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January 2002

Think. Aerospace Industry. Think. Investment. January 2002. Think Canada. Think Bottom Line. Aerospace - an Established Platform Why Canada? The Aerospace Edge Summary. Canadian Aerospace and Defence… Performance Proven. Approximately 700 firms with 93,000 employees

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January 2002

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  1. Think Aerospace Industry Think Investment January 2002 Think Canada Think Bottom Line

  2. Aerospace - an Established Platform Why Canada? The Aerospace Edge Summary

  3. Canadian Aerospace and Defence… Performance Proven • Approximately 700 firms with 93,000 employees • Gross Sales of $20.5 Billion in 2000 • Invested approximately $900 Million in R&D (2000) • Globally competitive with exports of 76% of output • Extensively integrated in the global aerospace and defence industries Source: Statistics Canada, Canadian Aerospace and Defence Sector Survey 2000/2001, December 2001.

  4. …A Presence in Major Market Segments Canada's Aerospace and Defence- Related Products – 2000 • Significant capabilities in all product segments... • ...with particular strengths in commercial aircraft and dual-use electronics • …and a strong aerospace and defense service industry Source: Statistics Canada, Canadian Aerospace and Defence Sector Survey 2000/2001, December 2001.

  5. A Continuously Strong Record of Performance... Aerospace Exports vs Total Sales $ Billions • In 2000, aerospace sales by the G-7 totaled $189 billion $ U.S. • Continued strong growth in past three years • From 1976 to 1998, Canada’s share of world production more than tripled • Canada was sixth in sales in 1999 Source: Statistics Canada, Canadian Aerospace and Defence Sector Survey 2000/2001, December 2001. Canada’s Share of Global Aerospace Sales (Based on Constant 1999 Prices and 1999 ECU’s) Source: The European Association of Aerospace Industries (AECMA) Aerospace Output, 1999 7 Largest Western Aerospace Nations (Based on Constant 1997 Prices and 1999 ECU’s) Italy 2.43% Canada 5.54% Japan 6.37% Germany 6.37% France 11.32% U.K. 11.63% U.S. 56.34% Source: The European Association of Aerospace Industries (AECMA)

  6. …Leading in Several Aerospace Products % World Market Share Company Product Lines Bell Helicopter Canada Bombardier CAE Various companies Pratt & Whitney Canada Honeywell Civil helicopters 20-90 seat turboprop and turbojet regional aircraft Commercial simulator Visual simulation sector Landing gear New large aircraft landing gear Small gas turbine engines Transport aircraft environmental control systems 35 40 75 70 31 60 34 58

  7. ...and Leading Edge Space Companies • Strategic International Partnerships • USA (NASA) partner for over 3 decades - from Alouette to RADARSAT • special relationship with the European Space Agency for over 2 decades • only non-European country with quasi-associate status • extensive bilateral cooperation with other European and Asian countries • World - leading capabilities • space robotics and moveable spacecraft antennas (EMS and MD Robotics) • many space microwave subsystems (COM DEV) • turn-key earth observation data receiving, processing, archiving and distribution (MDA) • Satellite communications systems consulting (Telesat) • Synthetic Aperture Radar (MDA) • Larger export proportion than other spacefaring nations

  8. Aerospace - an Established Platform Why Canada? The Aerospace Edge Summary

  9. Overall government budget in surplus. Excellent economic fundamentals Low inflation and low interest rates. Easy access to markets Geography and NAFTA provide easy access to the world's most prosperous market. A cost-competitive business environment An excellent place to live Large stock of skilled workers; low start-up costs; competitive tax system (particularly for R&D); strong technological environment; positive business climate. Superb overall quality of life. Canada: a Dynamic, Competitive Economy— Open for Global Business Canada's economic fundamentals and relative cost advantages provide a first-rate business environment. Report Card Canada provides:

  10. The Institute for Management Development ranked Canada as the best fiscally managed country in the G-7 in 2000 Surplus % of GDP + 0.0 Deficit -3.0 -6.0 2000-01 2001-02 1992-93 1993-94 1995-96 1997-98 1994-95 1996-97 1998-99 1999-2000 Source: Finance Canada Federal Program Spending Public Accounts Basis % of GDP 17.5 Projected 15 12.5 10 2000-01 2001-02 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-89 1999-00 Canada’s Strong Fiscal Situation • Canada's fiscal situation has turned around dramatically: • In 1993, Canada’s deficit (as a percentage of GDP) was 8.7%, the second highest in the • G-7 and significantly above the U.S. rate. • However, by 1997, Canada posted a surplus – the first G-7 country in the 1990s. In 1999, Canada had the highest financial surplus relative to GDP of the G-7 countries. • Federal government spending (as a % of GDP) is at a 50-year low, the key source of the Canadian fiscal turnaround. Federal Budgetary Balance Public Accounts Basis C C C

  11. Long-Term Interest Rates % 10 8 5 3 1993 1994 1995 1996 1997 1998 1999 2000 2001 Last data point plotted: October 31, 2001 Source: Bank of Canada, Government long-term bond, last Wednesday in the month Low Inflation and Low Interest Rates • The federal government and the Bank of Canada have an inflation target that locks the inflation rate in the 1% to 3% range. • Over the past five years, Canadian inflation averaged 1.7% — 30% lower than the U.S. rate. • Canada's excellent fiscal situation and low inflation are reflected In low domestic interest rates. Sources: Statistics Canada and the Federal Reserve Bank of St. Louis

  12. Streamlined Border Flows ... • Since the enactment of the North American Free Trade Agreement (NAFTA) in 1994, Canada provides long-term assured access to the North American market — nearly 400 million people with a combined GDP of over $9.4 trillion ($U.S.). • In addition to eliminating tariffs, NAFTA provides procedures for: • border facilitation; • movement of personnel; • investment and intellectual property protection; and • product certification. • The North American market is serviced through a well integrated transportation system which is among world’s best. • - Automated permit ports, transponder identification systems and joint processing centres are being tested and deployed. Annual Transborder Crossings - Total Number of Trucks and Canada-US Air Passengers Entering Canada 20 Air 15 10 Millions of Crossings Truck 5 0 80 82 84 86 88 90 92 94 96 98 2000 Source: Statistics Canada "Pratt & Whitney has a worldwide distribution network. Customs operations have been streamlined to the point that the Canada-US border plays no role in our distribution system." Brian McGill, Director of Transportation Pratt & Whitney Canada Inc.

  13. 300 mi St. John's Edmonton Charlottetown 600 mi Québec Fredericton Regina Calgary Montréal Victoria Vancouver Halifax Ottawa Winnipeg Seattle Toronto Boston Windsor Milwaukee New York Chicago Detroit Philadelphia Cleveland Baltimore Pittsburgh St. Louis Washington San Francisco Denver Atlanta Los Angeles Houston Miami Mexico City ...and Short Distances to Markets • Almost half of the U.S. population lives within a 10 hour drive of Toronto, and over 60 percent within a two hour flight. • Business travel between Canada and the U.S. has increased considerably since the inception of the “Open Skies*” Agreement (February, 1995) • Direct air service between major cities in Canada and the U.S. has nearly doubled in 6 years. • *Under “Open Skies” Canadian Air Carriers gained unlimited rights to establish routes from any point in Canada to any point in the United States. Similarly, U.S. carriers also gained unlimited access to the Canadian market (with a phase in period for up to three years)

  14. Superior Quality Workforce Higher Education Achievement* World Rank 1st 2nd • The overall skill level of Canada's workforce ranks high among competing countries. • According to the Word Competitiveness Yearbook, Canada has the highest percentage of individuals achieving at least college or university education. 3rd 9th 15th 20th Index 30th U.K. U.S. Italy Japan France Canada Germany * Percentage of the population that has attained at least tertiary education among 36 countries considered in the World Competitiveness Yearbook, 2001. “ High-tech companies are pursuing skilled people wherever they are available, and Canada has emerged as one of the top sources.” Alan McMillian, CEO at PlanetIntra

  15. Cost of Labour — Manufacturing* U.S.=100 140 109 100 94 86 81 86 $U.S. per hour Germany Japan U.S. France Italy U.K. Canada * Figures are for 1999. Source: U.S. Bureau of Labor Statistics, September 2000 Low Labour Costs • According to the U.S. Bureau of Labor Statistics, labour costs in Canadian manufacturing (wage and non-wage) are the lowest in the G-7. • Occupational wages are also lower in Canada for knowledge workers.

  16. Competitive Corporate Taxes • Canadian locations compare well internationally in terms of statutory corporate income tax rates. • The federal government and some provinces have announced sharp cuts in corporate taxes, to take effect over a five-year period. • The Economic Statement and Budget Update accelerated the pace of this tax relief. • By 2005, firms in Canada will have a 5.1% corporate income tax rate advantage over U.S. firms (including capital tax).

  17. Programs for Investing in Technology Development • Canada’s aerospace and defence industries benefit from a list of programs including: • Technology Partnerships Canada – risk-sharing partner in technology development • National Research Council • Institute for Aerospace Research – aerospace R&D and testing • Industrial Research Assistance Program – support for small and medium-sized Canadian firms • The Aerospace Manufacturing Technology Centre (AMTC) – facilitate next generation manufacturing, particularly among SMEs. • Export Development Corporation (EDC) – export financing and insurance services • Industrial and Regional Benefits (IRB) – industrial participation in major Crown procurements • Defence Industry Research Program – financial and scientific support for industry-initiated research • Granting councils – support university and project research through partnerships of universities with industry • University Chairs – increase number of environmental university chairs in eco-efficiency areas (engineering, environmental science and business) in order to produce more graduates, enhance university research and strengthen research networks • Canadian Commercial Corporation – guarantees contract performance for Canadian exporters, especially for sales to governments In 2000, these government mechanisms contributed to R&D expenditures totaling $740 Million in the Canadian aerospace sector, and accounted for 12% of total R&D expenditures

  18. Technological Infrastructure* World Rank 1st 6th 14th 15th 19th 23rd 30th U.S. France Italy Canada U.K. Germany Japan First-Class Technological Infrastructure • Canada's technological infrastructure is second only to the U.S. among the G-7 — we rank above or very close to the U.S. in terms of: • internet users and internet hosts, • computers per capita, and • computer instructions per second. • Building a universal, competitive, leading edge "Information Highway" is a government priority. Index * Standing among 49 countries. Index based on 12 characteristics including investment in telecommunications, computers in use, computer power, internet connections, number of telephone lines, cost of telephone calls and use of robotics. Source: World Competitiveness Yearbook, 2001 “Canadians are well known and respected around the world for developing advanced technology and also for having good business and trade practices.” Chris Piché, Chairman and CEO of West Vancouver-based Eyeball.com Network Inc. – July 7, 2000

  19. Low Production Costs • Growing productivity, skilled workers, and low labour costs make businesses competitive. • Canada's competitive position vis-à-vis the U.S. has improved substantially since 1991. Source: U.S. Department of Labor, Bureau of Labor Statistics, August 2001 “ Our records for safety and productivity place the TMMC team among the industry’s best. And when it comes to quality, vehicles built at our Cambridge facility are among the highest rated vehicles in North America.” Takanori (Tak) Sakaue, President Toyota Motor Manufacturing Canada Inc.

  20. Reasonable Cost of Living • Canada has the lowest cost of living among the G-7. • In particular, the cost of living in most large Canadian cities is better than or comparable to that in similar U.S. cities. • And, Canadian cities rank better than U.S. cities in terms of the level of crime, pollution, environment and leisure facilities. Cost of Living — World Rank*, 2001 48th 175 Index: New York City = 100 150 42nd 35th 31st 125 27th 25th 20th 100 75 Italy U.S. U.K. Japan France Canada Germany * Rank among 49 countries considered in the World Competitiveness Yearbook 2001 Source: IMD

  21. Positive Business Climate Business Environment of Top Ten Countries, Rank in 2001-2005 1st 2nd 3rd 4th 5th 6th • The Economist Intelligence Unit ranks Canada highly in terms of its overall business climate. • Moreover, Canadian laws are among the best in the world at preventing unfair competition. 7th 8th 9th World Rank 10th U.K U.S. Finland Ireland Canada Sweden Hong Kong Singapore Switzerland Netherlands Note: The business environment is based on several indicators including market potential, tax and labour market policies, and the political background. Source: The Economist (EIU), August 24th, 2001 Competition Laws — World Rank 3rd 8th 7th “Canada is a very business friendly country, and Ottawa is an excellent environment for knowledge based industry. The physical environment is outstanding, education leads are high, the work ethic is strong and costs are very competitive. It’s just a great place to expand our business .” 19th Index, Ranked by Fairness 27th 31st 30th Roderick Bryden, President & CEO of World Heart Corporation Italy U.S. U.K. Japan France Canada Germany Source: World Competitiveness Yearbook 2001

  22. Government as a Partner for the Knowledge Economy • The economic policies of the government of Canada are focused on making Canada a world leader in the global knowledge-based economy of the 21st century. Commitments include: • Making Canada the most connected Government to its citizens by 2004. • Making high-speed broadband access available to Canadians in all communities by 2004. • Becoming one of the top five countries for research and development by 2010. • Shaping a “National System of Innovation”; and • Providing marketplace frameworks/services benchmarked against the best in the world. “A knowledge-based workforce, a competitive R&D tax structure, government support programs such as Technology Partnerships Canada, and well-established infrastructure in Canada: these attributes make Canada the top choice for Pratt and Whitney in considering future R&D investments in the ever-competitive world of aerospace.” Gilles P. Ouimet, President Pratt & Whitney Canada Inc.

  23. Aerospace - an Established Platform Why Canada? The Aerospace Edge Summary

  24. Aerospace is a Proven Investment Platform... Canadian-based companies offer investors unique opportunities • Team with Canadian-based multinationals, including: • Bombardier Aerospace – third largest commercial airliner manufacturer • Pratt & Whitney Canada – small gas turbine power for the world • CAE – corners the commercial flight simulator market • Bell Helicopter Canada – one of the world’s leading commercial helicopter manufacturer • Access capabilities of companies that supply the OEMs, e.g.: • Avcorp – Winner of a Gold Award for entrepreneurial achievement at the Canadian Productivity Awards • Haley Industries – one of the world’s most technologically advanced foundries • NMF Canada – world leader in processing large, machined wing panels • Spar Aviation Services – one of only 11 Lockheed-approved C-130 Maintenance and Modification Centres. • Composites Atlantic – advanced composite components for commercial aircraft, space structures, rocket motor cases, etc.

  25. “Magellan Aerospace competes globally and is dedicated to creating technology, new products and jobs in its operations.” Richard R. Neill, President Magellan Aerospace Corp. A Healthy Investment History • Total investment in the aerospace industry reached $2 billion in 2000. • Investment in R&D was $820 million in 2000 and is forecasted to reach $840 million by 2002. Aerospace Distribution of Investment Expenditure $ Millions Source: Statistics Canada, Canadian Aerospace and Defence Sector Survey 2000/2001, December 2001.

  26. Unique Access to the U.S. Market • The U.S.A. consumes 50% of G-7 aerospace production with a strong domestic industry. • Canada has a special relationship to access this market • For U.S. military purchases, Canada is considered part of the North American Defence Industrial Base • Special trade agreements can facilitate participation in US military projects • Defence Production Sharing Agreement • Defence Development Sharing Agreement • The U.S. market accounts for the majority of Canadian aerospace and defence exports – on average $5B annually. Boeing alone purchases in excess of $800M from Canadian companies. • 60% of the Canadian aerospace and defence industry output is attributed to subsidiaries of US firms operating in Canada – a high level of cross-border integration.

  27. Some Investors Who Have Chosen Canada

  28. Aerospace - an Established Platform Why Canada? The Aerospace Edge Summary

  29. Canada Offers Much • Canada's economic fundamentals are excellent — government policies are geared toward competitiveness. • Canada provides assured access to the world's richest economy, in addition to having a large and growing domestic market of its own. • Canada provides a cost-competitive and future-oriented environment for business: • quality, productive workers; • a competitive tax system; • prime locations for R&D activities; • abundant energy at low prices; and • an excellent infrastructure. • Canada is an outstanding place to live, invest and do business. "Aerospace is truly a global business and these wins [move of Power Management and Generating systems to Toronto, expansion of plants in Montreal and Summerside, and investment of more than $50 million in a new headquarters, engineering and manufacturing facility] for Canada were made possible by the excellent business climate here: sound fiscal management in the public sector, attractive R&D tax incentives, and unique opportunities to partner with Governments to achieve growth. It is clear to me that the decisions taken at the Corporate level of our global business to focus our growth here show great confidence in Canada." David O'Blenis, President, Honeywell Canada

  30. For more information: Contact: Aerospace and Automotive Branch Industry Canada 235 Queen StreetOttawa, Ontario K1A 0H5 Ron Watkins Nathalie Couture Director General Industry Development Officer (613) 954-3343 (613) 954-7774 watkins.ron@ic.gc.ca couture.nathalie@ic.gc.ca For more information, visit Strategis, Industry Canada’s award-winning Web site: http://strategis.ic.gc.ca/aerodef_e

  31. For more information (continued): R&D Tax Credit: John Jones Science Policy Coordinator Scientific Research Section of Revenue Canada Tel.: (613) 941-1130 Fax: (613) 957-3622 e-mail: john.jones2@ms.rc.gc.ca Technology Partnerships Canada (TPC): Jeffrey Parker Deputy Executive Director and Director Aerospace and Defence Industry Canada Tel.: (613) 941-6747 Fax: (613) 954-9117 e-mail: parker.jeff@ic.gc.ca

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