Two-decade, $2.4B aircraft deal likely to bring 100 jobs here

Originally published by Mia Rabson and Martin Cash for Winnipeg Free Press on December 8th 2016

OTTAWA — Winnipeg’s aerospace sector will be getting a new heavy maintenancehangar, creating up to 100 new jobs, as part of a $2.4 billion airplane maintenance contract to provide service and support to Canada’s new fleet of 16 Airbus C-295 search and rescue aircraft.

Public Works Minister Judy Foote and Defence Minister Harjit Sajjan announced Airbus as the winner of the contract to provide new planes at an event Thursday morning in Trenton, Ont.

The contract for a period of 11 years is to provide 16 new planes for $2.4 billion including — including six years of acquisition and set up as well as the first 5 years of maintenance and support services — with an option for an additional 15 years of maintenance which would bring the total to $4.7 billion.

The maintenance will be done in a joint venture between Airbus Defence and Space and PAL Aerospace. The latter is headquartered in Newfoundland but is owned by Winnipeg-based Exchange Income Corp.

Although plans are not confirmed, PAL intends to do the heavy maintenance component in Winnipeg.

Defence Minister Harjit Sajjan said Thursday it is nice to be able to sign a contract on this file, which has been dangling for more than a decade and four prime ministers.

“To be honest this process took way too long,” Sajjan said in an interview with the Free Press.

But he said the good news is the contract has been signed and there will benefits across the country, including in Winnipeg.

Sajjan said the decision to set up the heavy maintenance work for the new planes in Winnipeg was part of the company’s bid.

“This allows for people in Winnipeg to benefit from it as well,” he said. “We are bringing jobs to Winnipeg.”

Sajjan said for now the current plan to have one search and rescue plane stationed in Winnipeg will remain but the ongoing review of Canada’s military needs may indicate a need for change at some point.

Many details as to where work will be done have yet to be worked out but Exchange CEO Mike Pyle said, “It is our intention to do the heavy maintenance work (in Winnipeg).”

LARS HAGBERG / THE CANADIAN PRESS Defence Minister Harjit Sajjan, third left, Public Procurement Minister Judy Foote and the MP Neil Ellis, second right, for Bay of Quinte pose for pictures at CFB Trenton in Trenton, Ontario, on Thursday Dec. 8, 2016. The federal government says Canada will spend $2.3 billion to replace the military's ancient search-and-rescue planes with 16 new aircraft from European aerospace giant Airbus.

LARS HAGBERG / THE CANADIAN PRESS
Defence Minister Harjit Sajjan, third left, Public Procurement Minister Judy Foote and the MP Neil Ellis, second right, for Bay of Quinte pose for pictures at CFB Trenton in Trenton, Ontario, on Thursday Dec. 8, 2016. The federal government says Canada will spend $2.3 billion to replace the military’s ancient search-and-rescue planes with 16 new aircraft from European aerospace giant Airbus.

Industry sources suggest that such a facility could need as many as 100 people to staff it up.

Exchange owns Manitoba regional airlines including Perimeter, Calm Air and Keewatin, but PAL will operate the Winnipeg heavy maintenance shop.

Winnipeg’s central location and other cost factors makes it a more attractive location for the work than PAL’s Atlantic facilities.

“We are putting it here because we want to, not because there were any incentives to put it here,” he said. “We are not asking governments for money. It is a business decision.”

Winnipeg is also home to one of Canada’s five search-and-rescue bases. The 435 Squadron is based at 17 Wing and is home to one of the C-130 Hercules dedicated for search-and-rescue work.

The maintenance contract will be smaller at first, because new planes require less work. Heavy maintenance checks are usually not required until about 24 months after the planes are commissioned.

The first C-295s are to be delivered in 2019, with all 16 due by the end of 2022. About 20 per cent of each plane will be manufactured in Canada.

“This is a significant investment to replace our fleets of Buffalo and Hercules aircraft, strengthen Canada’s capability to conduct search-and-rescue operations and keep Canadians safe,” Foote said on Thursday morning.

Initially, the plan was to buy 17 new fixed-wing search-and-rescue aircraft, but the request for proposals issued in 2015 asked for the bidding companies to suggest how many were needed based on the capabilities of their airplanes.

In addition to the Winnipeg maintenance contract, there will also be a training component set up by CAE in Comox, B.C.

The announcement was scheduled to take place in Winnipeg but was moved to Trenton to accommodate the ministers’ schedules.

Airbus beat out the C-27J from Italy’s Leonardo and a plane from Brazil’s Embraer. It was long believed the competition was largely between Airbus and Leonardo.

Lars Hagberg / The Canadian Press Defence Minister Harjit Sajjan speaks to media after annoucing that the federal government of Canada will purchase new Airbus C295 airplane for Search and Recuse missing at CFB Trenton in Trenton, Ontario, on Thursday Dec. 8, 2016. The federal government says Canada will spend $2.3 billion to replace the military’s ancient search-and-rescue planes with 16 new aircraft from European aerospace giant Airbus.

Lars Hagberg / The Canadian Press
Defence Minister Harjit Sajjan speaks to media after annoucing that the federal government of Canada will purchase new Airbus C295 airplane for Search and Recuse missing at CFB Trenton in Trenton, Ontario, on Thursday Dec. 8, 2016. The federal government says Canada will spend $2.3 billion to replace the military’s ancient search-and-rescue planes with 16 new aircraft from European aerospace giant Airbus.

It is widely believed the Italian planes were much more expensive.

The decision to buy the Airbus planes brings to an end a 12-year saga to buy new fixed-wing search-and-rescue planes that began when Jean Chrétien was still prime minister and outlasted his next two successors. It has been another example of the difficulties Canada’s military has procuring new aircraft. Some of the C-130 Hercules have been in service since the 1960s and are so old and out of shape the government raided a museum exhibit to get spare parts to keep them in the air.

Winnipeg is home to the largest aerospace sector in Western Canada and the third-largest in Canada, but the federal government is often accused of ignoring or overlooking Winnipeg’s aerospace work in favour of Quebec. Transport Minister Marc Garneau, who represents a Montreal riding, was accused of favouring Quebec recently when he agreed to amend a law requiring Air Canada to keep heavy maintenance work in Winnipeg and Montreal in exchange for Air Canada buying new jets from Quebec’s Bombardier.

Winnipeg was to get an aerospace maintenance centre of excellence in exchange, but earlier this week the Free Press reported that centre is in jeopardy because the deal with its largest component, Cargojet, is falling through. The other two companies involved are still set to participate but are very small.

PAL’s association with Airbus is a major achievement for the growing East Coast unit that Exchange acquired for $246 million in 2015. Last year PAL won a five year surveillance plane maintenance contract with the United Arad Emirates valued at $150 million.

In a report to investors, Mona Nazir, an analyst with Laurentian Bank Securities, said, “It remains difficult to carve out the portion of revenue for each consortium player given optionality that government has on certain aspects of the contract. We have estimated the services component value to be about $150 million annually.”

While all of that won’t got to PAL and then onto Exchange’s top line revenue numbers, she said, “Given EIF (Exchange Income Corp.) has a greater role in the maintenance program we expect that it would benefit more substantially than other participants.”

Exchange built a 65,000-square-foot hangar in 2014 at Richardson International Airport that currently does minor maintenance work for its aviation companies. Pyle said no decisions have been made as to what sort of structure will be required for the C-295 work or where it would be located.

Shares of Exchange Income Corp. shot up almost five per cent on Wednesday and were up another 1.5 per cent on Thursday to close at $45.09a new all-time high for the seven-year-old company.

— With files from The Canadian Press