Civil Aircraft

Antoine Gelain, writing 06 August 2019 in Aviation Week & Space Technology, suggested that "After several false starts, the urge to design a new aircraft proved too strong to resist, and a revamped C Series program was launched in 2008 with an ambitious road map. The aim was to capture 50% of a market (100-150 seats) estimated at 6,000+ airplanes over 20 years... it turned out to be too big a challenge for the company: After spending around $5.5 billion to develop the aircraft (more than twice as much as initially planned) and losing billions in the process, Bombardier�s leaders realized that carrying it on would probably bring the whole company down... The first mistake was not realizing that the segment they were targeting with the C Series was not just an extension of the markets they knew.... but rather about a relatively small Canadian company facing off with two global giants in a market they had �duopolized� for decades..... The second mistake was believing Bombardier�s experience in developing smaller aircraft (28 in 20 years!) would give it a head start and take it up the learning curve quickly for the C Series as well.... The third mistake was underestimating the challenge of getting its supply chain to deliver on specifications, time and cost.... Bombardier would have been better off sticking to its core business and protecting its market share from new entrants such as Mitsubishi, Comac and Sukhoi while keeping the pressure on Embraer and ATR�unless it expected from the beginning to sell the C Series program to Airbus or Boeing. But in that case, Bombardier executives probably would have had a different number in mind than the symbolic $1 Airbus ended up paying for the takeover...."

While a complex web of circumstances and factors underlie the performance of Canada's aircraft industry, several dimensions in particular feature prominently in an understanding of the industry's continued existence and current strength. These are: geography, the availability of a skilled workforce, the support and encouragement of government, the degree to which foreign capital and technology have been attracted to the Canadian industry, and the persistence with which the industry has invested in R&D to develop a competitive line of proprietary products.

Geography played an important role in the early development of the Canadian industry. The vast expanse of Canadian territory gave rise to a nascent aircraft industry focused on providing air access to remote areas under sometimes severe weather conditions. During World War II, historical ties to Britain, the relative protection which geography provided to Canada's industrial heartland, the existence of an educated workforce, and the close proximity to the United States were instrumental in attracting U.K.- and U.S.-based firms to undertake a massive build-up of aircraft production capacity in Canada for the Allied war effort.

World War II made a relatively insignificant manufacturing business a major factor in Canada's rise to fifth greatest air power in the world. Before World War II, the Canadian aircraft "industry" consisted of only eight small plants in the entire country, making about forty aeroplanes annually. In 1939 the Canadian aircraft industry, moving easily, employed about 5,000 people and produced a total of 31 planes. By 1938 Great Britain was aware of the fact that danger could not be averted for long and looked around for facilities for the manufacture of fighting aircraft. In September 1938 Great Britain sent a delegation to Canada to look over the possibilities of air production in Canada.

As a result, a company which became known as Associated Aircraft was formed to act as a co-ordinating organization, though it was dissolved, durmg the first phase of the war. In 1940 it became obvious that the situation had changed, that Canada was to play an important part in the survival struggle. The appointment of a controller to the aircraft production program gave the creaky machine a lift. The Aircraft Production Branch of the Department of Munitions and Supply sought out orders. Crown companies, Victory Aircraft Limited and Federal Aircraft Limited, were created to ensure speedy and efficient production. The Department of Munitions and Supply controlled the production of munitions for Canada and its allies.

The resulting contracts were instrumental in saving Canada's aircraft factories from complete unpreparedness the following year. But progress was extremely slow. Skilled labor was not readily available and changes in plans were numerous. Most Canadians had never seen an aircraft factory, let alone work in one, and before the drawings of a new plane had been made, it had become obsolete.

During the Second World War, the Canadian aircraft industry grew to employ nearly 116,000 workers, 30,000 of whom were women. It delivered 16,418 aircraft to fill Allied orders, chiefly from Britain and the United States, but also for use by the RCAF and BCATP. At its 1944 peak it provided a gainful living for over 130,000 people and produced approximately 4,300 planes.In five and a half years Canadian airfields trained more than 114,000 airmen who fought from Iceland to India, and factories produced more than 13,000 combat training planes for them to fly. By 1945 Canada's war production was fourth among the Allied nations.

As WWII concluded, the Canadian aircraft industry quickly moved ahead. Basic designs for the Chipmunk trainer were on paper a few months after the war. As no-longer-needed production capacity was closed down at the end of the War, the Canadian government formed Crown Corporations to ensure that a defence production capability survived. The industry entered an era in which its primary focus was Canadian defence requirements. The Department of Defence Production under C.D. Howe essentially 'managed' the industry, and oversaw not only the continuation of licensed production of military aircraft but also the development of indigenous design capability for advanced military aircraft. These latter activities extended to second-tier subsystems suppliers and encouraged a continuing flow of foreign capital to establishments which now form the core of the industry's second-tier supplier base.

The cancellation of the Avro Arrow program in 1959 marked a defence policy shift with far-reaching implications for the Canadian aircraft industry. With the loss of the raison d'�tre which had sustained it since World War II, the industry was forced to restructure, increasing its integration with the U.S. industry and seeking out export markets with new civil aircraft products. This conversion was difficult and sometimes painful; industry employment and output eroded between 1960 and 1975, despite the temporary build-up in support of the Vietnam War in the late 1960s. By the early 1970s the industry was supplying less than half of its output to military markets and over 60 percent of aircraft industry shipments were to export markets.

During the early 1960s the Canadian government extended its role in support of the industry beyond that of major customer, entering defence production and development sharing arrangements with the United States and introducing the DIPP program to provide patient risk-sharing capital. When a major re-equipment of the Canadian Armed Forces began in the early 1970s, offsets from government procurements became an important stimulus of technology transfer and provided the Canadian industry with enhanced ac cess to U.S. defence markets.

In this new investment climate, the industry's second-tier firms increased their research and development efforts, designing proprietary products for export markets. The two Canadian prime manufacturers, de Havilland and Canadair, were important launch customers for a number of the new Canadian- designed subsystems; however, their own proprietary design efforts were quite limited. Both were clearly in trouble when world markets entered recession in the early 1970s. Their foreign owners balked at initiating the massive new product design and development efforts that were necessary for survival, and in the mid-1970s both Canadair and de Havilland became Crown Corporations.

The revitalization of Canada's prime manufacturers was perhaps the most significant achievement over the 1975 to 1990 period. With massive injections of government funding, both Canadair and de Havilland launched proprietary products which provided a stable basis for their expansion during the sustained growth in international markets that occurred between 1983 and 1990. At the same time, key second tier firms solidified their market positions by persistent R&D investments and by attracting new or ex panded product mandates from their foreign parents. Government procurements and/or financial assistance attracted new participants such as General Electric, Bell Helicopter and Eurocopter to Canada.

By the late 1980s Canada had the highest per capita use of air travel in the world. Canada's aerospace industry, which ranks fifth in size in the western world after the US, France, Britain, and Germany, was in full expansion. Its sales had increased 152% over a 6-yr period between 1980 and 1986. Canada exported 80% of its production, 70% of which was under civilian contract. The Canadian aerospace industry received important government help, as did its European counterpart (its American competitor did not).

The industry grew rapidly to meet burgeoning worldwide demand during the 1980s. Between 1984 and 1990 industry output (real GDP) increased by 84 percent. Exports outpaced the market expansion, and Canada's share of world aircraft trade increased. The industry's expansion of production during this growth period was accomplished through increases in capital investment, employment and productivity. The industry's capital stock rose by 83 percent, the workforce increased by 52 percent and total factor productivity rose by approximately 15 percent. Integration with the U.S. industry remained a key contributor to the industry's success, with Canadian aero-structures suppliers benefitting from booming sales of U.S. commercial jets. Persistent investment in new products was also a major contributor, as proprietary products developed by the Canadian industry found worldwide acceptance.

Paralleling the situation in the U.S. market, Canada's aerospace industry faced difficult challenges throughout the 1990s. The restructuring trend continued as the long-term focus of the industry continued to move away from defense-related manufacturing. The total defense component of the Canadian aircraft and parts industry stood at approximately 30 percent of the total Canadian market in 1994. Consequently, this relatively high civil component has in part offset the impact on Canadian industry of a shrinking defense market. In terms of scale, Canadian firms are typically not as large as their international rivals. The competitive strengths of Canada's aerospace industry are rooted in its early conversion from defense to commercial production. The local market is primarily dominated by several U.S. - owned subsidiaries which produce parts and components for export. Local production of aircraft is limited to commuter aircraft, business jets and helicopters.

Canada has a well-established, albeit modest, large civil aircraft [LCA] aerostructures industry consisting of both home-grown companies and foreign subsidiaries of major corporations. As part of the global aerospace industry, Canadian aerostructures manufacturers generally follow the same trends and experience the same pressures as other aerostructures manufacturers around the world. Competition for Boeing and Airbus programs has increased as these aircraft companies seek to reduce their overall number of suppliers, while at the same time new suppliers, particularly in Asia, enter the aerostructures market. In addition, Boeing and Airbus want their suppliers to participate in developing integrated systems and take part in risk-sharing partnerships.

Regional aircraft account for a substantial portion of the Canadian aerospace industry; Bombardier is the third-largest aircraft producer in the world, but does not produce LCA. Bombardier produces aerostructures for Boeing and Airbus in Montr�al, Qu�bec, and in Belfast, Northern Ireland, through its subsidiary Short Brothers. However, Bombardier's production for Boeing and Airbus accounts for less than 4 percent of its revenues and is based on long-term contracts (dating from 1979-96) and relationships developed by companies acquired by Bombardier. The success of Bombardier's aerospace division, which has introduced a new aircraft or derivative aircraft every year since 1992, reduces Bombardier's interest in pursuing additional Boeing or Airbus work.

Consolidation has occurred among domestic Canadian companies of various production capabilities and sizes, in part to meet the demands of the changing aerospace industry. Bombardier's aerospace division grew after its acquisition of Canadair (1986), a producer of business jets, followed by the development of the CRJ series of regional jets. In 1989, Bombardier obtained Northern Ireland-based Short Brothers (Shorts) from the British Government. In contrast, Magellan, reportedly the largest aircraft component manufacturer in Canada, aggressively sought growth through acquisitions of aerostructures and aeroengine suppliers, acquiring six companies since 1996. Magellan plans additional acquisitions, primarily looking for companies of value that require cash and management discipline and complement Magellan's current capabilities.