issues which have not yet been formally addressed or resolved although MDA has since moved on to become the prime benefactor of Canadian government contracts relating to Earth imaging and arctic sovereignty.

MDA isn't even terribly unique for the Canadian space systems sector.

The federal government feels pretty much the same about communications icon Telesat (which, as outlined in my March 22nd, 2011 post "Telesat Sale (or Recapitalization) Near (or Not)," is having current difficulties attempting to find a buyer) and even Com Dev International (with its exactEarth subsidiary focused on providing satellite-based ship monitoring for global coastal authorities) would likely have a difficult time with the Canadian government if it tried to sell itself to a foreign company.

Telesat, MDA and Com Dev are the three largest space systems firms in Canada (the "Three Kings" of the industry). They're Canadian owned (even Telesat, where the controlling interest is held by the Canadian crown corporation Public Pension Investment Board) and difficult to sell anywhere but to another Canadian company. These three firms are also not normally included with any list of companies belonging to the Canadian "aerospace" sector.

Why is the space systems sector treated differently that the aeronautical sector, which seems to be able to sell Canadian companies to anyone at will?

That's also easy to understand.

The Canadian space systems sector is essentially governed by a different set of rules as part of the Industry Canada science & technology strategy as outlined in documents like the Mobilizing Science and Technology to Canada's Advantage (May 2007) and the Mobilizing Science and Technology to Canada's Advantage Progress Report (June 2009). Those two documents are the closest thing Canada has had to a long term space strategy (not including the unreleased LTSP) since the 2003 publication of "The Canadian Space Strategy."

These rules focus primarily on commercialization of Canadian research into Canadian companies and less on access to new markets for already existing products or the buying up and integrating of foreign investors and firms into local companies.

When the federal government has time to think about it, they even treat the space systems sector differently from the aerospace sector as outlined in my February 11th, 2011 post titled "Two Billion Dollars for the Canadian Space Agency, Part 2: What Our Federal Government Thinks!"

So perhaps the announcement of a combined review was accidental or perhaps driven by the impending election as a way to deflect criticism away from either the lack of a LTSP, or the controversial decision on the CF-18 replacement.

But now that the election has been called, this silly idea of putting two disparate industries governed by different rules together for the same assessment will hopefully fall by the wayside, just as it should be.

But let's try to register our displeasure anyway, just to make sure it doesn't happen again.

Of course, in the interests of full disclosure, it should be noted that I'm a member (and the treasurer) of the CSCA and also contributed to the CSCA press release, so it's likely that I'm a little biased in my beliefs. But as you can see, my affiliations are not going to effect the existing and fundamental differences between the two industry sectors.

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