Icarus Aerospace reveals clean sheet light attack and ISR designs

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  13 mai 2019 | Local, Aérospatial

  Like it or not, the U.S. needs to be a key part of Canada’s next-gen jet procurement process

  ELINOR SLOAN, CONTRIBUTED TO THE GLOBE AND MAIL RICK BOWMER/THE ASSOCIATED PRESS Elinor Sloan, professor of international relations in the department of political science at Carleton University, is a fellow at the Canadian Global Affairs Institute. For a bid to buy a plane designed to cut quickly through the skies, Ottawa's pursuit of a future-generation fighter jet has been a long and torturous slog. In 1997, Jean Chrétien's Liberal government joined the F-35 Joint Strike Fighter program, a U.S.-led initiative conceived as a new way for allies to work together to design, develop and produce a fifth-generation fighter aircraft. In 2006, Ottawa signed a formal memorandum of understanding that gave Canada and the other eight partner nations the exclusive right to compete for contracts to produce such aircraft and, since 2007, Canadian companies have won more than US$1.3-billion in defence contracts related to the Joint Strike Fighter. With a production line that will be operating at full capacity starting this year, and is expected to produce about 10 times as many aircraft as exist today over the next few decades, this number promises to grow substantially. Meanwhile, Canada's nearly 40-year-old fleet of fighter jets – the CF-18s – continues to age. In 2010, the Harper government shelved its plan to sole-source buy the Joint Strike Fighter to replace them after a public outcry and a damning auditor-general's report that found significant weaknesses in the process used by the Department of National Defence. Then, when the Liberals took office in 2015 and promised an open and fair competition to replace the CF-18s, it also banned the F-35 from bidding – two contradictory positions. The Trudeau government quietly dropped that ban last year, and pre-qualified four companies to bid on a contract worth at least $15-billion: Sweden's Saab Gripen, Britain's Airbus Eurofighter, the U.S.'s Boeing F/A-18 Super Hornet and, yes, Lockheed Martin's F-35 Joint Strike Fighter. According to letters released last week, though, the U.S. government threatened to pull the Lockheed Martin F-35 from consideration last year over Ottawa's insistence that Canada receive industrial benefits from the winning bid. In response, Ottawa relaxed its requirement on Thursday: Where bidders once had to commit to spend 100 per cent of the value of the aircraft's acquisition and sustainment in Canada, bids will now only lose points in a three-category scoring system in the review process, instead. With such exhausting twists and incompatible statements, it's little surprise that it took three and a half years of the government's four-year mandate just to get to the formal request-for-proposal stage. But there is a way out of this morass: pursuing a back-to-basics focus on why we need this aircraft and what we need it to do. To do so, we must focus on the proposed jets' promised technical capabilities, which are paramount, and rightly weighted the highest of that three-category scoring system. The second category is cost, which of course is important to any government. The third is creating and sustaining a highly skilled work force within our own borders, a goal enshrined in Canada's industrial trade benefits (ITB) policy, which requires a winning bid to guarantee it will make investments in Canada equal to the value of the contract. Each bid is scored by these three categories, weighed 60-20-20, respectively. However, the Joint Strike Fighter program, which Canada has spent millions to join, does not fit neatly into the ITB policy. In those letters last year, the Pentagon and Lockheed Martin pointed out that Canada's ITB terms are inconsistent with – and indeed prohibited by – the memorandum of understanding Canada signed in 2006, which says partners cannot impose industrial compensation measures. The solution reached on Thursday allows that memorandum to be obeyed, but since Canada will still give higher grades to bids that follow its ITB policy, questions remain as to whether the playing field has really been levelled. All of this is important because of the growing competition between the major powers. Russian bombers and fighters, for example, are increasingly testing the boundaries of Canadian and U.S. airspace. More than ever, the focus needs to be interoperability with the United States, working together on NORAD and helping NATO allies in Europe. As a flying command-and-control platform, rather than a mere fighter, Canada's next-generation jet must work with the United States' most sophisticated systems, and include a seamless and secure communications capability – that is a critical and non-negotiable criterion. Indeed, as DND has said,the United States will need to certify the winning jet meets Washington's security standards. Some may question the federal government's decision to relax the ITB rules, and to grant this certification sign-off. But whatever Canada buys must be able to address threats to us and to our allies until well into the 2060s. Our relationship with the United States, both in terms of geopolitics and military technology, is crucial. Despite our trade tiff, the United States remains our most important strategic partner. Canada can either take an active part in our own security, or leave it to the United States. https://www.theglobeandmail.com/opinion/article-the-us-needs-to-be-a-key-part-of-canadas-next-gen-jet-procurement/

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  30 novembre 2018 | Local, Aérospatial, Naval, Terrestre, C4ISR, Sécurité

  Why can't Ottawa get military procurement right?

  Murray Brewster · CBC News The last couple of weeks may go down in the Trudeau government's public record as the point when the desires of deliverology met the drawbacks of defence procurement. Remember 'deliverology'? That lofty concept — measuring a government's progress in delivering on its promises — was the vogue in policy circles at the beginning of Prime Minister Justin Trudeau's administration. While it's sometimes derided as an empty concept, deliverology must have seemed tailor-made for a new government inheriting a troubled defence procurement system. The Canadian International Trade Tribunal's decision Tuesday to step into the brawl over which multinational consortium will design and support the construction of the navy's new frigates is another lesson in how (apologies to Robert Burns) the best laid plans of mice and men go awry. The tribunal's decision to order Ottawa to put the frigate project on hold pending the completion of their probe into a complaint by a failed bidder comes at a politically awkward time for the Liberals. One week ago, Auditor General Michael Ferguson delivered an ugly report on the Liberals' handling of fighter jet procurement — specifically, the plan to buy interim warplanes to cover the gap until the current CF-18 fleet can be replaced with new aircraft. Self-inflicted wounds A cynic's reflex (given the checkered history of defence purchasing over the last decade) might be to consider these two events as just another day at the office for the troubled government procurement system. That might not be entirely fair. Still, experts were saying Wednesday that the government is suffering from numerous self-inflicted political and administrative wounds on this file. With a federal election on the horizon, and in a climate of growing geopolitical instability, the question of what the government has actually managed to deliver on military procurement is an important one to ask, said Rob Huebert, an analyst in strategic studies at the University of Calgary. While the system, as the Trudeau Liberals and previous governments have constructed it, seems to be the perfect model of the "evidence based" policy making promised by the champions of deliverology, it's also not built for speed. Some would suggest the deliverology model was followed to the letter in the design competition now tied up before the trade tribunal and in Federal Court. What seemed like endless consultations with the bidders took two years. The government made up to 88 amendments to the tender. And in the end, the preferred bid was challenged by a competitor that claims not all of the navy's criteria were met. Alion Science and Technology Corp. and its subsidiary, Alion Canada, argue the warship Lockheed Martin Canada and BAE System Inc. want to sell to Ottawa cannot meet the speed requirements set by the tender without a substantial overhaul. It does not, the company claims, meet the government's demand for a proven, largely off-the-shelf design. Michael Armstrong, who teaches at Brock University and holds a doctorate in management science, said the government could have avoided the challenges and accompanying slowdowns had it been more precise in its language. "They could have been more clear and firm when they use the words 'proven design'," he said. "Did they literally mean we won't buy ships unless they're floating in the water? Or did they mean that British one that doesn't quite exist yet is close enough? "If they would have been more firm and said, 'We want a ship that actually exists,' that might have simplified things at this stage." Huebert described the auditor general's report on the purchase of interim fighters as an all-out assault on evidence-based policy making. "It is just so damning," he said. A break with reality The Conservatives have accused the Liberals of avoiding the purchase of the F-35 stealth jet through manufacturing a crisis by claiming the air force doesn't have enough fighters to meet its international commitments. The auditor found that the military could not meet the government's new policy commitment and even ignored advice that one of its proposed solutions — buying brand-new Super Hornets to fill the capability gap —would actually make their problems worse, not better. That statement, said Huebert, suggested a jaw-dropping break with reality on the government's part. "They [the Liberals] were just making things up," he said. It might have been too optimistic to expect the Liberals to fix the system, said Armstrong, given the short four years between elections. But Huebert said Ottawa can't carry on with business as usual — that the government now must deliver on procurement, instead of doubling down on rhetoric. The problem, he said, is that governments haven't really paid a price in the past for botched military procurement projects. There was "no political pain for the agony of the Sea King replacement, as an example," he said, referring to the two-decade long process to retire the air force's maritime helicopters. "The thing that makes me so concerned, even outraged, is that we are heading into a so much more dangerous international environment," said Huebert, citing last weekend's clash between Russia and Ukraine over the Kerch Strait and ongoing tension with Beijing in the South China Sea. "When things get nasty, we have to be ready." https://www.cbc.ca/news/politics/why-can-t-ottawa-get-military-procurement-right-1.4924800

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  29 juin 2020 | Local, Aérospatial

  After The Shock: Implications For M&A In The Aerospace & Defense Market

  By Adil Khan, Jim Adams and Steve Beckey Forbes; KPMG Contributor Jun 23, 2020 The current economic disruption—coming on the heels of the 737MAX suspension—has varying impact across A&D segments. The impact on commercial aerospace has been immediate and extensive, while the defense sector has largely remained unscathed. However, it is hard to see how it will remain so, given the extensive fiscal measures being taken. What will this mean for M&A in A&D? Some trends are beginning to emerge that will affect the entire deal life-cycle (from deal strategy through integration and value creation). Yet, as in other times of economic disruption, new opportunities will emerge, which leads us to believe that the slowdown of M&A activity will be short-lived. As we enter this next phase, deal makers who adapt quickly to the realities of the new industry landscape could be well positioned to maximize value. Pre COVID-19 environment Not too long ago, commercial aerospace was booming, with year-over-year ramp ups in build rates and record backlogs. There were expectations of another golden decade — further extending the unprecedented 14-year “super up-cycle”, defying the long-standing cyclicality of the sector. However, in 2019, the historic correlation between GDP, air-traffic growth, carrier profitability, orders and build rates was suddenly disrupted. GDP and airline profitability levels remained relatively healthy, but new orders and build rates dropped as the industry grappled with the 737MAX shock, as well as a slowdown in the twin-aisle segment. Other undercurrents also emerged — slowdowns in world trade from escalating tariff tensions, weakness in high-growth geographic markets such as China and India, and declining consumer confidence. In contrast, U.S. defense spending was on the rise, averaging 4 percent1 annual growth over the past 5 fiscal years; the $738 billion FY2020 defense bill2 ensured this momentum would continue. The government services sector was also set to benefit from continued funding increases to modernize IT infrastructure and address evolving national security challenges. With general confidence in the long-term fundamentals of the sector and a favorable budgetary environment, players in certain A&D segments pursued M&A to build scale. Others “re-realized” that content matters and initiated vertical and horizontal integration strategies to capture more value and drive cost competitiveness, or acquired targeted niche capabilities and emerging technologies. We also saw the emergence of Super Tier I's through scale-driving consolidation aimed at broadening capabilities and potentially exerting greater influence on OEMs. Deal volume in the A&D sector reached record levels — almost doubling over the last 5 years and outpacing the broader M&A market by 40 percent.3 Valuations remained elevated on the strength of high bidder interest, limited supply of attractive assets, high A&D stock valuations (which outperformed the S&P 500 by 8 percent),4 as well as healthy balance sheets and strong cash positions. TEV/EBITDA multiples for A&D transactions averaged 11x,5 outpacing increases in the overall M&A market. Although, deal volumes moderated in the second half of 2019, amid elevated uncertainty about defense spending heading into a presidential election year, the overall outlook remained optimistic. COVID-19 impact COVID-19 caused a precipitous collapse in air traffic. With travel restrictions and stay-at-home orders, carriers around the globe made unprecedented cuts to capacity, idled fleets, and began deferring or canceling new aircraft deliveries. Also, the MRO (maintenance, repair, and overhaul) and aftermarket segments, which had benefited from the prolonged 737MAX grounding and high fleet utilization, suddenly faced stiff headwinds. Thus far, the defense industrial base has not experienced a COVID-19 demand shock. There is no noticeable disruption in appropriations or major delays and cancellation of military programs. However, as in the commercial sector, defense contractors are actively monitoring their supply base and taking steps to preserve liquidity, minimize supply chain disruption, and taking measures to comply with CDC and local government guidelines. The range of scenarios for defense spending is bookended by two scenarios: an elevated national security threat that would preserve or accelerate funding, or a reordering of budget priorities to fund social and other mandatory programs, resulting in sequestration-type measures, similar to 2011. With these developments, volatility in the financial markets, lack of access to financing, alternative more pressing liquidity needs by corporates and most importantly, uncertainty in the marketplace, deal flow in A&D has come to an immediate standstill. Several “in-flight” processes have been halted, new deals in the pipeline have been deferred, and even some announced transactions terminated. Access to the new public offering market is effectively closed. The gap in expected valuations between buyers and sellers has widened considerably, due to disparate perceptions of the extent of economic disruption caused by COVID-19; contrasting views on reopening of the economy and the pace of return to normal; and diverse perspectives on what the post-COVID-19 new reality looks like. This has rendered financial forecasts and pre-COVID-19 market perspectives obsolete. Further, the extent and nature of unusual and non-recurring events6 impacting financials, present considerable challenges for deal makers to form a credible view of normalized earnings and cash flows. With the lack of reliable projections, it is nearly impossible to form a credible view on valuations let alone bridge this gap. Additionally, although M&A teams have attempted to navigate through practical challenges with offsite due diligence, virtual facility tours, video conferences, etc., adapting to a virtual M&A environment, especially for cross-border deals, has been challenging. Developments to watch as economies reopen Given the health concerns, changes in social behaviors (some of which may be slow to reverse) and anticipated lead-time to an effective vaccine, a V-shape recovery in air traffic appears increasingly unlikely. As governments move from combating coronavirus to reopening economies, the pace and extent of the economic recovery is expected to vary significantly around the world. Further, some long-lasting or permanent developments may trigger some dramatic shifts in the sector: KPMG Implications for M&A trends and outlook KPMG Although we probably do not expect to see M&A activity return to the pre-crisis levels immediately, we expect M&A activity to drive realignment of the industry landscape in the post COVID-19 environment. Implications for M&A Capabilities As we enter the next phase, deal makers will need to adapt to the realities that impact how deals get done. Examples include: KPMG While the challenges are intimidating, the opportunities will be vast, and those who move quickly and decisively are likely to be rewarded for years to come. Those who take this unique opportunity to prepare and are ready to act will stand ready to reshape the A&D industry. 1. 2019 DoD Comptroller Data (Green Book) 2. Department of Defense 3. CapIQ, Institute for Mergers, Acquisitions, and Alliances 4. Year return, S&P A&D index vs S&P 500 5. Trailing 12-month average to June 2019 and avg. 16x for deals >$500M in value; CapIQ, Dacis Company reports and Press releases 6 Worker furloughs, facility shut-downs, loss of business or order cancellation, idled or underutilized facilities, CARES Act funding, changes to performance-based compensation structures or payouts, health and sanitization related measures, IT infrastructure investments to adapt to remote working environment, deferral of payroll taxes, carryback of NOLs, increased interest expense tax deduction, etc KPMG Contributor