Aerospace sector tempers expectations, despite big asks in federal Budget

Canada’s investment in aerospace innovation likely won’t stop with this week’s announcement by the federal government that it will provide a $372.5 million “repayable contribution” to Bombardier Inc. The interest-free loan, to be provided over four years, will fund R&D for the new Global 7000 business jet, and ongoing activities related to the development of the Montreal-based company’s C Series aircraft.

But aerospace R&D represents a lot of red ink on the bottom line, particularly during the complex technology demonstration phase—which is why the loan to Bombardier likely won’t be the only good news coming for the industry this year.

The wish list for the aerospace sector is both ambitious and costly and the Aerospace Industries Association of Canada (AIAC) has been lobbying senior government officials to explain why these investments are needed to sustain and strengthen the competitiveness of Canada’s aerospace sector.

AIAC is proposing hundreds of millions in new funding over the next five to seven years, most notably enhancements to two existing programs, a merger of two others, a new initiative modelled on the US Small Business Innovation Research (SBIR) program, and improvements to the Scientific Research & Experimental Development (SR&ED) tax credit program.

AIAC’s executive VP Dr Iain Christie concedes these are “expensive recommendations” that are competing with many priorities in the upcoming federal Budget. “So our expectations are tempered by fiscal reality,” he told RESEARCH MONEY.

At the same time, Christie says the sector’s recommendations go beyond “asking for specific pots of money”. He’s optimistic the Budget will respond positively to at least some of its calls for greater alignment and funding of federal support and incentive systems for the sector.

“It’s more understanding what (the government) wants to do and providing advice on the Innovation Agenda,” he says. “Aerospace is very much the model of what the government is talking about for their Innovation Agenda. The sector already meets the criteria for a high-growth innovative industry.”

The AIAC’s recommendations are contained in its pre-Budget submission prepared by its Technology and Innovation Committee, chaired by Jonathan (Lee) Obst, president and managing director of Rockwell Collins Canada.

Merger of CARIC & GARDN

AIAC is recommending the merger of two organizations whose funding is slated to expire in the next two years. In its pre-Budget brief, it says combining the Consortium for Aerospace Research and Innovation in Canada (CARIC) and the Green Aviation Research and Development Network (GARDN) would accelerate collaborative aerospace research and engage more small- and medium-sized enterprises, while integrating environmental considerations earlier in the R&D and commercialization cycle.

The recommendation comes with a price tag of $214 million over five years, with $24 million annually sourced from the $800-million clusters and networks initiative announced in the 2016 Budget. The remainder ($8 million/year) would come from the regional development agencies’ contribution to the clean tech agenda.

“It makes sense to unify. They’re not a research tool but more to accelerate industry-led cluster dynamics,” says Christie. “There’s no indication on the final thinking (for the cluster and network funding) and we want to understand what they’re trying to achieve.”

A Canadian SBIR

AIAC’s recommendation to create a Canadian Innovation and Research Program modelled on SBIR adds to the chorus of calls for such a program, providing more demand-based pull to the existing government procurement initiative – the Build in Canada Innovation Program (BCIP).

“It would be fantastic if BCIP moved in this direction. SMEs would get to develop a relationship with government as an anchor customer which would give them leverage with large companies,” says Christie. “The BCIP has figured this out – creating an ecosystem effect.”

SADI & TDP

In the longer term, AIAC is recommending changes to two key aerospace support programs — the Strategic Aerospace and Defence Initiative (SADI) and the Technology Demonstration Program (TDP). AIAC describes SADI as “the backbone of aerospace programming to support commercialization of innovation”.

The brief notes that SADI is undersubscribed and recommends that the program become partially refundable either in lieu of payment, included as an eligible investment under SR&ED and tied to R&D re-investments made in Canada.  In what it terms an “enhanced risk sharing model”, partial refundability would maximize its impact on innovation metrics by attracting more applicants.

For TDP, which focuses on the technology readiness levels 4 to 6, AIAC recommends extending eligibility to areas of innovation not currently included — design systems, test rig and software.

Christie says the government is currently receiving advice from organizations other than AIAC and does not expect any changes to SADI and TDP to be included in the forthcoming Budget.

SR&ED Enhancements

Also included in the submission are recommendations to enhance SR&ED although the cost of the changes has not been estimated. AIAC proposes restoring funding to previous levels (20% for large firms and inclusion of capital costs), explore covering process innovation “by delinking its conception of innovation to technological advancement” and examine whether SR&ED can be harmonized with the Quebec R&D tax credit program which provides full refundability.

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