It's been four years since B.C. aerospace companies began signing contracts with Lockheed Martin (NYSE:LMT) to produce parts for the American defence company's F-35 jet.
Although Canada was included among a consortium of 11 countries that ordered 3,100 of the high-tech planes, Ottawa has yet to pull the trigger on buying the aircraft.
The federal government originally estimated the cost of 65 new jets to be $9 billion but put its order on hold in 2012 when Canada's auditor general revealed costs were actually $25 billion.
Larry Glenesk, vice-president of business development for Avcorp Industries Inc. (TSX:AVP), said the lack of decision from Ottawa is limiting the potential of B.C.'s aerospace industry.
“We should be at [production] rates that are more than double the rates that we're currently at,” Glenesk said from Avcorp's office in Delta.
“And we have the capacity, the know-how, the people, everything prepped [and] ready to get at the rates that are planned for the program. And the Canadian government decision is one element of that.”
The aerospace company has produced 20 sets of outboard wings for the F-35 program out of a confirmed order of 340 from the U.S. military. It has the potential to produce another 260.
Glenesk said the initial $50 million contract with Lockheed could be worth more than $500 million as more contracts are secured down the road, but he's concerned that if a decision is delayed beyond 2014, it could turn into a federal election issue next year.
That could delay a Canadian order until 2016, which would send Lockheed Martin and subcontractors looking to other companies to produce parts.
Asco Aerospace Canada signed a $25 million contract to manufacture titanium bulkheads in the F-35 wing along with three smaller parts at its Delta facility.
“As the F-35 ramps up in production, there's a lot of opportunity to grow our work,” Asco Canada vice-president Kevin Russell said.
“But that is basically in a holding pattern right now because of the Canadian government's lack of decision.”
He added that Asco Canada would need to know by the end of 2014 whether the federal government plans to buy the aircraft. Otherwise, Asco is “at a huge disadvantage in the selection process because [Lockheed Martin] will favour countries where the governments have made a commitment over Canada right now in terms of procurement decisions.”
Stephen O'Bryan, vice-president of international strategy and business development for Lockheed Martin, said the list of B.C. firms involved in the F-35 program – either through direct contracts or spinoffs – has grown to at least 15.
“The uncertainty behind it is that government-to-government agreements say that all F-35 work has to go to companies [in] countries that are procuring the airplane,” he said.
“We'll certainly honour the contracts we have, but we'll have to honour those government-to-government agreements.”
O'Bryan, who is in B.C. to attend the Abbotsford Airshow, added that Lockheed plans to ramp up production from about 30 F-35s a year to 200 annually, and he hopes the B.C. firms are able to remain working with Lockheed.
Glenesk and Russell both said B.C. is in a unique position geographically that would allow its aerospace industry to grow even bigger under the right circumstances – such as Ottawa's procurement of F-35s.
Proximity to Boeing's (NYSE:BA) facilities in Washington state means the companies can deliver parts south of the border within hours.
Meanwhile, Vancouver's role as a gateway to Asia gives West Coast firms a competitive advantage when it comes to producing parts destined for major Japanese aerospace companies.
