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Montreal aerospace to benefit from military spending boost

“This is really good news,” says Suzanne M. Benoît, the president of Aéro Montréal. “I’m very happy.”

On June 7, the federal government said it would increase defence spending by 70 per cent over the next 10 years, from $18.9 billion this year to $32.7 billion in 2026-27.

As part of that plan, the government says it will to buy 88 new fighter jets, up from the 65 jets the previous government had planned to purchase.

“These are historic investments,” Benoît says. Canada hasn’t bought a new fighter jet since 1982. “We have to really capitalize on this and act quickly to position ourselves.”

The Montreal region has the third-largest aerospace sector in world, after Seattle and Toulouse, Benoît says, with 205 companies.

The majority of those companies are small and medium-sized businesses.

While the federal contracts for new fighter planes will go to large companies – like Lockheed Martin or Boeing — those deals will still generate business for smaller companies, Benoît says.

That’s because the federal government requires non-Canadian companies that get defence procurement contracts to “undertake business activity in Canada equal to the value of the contract.”

Of that business activity, 15 per cent has to be with small and medium-sized businesses.

In some cases, those companies meet the requirement by subcontracting to Canadian firms. In other cases, they do it by investing in Canadian businesses.

The largest investment of that kind went to Montreal-based Mannarino Systems & Software in April, which provides software and aerospace engineering services. It was the result of a contract between Lockheed Martin and the federal government to provide maintenance and support for CC-130J Super Hercules transport planes.

“It’s transformational for us, because it’s an opportunity for us to move from a services business into a product business. These kind of opportunities don’t come around often,” says Jim Palmer, Mannarino’s director of business development.

While the exact value of the deal wasn’t disclosed, it was worth at least several million dollars.

For large contractors, these sorts of investment deals can be attractive because they don’t have to make changes to their supply chain and because investments in small and medium sized businesses made under this requirement can qualify for a “multiplier” — meaning they don’t have to invest on a dollar-for-dollar basis.

Palmer says that the increased defence spending could lead to more deals of this kind for Mannarino, as well as more demand for the company’s services.

“To us this is actually good news on all fronts,” Palmer says.

Palmer says he’s also pleased with the federal government’s plan to streamline the procurement and give the Department of National Defence the ability to make larger purchases.

The current procurement process is rather onerous for small businesses, like Mannarino, he says, and the more streamlined process could create new opportunities for his company to sell its services directly to the government.

It remains unclear just which fighter plane the federal government will purchase.

Stephen Harper’s Conservative government had planned to purchase the Lockheed Martin F-35, while the current government publicly considered purchasing Boeing Super Hornets before threatening to back away from the plan over a spat between Boeing and Bombardier.

But Benoît says it doesn’t matter which model is selected.

“If you’re good and competitive, your chances are as good on one as the other,” she says.

She also sees opportunities arising from the federal government’s plan to invest in military drones.

“Given the diversified capability that we have in aerospace, I think Quebec is very-well positioned to develop that segment,” Benoît says.