CANADA’S AEROSPACE INDUSTRY Innovation + Partnerships = Growth September 1999 Presentation to Partnership Group for Science & Engineering by Ken Laver, President, Messier-Dowty Inc.

Canada’s Aerospace Industry -a fast growing, global competitor 400+ firms comprising a full range design, manufacturing and support capability A Canadian jobs and growth leader 1998 sales of $15 billion 70,000+ direct employees Led the world in growth this decade Now the 5th largest aerospace industry in the world - poised to move to 4th. September 1999

Strong, Consistent Growth Sales have doubled in the last 10 years Since 1993, growing at triple the rate of Canada’s GDP growth Impressive growth in world market share Forecast strong growth into the next decade Relative Growth Base Year = 100 September 1999

Civil Products for Export Markets 1998 Exports - $12 billion, 75% of output Cumulative Trade surplus 1990 to more than $20 billion Canada’s most successful advanced technology exporter Commercial customers account for more than 80% of sales - leading the world in defence conversion September 1999

Canadian Firms are World Leaders in Selected Niche Markets Regional Aircraft Business Aircraft Commercial Helicopters Landing Gear Systems Small and Medium Turbine Engines Flight Simulators and Visual Systems

Innovation is Vital to Global Competitiveness in Aerospace A technology driven industry where global competition is intense A broad spectrum of R&D in product and process technologies 12% of sales a typical R&D intensity Product life cycles can be 25+ years Up-front development costs are often a ‘bet the company’ proposition September 1999

A “Bet The Company” Business - long payback periods Participation Requires Risk Sharing Partners September 1999

A Sustained Record of Investment -investing today for tomorrow Aerospace firms are among the top R&D performers in Canada $1.4 billion in more than $10 billion of technology investments in the last 10 years 15% of all industrial R&D in Canada Annual expenditures average 12% of sales Sustained R&D is essential to maintaining technology advantage - product and process September 1999

Partnerships Play a Vital Role Internationally, governments are an important investment partner - sharing the risk Launch aid, defence R&D spending, directed procurement, regulatory barriers, etc. A high value economic sector, strategic to a nation’s economic growth Important spin-off benefits Growing role of private sector partnerships September 1999

DIPP - the Foundation of Canada’s Aerospace Industry $3.6 billion invested A 4:1 industry:government investment ratio Cumulative sales - $160 billion A 25:1 sales to investment ratio A 18:1 exports to investment ratio An investment partnership that was instrumental in the growth of the industry September 1999

Technology Partnership Canada -today’s Investment Partnership A successful investment partnership that levels the playing field for Canadian firms Risk and reward sharing, with repayable contributions - essential to industry growth Since 1996, $580 million invested in 39 projects leveraging $2.5 billion in private sector technology investment September 1999

How TPC Works -leveling the playing field September 1999

TPC and the WTO -clarifying the rules of the game TPC ruled a prohibited export subsidy Issue is not support for R&D, but export contingency of that support We welcome Minister Manley’s commitment to a WTO compliant TPC that will retain an innovation and R&D focus Industry is working with officials to restructure TPC so it fully complies with WTO September 1999

Changing Industry Dynamics Significant consolidation through the ‘90s A global industry with a complex network of prime manufacturers and suppliers Primes seeking fully integrated solutions and suppliers expected to become partners - sharing in technological and financial risks The rewards are preferred, long-term relationships Cascading affects down the supply chain September 1999

Changing OEM Procurement Practices Past Platforms Current PlatformsFuture Platforms OEM Systems Integrator Multiple Suppliers List Preferred Suppliers List Systems Integrator Full Value Proposition Suppliers September 1999

Implications for Canada -competition is intensifying Fewer, but bigger, longer-term programs - investment requirements are huge - partnerships essential to success Technology capabilities are an essential competitive discriminator - even for SMEs Firms must be able to participate in Integrated Product Development Process Survival means enhancing management and technical/design expertise September 1999

A Partnership Model de Havilland BMW/RR–Europe Mitsubishi–Japan Sundstrand–USA Shorts–UK Landing Gear – Messier Dowty Other International Partners Parker Bertea Aerospace – USA Lucas – UK Honeywell – USA Liebherr – France Hella KG – Germany AlliedSignal – USA Sextant Avionique – France Bombardier’s Global Express Project Management – Canadair Final Assembly – de Havilland Canadair Courtesy of Bombardier Aerospace, 1997 September 1999

Collaborative R&D a Critical Tool Makes more efficient use of R&D resources - avoids duplication of effort Reduces cost and risk of non-proprietary R&D Broadens corporate knowledge base Accesses expertise in national labs and universities Improves communication and ties between industry and research community, and between different industries Capitalizes on external research Strengthens capabilities of suppliers Strengthens position with customers September 1999

Technology Road Mapping Facilitate and stimulate collaborative R&D - a framework for action A consensus on shared marketplace driven, enabling technology requirements A joint 1996 government/industry initiative 50 Technologies in 8 streams identified and described September 1999

AIAC/NRC Joint Office A unique public private partnership Focal point for structuring multi-disciplinary research consortia - an SME emphasis Assist firms overcome the barriers to collaboration - develop business cases, provide generic tools, identify funding sources, give advice and guidance Office of Collaborative Technology Development September 1999

Universities an Important Partner Canadian universities are important R&D resource that we have only begun to tap Aerospace firms are increasingly turning to universities for technology solutions - industry R&D spending at universities is on rising University researchers are seen as strategic partners in technology development initiatives Regrettably, as yet we have been unsuccessful in creating an aerospace NCE September 1999

Partnerships - priority for AIAC’s Technology Council Focal point for facilitating product and process innovation in the Canadian aerospace industry Building and sustaining world class Canadian capabilities – is the key objective of the Council Building partnerships, between firms with governments, universities, and other research establishments is our priority September 1999 Aerospace Industries Association of Canada