Aerospace review calls for changes to SADI and CSA industry support programs

Recommendations fiscally neutral

A high-level review of Canada's aerospace and space sectors is recommending a series of coordinated initiatives to stimulate their industrial competitiveness amidst a rapidly evolving global environment. The Aerospace Advisory Council's advice addresses the federal government's support for critical economic sectors that are hampered by weak strategic policy direction and long-term planning.

Council chair David Emerson's assessment of federal support for the space sector was particularly frank. The former Cabinet minister, government bureaucrat and industrialist described the space sector as "foundering", adding that the current situation "cannot continue". Emerson, who headed the four-member advisory council, said the government needs to assist the sector and its underlying technologies to get ahead of the curve or suffer further retrenchment at the hands of more aggressive competitors.

"We need to give priority to these developing technologies (and) support technology demonstration," said Emerson, when introducing the report November 29th at the Canada Museum of Aviation and Space in Ottawa. "We need to support research collaboration between industry and academia and we need to simplify the application of features of the federal aerospace program to help unlock the innovative potential of smaller firms"

Among the report's 25 recommendations, the Aerospace Advisory Council concluded that the aerospace sector would benefit from a national collaborative R&D initiative like Quebec's Consortium for Research and Innovation in Aerospace in Quebec (CRIAQ). It also said the space sector needs long-term planning and a stable Canadian Space Agency (CSA) to provide greater support to industry through its technology development programs.

The review and advisory council was announced in the 2012 Budget, resulting in a two-volume report - Beyond the Horizon: Canada's Interests and Future in Aerospace and Reaching Higher: Canada's Interests and Future in Space. They drew upon the reports from six working groups and sub-groups that generated more than 100 recommendations (see list of recommendations).

"The aerospace business is being reshaped by ascendant powers ready to use the resources and influence of the state to build national aerospace industries. These countries' actions create a whole new set of challenges for Canada's aerospace firms."

- Aerospace Review

The report's first recommendation is to add aerospace and space to the government's 2007 Science and Technology Strategy as a fifth strategic sector. In addition to its symbolic value, such a designation would make it easier for aerospace R&D to access funding through agencies such as the Industrial Research Assistance Program and the Natural Sciences and Engineering Research Council (NSERC) which adhere closely to the strategy's priority areas.

The report emphasizes that the private sector is the primary driver of the aerospace and space sectors but acknowledges that government has a key role to play in establishing the optimum environment for innovation and supporting key areas where risk is high. It notes that Canadian federal support for R&D is "not large by international standards" but the council's ability to recommend increased funding was constrained by its mandate which stated that recommendations must be fiscally neutral. Therefore, any increases in funding had to be matched by reductions in other areas.

Savings were found in the Strategic Aerospace and Defence Initiative (SADI) - the largest funding program devoted to aerospace. It has received $225 million annually or $1.35 billion since its inception in 2007 and has committed $825 million (of which $405 million has been disbursed). SADI is permitted to carry over unspent annual allocations, giving the council the ability to expand existing initiatives or create new ones by drawing on uncommitted funds.

That permitted the council to recommend the creation of a new program to support large-scale technology demonstration with an annual budget of $45 million, with $20 million coming from SADI and $25 million sourced from "the tightening of SR&ED eligibility criteria". Changes to SR&ED announced in the 2012 Budget will reduce the program's cost by about $500 million annually when fully implemented (R$, November 9/12).

The SADI program itself is the focus of a recommendation to correct what it terms "a number of design limitations", namely its unattractive and uncompetitive repayment terms, weak incentives for collaboration and restrictive intellectual property provisions. The report recommends maintaining its funding at current levels (minus reallocations for new program spending) and a modification of its terms and conditions to more effectively "stimulating the development of the aerospace and space technologies of the future".

"The terms and conditions of SADI have to be changed ... Simplify the process and put in some areas which are non-refundable and collaborative," says Dr Hany Mous-tapha, a member of the working group on Technology Development, Demonstration and Commercialization (TDDC). "The process now is very cumbersome especially for smaller companies."

Reallocated SADI funding will also provide $2 million towards the operational expenses of a national initiative for collaboration among aerospace firms, researchers and academics using CRIAQ as a model. The new entity would be called the Canadian Aerospace Research and Innovation Consortium (CARIC).

The report notes that CRIAQ is largely funded by the Quebec government with some federal support flowing through NSERC. A previous attempt to extend CRIAQ nationally foundered when it failed to secure federal support (R$, September 20/05).

"Private aerospace companies will ultimately drive competitive leadership in the new global economy. But thoughtful, focused, and well-implemented public policies and programs can play a critical role in facilitating this success." -

Aerospace Review

"Extending a CRIAQ-based model to the Canadian aerospace sector would offer a competitive advantage to participating organizations and stimulate activity beneficial to the economy as a whole," states the report.

"A Canadian CRIAQ is back on the table. If I look at Quebec, we have what we need so expand that to Canada as a whole. It's very clearly mentioned in our recommendation for technology," says Mous-tapha, a key architect of CRIAQ more than a decade ago when he was manager of Pratt & Whitney Canada's technology and collaboration programs (R$, February 11/02).

The TDDC group's work on funding was challenged by the lack of data on how much funding the aerospace sector currently receives from public sources. Prior to developing its recommendations it surveyed all government programs to determine current funding levels. It found that federal aerospace and space support amount to $501.5 million from all sources. It recommends an increase to $1.2 billion by 2030.

Moustapha says the technology readiness level (TRL) approach - used by industry as well as Quebec's aerospace support programs and the European Union -is the best method for determining what kinds of support are most effective based on the type of R&D being conducted.

"For TRL levels from one to six, that's the valley of death and a big portion has to be refundable," he says. "We're talking about research, not development. For development we have to abide by the WTO (World Trade Organization)."

plan to revive foundering space sector support

For the space sector, the current status and effectiveness of the CSA is a central concern. Canada has been operating without a Long-Term Space Plan for several years (the last was launched in 1994), even though the government requested that one be developed when Dr Steve McLean was appointed CSA president in 2008 (R$, September 19/08).

The CSA's core budget has declined in both current and constant dollars since FY01-02. In constant dollars the core budget has declined from approximately $325 million in FY01-02 to $225 million this year, while its two industry-support programs have dwindled to just $9 million annually.

The report recommends that the government establish a Canadian Space and Advisory Council composed of members from all stakeholder groups and stabilize the CSA's core budget "in real dollar terms, for a 10-year period".

In addition, it calls for the minister of Industry to establish priorities for the Canadian Space Program on a 10-year, five-year and annual basis and report to the Cabinet Committee on Priorities and Planning each year "for discussion and approval".

Perhaps most important for industry, the report calls for CSA's technology development programs to be refinanced at a much higher level, adding $10 million a year for the next three years and "maintained at that level". Such a move would boost the programs from a current budget of $9 million to $39 million annually.

"(The report) identifies the right problems and the right priorities ... It's clear that we need to do something," says Dr Iain Christie, president and CEO of Neptec Design Group Ltd, a small Ottawa-based spaceflight engineering company. "There's a danger of trying to cherry pick the recommendations. The most profitable way of doing it is to take the report as a whole. So long as the government responds to the urgency and the priority and the importance of the report, then I'm confident that good will come of it ... Hopefully we're going to have some innovative solutions. The status quo is not an option."

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