Made-in-Canada military drones could cost defence contractors millions

One of the main objectives of Canada's defence spending over the years, besides equipping the military with the gear they need, is to ensure taxpayers get the maximum economic bang for their buck.

That policy has cut across party lines over the years regardless of which party was in power, though the execution has not always been smooth.

Now, The Canadian Press reports the Conservative government's budget-cutting program in National Defence could end up biting Canada's defence industries.

The government last year announced it was pulling out of two NATO-led aerial surveillance programs in hopes of saving up to $90 million a year. It aims to slash the defence budget by $2.5 billion by next year.

But documents obtained by CP under access-to-information legislation, reveal Canada's participation in the Alliance Ground Surveillance (AGS) drone program and the Airborne Warning and Control System (AWACS) had resulted in millions of dollars in contracts to Canadian high-tech firms.

The AGS program aims to develop a drone for more than a dozen NATO member countries, giving military commanders a better picture of their operational theatre.

[ Related: Canada’s military: Funding should be focused on protecting our sovereignty ]

AWACS is an evolution of the Cold War-era use of converted Boeing 707 jets mounted with massive rotating radar saucers as flying early-warning platforms. AWAC planes were used successfully in the air war over Libya in 2011. That same year, word leaked out Canada was cutting its participation, CBC News reported at the time.

Canada played a key role in AWACS operations, with an RCAF general commanding the German-based wing. The last Canadian handed over command in June.

“It was under Canadian leadership that the Operations Wing transformed the operation of the E-3A aircraft from largely an airborne early warning and surveillance platform to a modern-day airborne C2 force equipped and ready to provide command and control to the NATO commanders of the 21st century," U.S. Air Force Maj. Gen. Andrew Mueller said during the handover ceremony.

According to documents obtained by CP, Canadian firms now will no longer be able to bid on contracts related to the programs and can't renew the ones they already hold.

“Canadian industry will be affected by our withdrawal from AWACS” operations and service agreement, said a Jan. 12, 2012 memo to then-defence minister Peter MacKay.

The decision to pull out of the programs was puzzling, given that earlier this year then-public works minister Rona Ambrose received a report recommending Canada do a better job of exploiting the potential economic benefits of defence spending.

As recently as last January, General Dynamics Canada announced it had been awarded a contract for the AGS program to provide software to control communications between Northrop Grumman's Global Hawk drone and the ground.

The Ottawa Citizen's defence writer, David Pugliese, reported on his blog in May 2012 that Northrop's contract to supply and maintain the Global Hawk unmanned planes was $1.7 billion.

[ Related: Canadian military to spend $1 billion on unmanned armed drones ]

Vice-Admiral Bob Davidson, Canada's military representative at NATO in Brussels, defended the government's decision. It makes strategic sense if Canada wants to develop its own systems, he told CP.

“Fundamentally, it is about a better way for the government to focus our defence spending,” Davidson said. “And we’re trying to put more of our defence spending towards Canadian capabilities.”

Canada spent $161 million a year on its share of maintenance costs of AWACS program between 1992 and 2010 but Canadian companies were paid $180 million to perform some of the work, CP said. Canadian firms also received $146 million in contracts to overhaul and upgrade the AWACS fleet — a 115 per cent return on the government's contribution, CP said.

Liberal defence critic John McKay saw the program cuts as an arbitrary attempt to slash costs without thinking it through.

“The way the government seems to be going about it is slap-dash, particularly when you consider it has billions of dollars in unspent budget funds, money Parliament allocated but they haven’t spent,” he told CP.