Aerospace industry calls for more government support, despite significant public subsidies

Canada needs a long-term national strategy for the aerospace sector including more government support for innovation, say industry advocates.

But critics argue that aerospace is already one of the most subsidized industrial sectors in Canada. They say that if it can’t survive ien the global marketplace without continuous public funding, it should be allowed to die.

Canada’s aerospace industry — the fifth-largest in the world — is under threat because competitor nations, including the U.K., France and Germany, are implementing long-term, government-industry strategies for their aerospace sectors, said Mike Mueller, president and CEO of the Aerospace Industries Association of Canada (AIAC).

"It’s absolutely critical that we continue to both support innovation as a country but also support that [aerospace] ecosystem as a whole to enable innovation to happen in the country,” he told Research Money.

“Since the 1950s, we’ve had dedicated programs and policies that support the aerospace industry, and it’s something that we’ve been lacking the last number of years,” Mueller said.

The AIAC is calling on whichever federal party wins the election to partner with the aerospace industry in co-developing a national strategy to grow the aerospace industry to 2050.

Canada’s aerospace sector is “a crown jewel” in Canada’s manufacturing foundation, providing thousands of high-paying, technology-intensive jobs, said Jim Stanford, an economist and director of the Centre for Future Work based in Vancouver.

Some aerospace companies reinvest more than 25 percent of the GDP they produce into R&D of new technologies and equipment, he said in an interview.

“Canada is a laggard in applied innovation by industry. We’re miserable. And aerospace is a rare bright spot in terms of Canada’s innovation activity,” Stanford said.

More than 80 per cent of the country’s aerospace production is exported, he noted. That means the sector makes a strategic contribution to Canada’s economic performance beyond the direct employment and GDP numbers, he said.

“I would say that the current situation — the uncertainty related to COVID, the challenges we’re seeing with private equity — all of that suggests to me we need more government investment and intervention, not less,” Stanford said.

Critics say politics, not economics, drive aerospace subsidies

But Aaron Wudrick, a lawyer and director of the domestic policy program at the Macdonald-Laurier Institute in Ottawa, argues that the massive public subsidies for aerospace are driven by political expediency, not sound economics.

“Once you acknowledge that all governments can pick winners and losers, what happens is that businesses in politically sensitive industries get the money, not economically important industries,” he said in an interview.

For example, a month before calling the federal election, the Liberal government announced a $440-million investment in Quebec’s aerospace industry to subsidize three large aerospace companies: Bell Textron Canada, CAE and Pratt & Whitney Canada. The Quebec government is contributing another $245 million.

Companies that receive such subsidies have an unfair advantage, Wudrick said. “It makes them focus more on lobbying [for funding] than on doing work — on producing or competing where they should be. More importantly, it starves the government of money that’s supposed to be for public services.”

The level of public subsidies for aerospace is unsustainable, especially when Canada is facing a $100-billion deficit, he said.

Aerospace companies are subsidized in several ways, including cash payments, public equity investment, research grants and partnerships and repayable contributions. Export Development Canada provides cut-rate loans to other countries to buy Canadian-built planes, Wudrick noted. “If [we’re] paying to play, that’s a pretty bad investment."

Other increasingly high-tech industries such as natural resources or agriculture — where Canada is already strong and globally competitive — don’t receive the level of government subsidies that aerospace does, he pointed out.

Government should provide more funding to universities to support aerospace research that’s in the public domain, rather than subsidizing proprietary R&D and technology that benefits only one company, he said.

All public subsidies for aerospace should be eliminated or at least greatly reduced, Wudrick said. Also, there should be much more transparency so taxpayers can find out how their money was spent and whether companies paid it back, he added.

Analysis shows significant government investment in sector

An analysis by Research Money showed that about 100 aerospace companies received a total of just over $10.8 billion in federal and provincial funding from 2008 to 2020. Some companies, such as Quebec-based Bombardier, Pratt & Whitney Canada and CAE, received multiple funding contributions during that period.

In repayable contributions for R&D alone, 32 different aerospace companies received nearly $1.6 billion from the federal Strategic Aerospace and Defence Initiative (SADI) from 2007 to 2017.

Under the Strategic Innovation Fund, which replaced the SADI program, nine aerospace firms received more than $800 million from 2018 to 2021, Research Money’s analysis found.

According to separate research by the Montreal Economic Institute and the Fraser Institute, Bombardier has received more than $4 billion in public funds since 1966. Pratt & Whitney Canada, a Quebec-based division of the U.S. parent firm, has gotten $3.3 billion from the federal government since 1970.

Such public investment yields substantial and multiple benefits, Christine Tovee, a Canadian with extensive, management-level engineering and technology experience in the aerospace industry in Europe and the U.S., told Research Money.

“Every country is trying to get into aerospace because they see it as something that’s going to generate high-potential earning jobs for their citizens and leapfrog them in terms of technology,” said Tovee, founder of consulting firm CATx Technology in Toronto and a fellow at the Creative Destruction Lab.

The sector’s extremely complex, shared global supply chain generates a huge amount of technology and employment, she said. “It is, for Canada, a massive amount of our export capacity."

Because competition is global and it takes billions of dollars and many years to develop a new aircraft, every country’s aerospace manufacturing sector is supported by government funding and policy, she said.

Tovee noted that Canada’s public investment in aerospace also has produced numerous innovations, including:

• high-performance metals used in the 1950s in the pioneering Avro Arrow fighter interceptor’s Iroquois jet engine
• two Canadarms operated in orbit
• satellite-based Earth observations and broadband networks for remote areas
• water bombers used to fight forest fires
• electric jet engines, such as one being developed by DuXion in St. John’s, Nfld.

In December 2019 in Richmond, B.C., Canada achieved the world’s first flight of a passenger plane with an all-electric propulsion engine, Tovee said. The engine was developed by U.S.-based magniX and B.C.’s Harbour Air.

More public investment needed to grow the industry

Several industry players and reports have underscored the need for government to increase its support of innovation in Canada’s aerospace industry.

However, in September 2020, the industry-led Consortium for Aerospace Research Innovation in Canada closed its national office in Montreal as federal funding ended. The Green Aviation Research & Development Network — a Business-Led Network of Centres of Excellence — also finished its work last year as the NCE program wrapped up.

In June 2019, Navdeep Bains, then Minister of Innovation, Science and Industry, announced $49 million over five years — to be provided under the Strategic Innovation Fund — for a new, industry-led Aerospace Innovation and Research (AIR) Network.

But more than two years later, no funding has flowed because the AIR Network has yet to be launched, said a spokesperson for Innovation, Science and Economic Development (ISED). “Discussions are ongoing between ISED and the aerospace industry on this initiative,” Yara El Helou said in an email to Research Money.

Aerospace Industries Association of Canada (AIAC) head Mueller said the COVID pandemic has slowed some of the progress on the AIR Network, even though the initiative is needed more now than ever. “I’m hoping for an announcement on next steps after the election,” he said.

A 2020 AIAC report, produced by a consultation process led by Jean Charest, partner at McCarthy Tétrault and former premier of Quebec and deputy prime minister of Canada, identified six priorities for growing Canada’s aerospace industry to 2050. All of the priorities — from increasing the workforce and support for SMEs to investing more in Transport Canada and defence procurement and government partnerships — would require greater public investment.

To subsidize aerospace or not isn’t the choice, Stanford said. “The true choice is: Do we want an aerospace industry, in which case we have to have proactive policy to support it? Or do we want to just say aerospace isn’t important, we’ll buy our planes from other countries and we’ll withdraw from the market?”

Kyria Sztainbok contributed research for this story.

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