CANADA’S AEROSPACE INDUSTRY

1. CANADA’S AEROSPACEINDUSTRY Innovation + Partnerships = Growth Presentation to Partnership Group for Science & Engineering by Ken Laver, President, Messier-Dowty Inc. September1999

2. 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

3. 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 - 1993 Base Year = 100 September 1999

4. Civil Products for Export Markets • 1998 Exports - $12 billion, 75% of output • Cumulative Trade surplus 1990 to 1998 - 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 September1999

5. 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 September 1999

6. 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 September1999

7. A “Bet The Company” Business - long payback periods Participation Requires Risk Sharing Partners September1999

8. A Sustained Record of Investment-investing today for tomorrow • Aerospace firms are among the top R&D performers in Canada • $1.4 billion in 1998 - 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 September1999

9. 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 September1999

10. DIPP - the Foundation of Canada’s Aerospace Industry • $3.6 billion invested 1959 - 1995 • 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 September1999

11. 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 September1999

12. How TPC Works -leveling the playing field September1999

13. 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 September1999

14. 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 September1999

15. Changing OEM Procurement Practices Past Platforms Current Platforms Future Platforms OEM OEM OEM Systems Integrator Preferred Suppliers List Systems Integrator Multiple Suppliers List Full Value Proposition Suppliers September1999

16. 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 September1999

17. Bombardier’s Global Express Project Management – Canadair Final Assembly – de Havilland Canadair de Havilland BMW/RR–Europe Mitsubishi–Japan Sundstrand–USA Shorts–UK Other International Partners Parker Bertea Aerospace – USA Lucas – UK Honeywell – USA Liebherr – France Hella KG – Germany AlliedSignal – USA Sextant Avionique – France A Partnership Model Landing Gear – Messier Dowty Courtesy of Bombardier Aerospace, 1997 September1999

18. 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 September1999

19. 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 September1999

20. Office of Collaborative Technology Development 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 September1999

21. 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 September1999

22. Aerospace Industries Association of Canada 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 September1999