TRAINING & SIMULATION
BY JAMES CARELESS
Defence Policy Could Drive T & S Sales
Everyone can agree that 2020 has been a terrible year for business. But there are some bright spots in our country’s dim economic picture, and one of them is Canada’s military training and simulation industry. Despite government-imposed lockdowns, sales slowdowns and other pandemic-related challenges, the military training and simulation companies who spoke with CDR report that they are successfully weathering the current economic storm.
A STRONG CANADIAN MARKET
There’s a simple reason why the Canadian military training and simulation industry is holding its own. “Canada's armed forces are proficient and experienced users of simulation-based training systems,” said France Hebert, VP and General Manager of CAE Canada. This is because “Training is very important in Canada.”
Hebert’s positive assessment is shared by other training and simulation executives. Even with COVID-19 putting an unprecedented squeeze on government finances, "I would say that Canada’s simulation and training market is very strong," said Rick Fawcett, VP Defence with ADGA Group Consultants. This strength comes from the Canadian Armed Forces (CAF) relying on a wide range of third-party training and simulation systems across its services, from pilots in the Air Force to sailors at sea and troops on the ground.
Add the fact that modern training systems tend to be computer-based and thus lend themselves to simulation-based education, and it makes sense that the Canadian military training and simulation sector is strong enough to support a full spectrum of suppliers. According to Fawcett, “this market space consists of large OEMs (Original Equipment Manufacturers) who have both strong domestic products and capabilities and the ability to import international systems; medium-sized companies like ADGA who have a range of offerings from supporting clients through the whole life cycle of a simulation project to managing and supporting deployed simulation systems; and small companies with unique and highly specialized technical capabilities.”
During an economic slowdown like the one being caused by COVID-19, small and medium-sized enterprises (SMEs) are the most economically vulnerable, simply because they lack the deep pockets and easy access to credit enjoyed by large OEMs. Despite this fact, SMEs such as Bluedrop Training & Simulation are upbeat about the military training and simulation market.
“While program delays can be expected due the on-going pandemic, we believe the Canadian training and simulation market remains strong with current programs such as the Canadian Surface Combatant and other upcoming large programs.,” said Jean-Claude Siew, Bluedrop’s EVP Technology & Simulation. “These programs include the Future Fighter Capability Program, the Future Aircrew Training program and others.”
At the same time, SMEs contacted by CDR for this report see room for improvement. In particular, "Canada, a world leader in training and simulation for several decades, needs to continue to lead the way in Live, Virtual and Constructive (LVC) training with entities engaging in more realistic and secure training scenarios," said Didier Toussaint, Top Aces' Chief Operating Officer. "Live training remains an essential component of that equation to achieve operational readiness reflective of real-world climates and the demanding physical aspects of high-g maneuvering and decision making while operating in a multi threat dynamic combat environment."
The Big Picture: COVID-19 notwithstanding, Canada’s military training and simulation industry appears to be in reasonably good shape.
CANADA’S DEFENCE POLICY
HELPS DRIVE T&S SALES
Under the federal government’s ambitious ‘Strong, Secure, Engaged’ defence policy, the CAF is being reborn. Multi-billion dollar procurements are underwriting the purchases of new fighter jets and modern naval/coast guard ships (among others). As a result, the economic benefits generated by these procurements are raining down on the Canadian defence industry and the skilled Canadians that they employ nationwide.
Of course, the CAF members who will operate this new equipment have to be trained, which opens up sales opportunities for the Canadian military training and simulation industry. The proof: “You can see the strength of Canada's training and simulation market through the recently announced pan-Canadian team that is SkyAlyne,” said CAE’s Hebert. “It’s the joint venture between CAE and KF Aerospace that we put together for the Future Air Crew Training program (FAcT).” FAcT is the federal government program that will update the CAF’s approach to aircrew training; specifically pilots, air combat systems officers and airborne electronic sensor operators.
As envisioned by Ottawa, the multi-billion dollar FAcT contract will merge Canada’s existing Contracted Flying Training and Support program (CFTS), and the North Atlantic Treaty Organization Flying Training in Canada program (NTFC) into one. At the current time, KF Aerospace is running the CFTS program under contract for the CAF, while CAE is contracted to manage the NFTC program.
Given the amount of money on the table, competition for the FAcT contract is stiff. SkyAlyne is one of four FAcT bidders. The others are Babcock Canada, Leonardo Canada, and Lockheed Martin Canada. According to Public Services and Procurement Canada, Ottawa will issue a formal Request for Proposals next year and award the FAcT contract in 2023.
“FaCT is only one of many federal capital projects that are driving the Canadian market,” observed ADGA’s Fawcett. Among the others: The army has the Land Vehicle Crew Training System (LVCTS) project that is looking to purchase a range of vehicle crew trainers,” he said.
The defence policy’s positive impact on Canadian business is being felt at RaceRocks 3D. It is an Indigenous and woman-led business that specializes in immersive and decision-driven training systems. “Our Training and Simulation R&D initiatives are driven by FAcT, CSC (the Canadian Surface Combatant ship procurement), VISSC I and II (Victoria In-Service Support Contracts I and II for the RCN’s four submarines), MHLH (the Medium Heavy Lift Helicopter In Service Support contract for the CH-147F Chinook helicopter fleet), and Future Fighter,” said Scott Dewis, the company's CVO and Co-Founder. As well, RaceRocks 3D recently won a contract to implement the RCN’s distributed learning program over the next five years, in support of the RCN’s Digital Navy Initiative.
Canadian government purchases are also boosting the bottom line at Cubic Field Services Canada. Specifically, “we have been developing and installing the Urban Operations Training System (UOTS) at four Canadian Army sites (CFBs Gagetown, Wainwright, Petawawa and Valcartier),” said Dave Rundle, Cubic’s Director of Operations. “In addition, Cubic has been developing training solutions for new vehicles such as the MSVS (Medium Vehicle System) and TAPV (Tactical Armoured Patrol Vehicle) so that they may be integrated with the Canadian Manoeuvre Training Centre (CMTC) at Wainwright, as well as at the UOTS Villages. Cubic personnel are also currently involved in testing and integration of a portable simulation trailer system which the Canadian Army will be able to utilize to support training anywhere in Canada.”
The bottom line? No matter which defence procurement that Ottawa spends money on, “each project will require embedded training and simulation for both operators and maintainers,” Fawcett said. Even better, “as the CAF looks at reducing the training burden, they will continue to turn to Canadian industry for support.” Add the fact that Ottawa prefers to outsource projects to the private sector wherever possible – reducing the need to initiate, fund and manage these projects in-house – and prospects for the Canadian military training and simulation industry continue to be promising; pandemic notwithstanding.
COVID-19
The fact that the Canadian military training and simulation industry is weathering the COVID-19 storm doesn’t mean that life is trouble-free. It isn’t: Like every other firm in Canada, the companies in this sector have had to implement drastic operational, infrastructure, and personal equipment changes to protect employee and customer safety. Training and simulation companies are also being hampered by the international supply delays and travel restrictions that are affecting businesses worldwide. It is simply more difficult to do businesses today than it was 12 months ago.
For the training and simulation industry in general, the consequences of COVID-19 has been a significant drop in revenues and rise in operating expenses. The situation has certainly improved since the worst days of the shutdown in March-April 2020, but things are still not back to a pre-pandemic normal.
“While defence hasn't been quite as affected as other industries – for example, our civil aviation business – that doesn't mean there hasn't been an impact on CAE,” said Chris Stellwag, CAE’s Director of Marketing Communications. “We have seen some delays in product delivery programs and new orders. As well, some training sites have operated at reduced capacity due to COVID.”
Now there are some advantages to being in the defence industry during a pandemic. For example, “Cubic technicians have been classified as providing an essential service for the maintenance of critical infrastructure for the defence of Canada,” said Rundle. “Being classified as essential workers by the Canadian and U.S. governments has allowed us to continue most of our work, albeit with some delays. In other parts of the world such as Europe and Asia, the pandemic has greatly impacted our ability to travel and conduct installations and testing.”
INCREASED DEMAND FOR ONLINE TRAINING
The fact that travel and human contact are being curtailed during the pandemic is boosting the online delivery of military training and simulation services. It is also motivating companies in this sector to enhance their online offerings to reach students working at home and/or unable to attend classes in person.
For military and civilian clients alike, being able to remotely access training and simulation services during COVID-19 is a tremendous benefit. This is why companies such as Leonardo Canada have strengthened “our digitalized services, with some of them proving extremely helpful during the COVID emergency in allowing crews and technicians to leverage distance learning,” said Francesco Norante, the company’s President. “We’re also expanding the number of centres and simulation tools worldwide to get closer and closer to our customers.”
Online training and simulation for remote users is being enhanced by the sophistication of consumer-owned IT equipment, broadband internet access, and the ability to ‘virtualize’ many training/simulation scenarios in the cloud. The result is a better training/simulation experience for users at home that would not have been possible ten years ago.
“Cloud computing allows us to scale the extent of the simulation that we're providing to the end users, while maintaining the degree of robust 24/7 reliability and reliable cybersecurity,” said Phil Perey, CAE’s Head of Technology for Defence. “No matter where you are in your training program, you have access to those systems at any location in the world through a secure connection.”
“When you have a crisis like this, it creates opportunity,” said CAE’s Stellwag. For instance, at the NATO Flying School in Moose Jaw, “some of the ground school refresher training was done virtually with remote instructors, so that the students didn't lose the training time.”
BARRIERS TO GROWTH
So far, we have seen that the Canadian military training and simulation industry is strong, thanks to an ongoing infusion of CAF training dollars and the industry’s ability to adapt to the online demands of COVID-19.
That said, it isn’t entirely smooth sailing for this industry. There are barriers that are keeping it from growing as much as it could, both domestically and abroad.
One barrier is conceptual: Many customers are overly-focussed on the details of training/simulation services delivery, rather than on how well these services produce fully-trained and adequately-skilled graduates.
“People tend to get caught up in the training content and delivery methodology”, said David Pierce, Calian Group’s Director of Business Development. Calian’s work in military training and simulation includes a Training and Support Services Contract at the Canadian Army Simulation Centre (CASC) in Kingston. 600 full- and part-time Calian personnel provide the CASC with synthetic training environments.) “They ask, ‘Is it video-based? Is it immersive? Is it game-based or straight-up- e-learning?’ They get mired in these details, rather than looking at the end result. And it’s the end result, assuring competency, that really matters.”
Sometimes the obstacle is much more fundamental, such as customers resisting the ‘new and unfamiliar’ precisely because it is new and unfamiliar. Given that military training and simulation is constantly breaking new ground in the use of training technology – especially web-enabled – overcoming such resistance is a common problem.
“One of the major obstacles we deal with is customer mindset and their attitude to change management,” said Don Whitty, Calian’s Vice President of Training. “The resistance we are seeing to web-based home schooling in the civilian sector is being reflected in the military world as well. There are people who don’t believe in online e-learning or have tried it and had a poor first experience, and thus are uncomfortable with it. We have to convince them to give e-learning a fair trial – a task that is truly a change management issue.”
Negative customer mindset can be an issue with government procurement officials as well. The reason? "The challenge for many Canadian companies is they only provide parts of an overall training and simulation solution, while the CAF tends to look for turnkey solutions which advantages foreign OEMs who have systems fielded with other countries, usually those with large militaries," said ADGA's Fawcett. "Further, vehicle and weapon system OEMs own the intellectual property for their systems and may be reluctant to share that with other companies, especially if they are also interested in pursuing the simulation and training of major projects."
A further barrier to the growth of training and simulation is money, specifically companies in this space not having access to enough of it. Attracting funding in a country of conservative bankers has always been a problem for Canadian businesses; especially small start-ups whose innovative ideas are too novel and risky for nervous investors. Since military training and simulation often operates at the cutting-edge of new technology, winning financial support from banks can be a challenge.
This barrier would be lowered if “low interest bank financing for technology and services companies was available in Canada, similar to the loans offered to asset-heavy companies," said RaceRocks' Dewis. "Traditional loans keep intellectual property and corporate ownership in Canada. Relying on venture funding sends it to the US."
The stop-and-start nature of Canadian defence procurements – arguably lessened since the onset of the SSE defence policy – is another big obstacle for Canadian training and simulation companies; indeed for any company dealing with the federal government. When suppliers are forced to wait for work (and payment) while still having to pay their bills, their companies suffer. This suffering delays growth at the very least, and can kill companies being starved for projected/expected cash flow at the worst.
“Delays in programs mean constant uncertainties and this can be deadly for SMBs as they prevent constant investment in innovation,” said Bluedrop’s Siew. As well, “Prime contractors and OEMs will hesitate to provide a significant workshare to SMBs if they believe that they may go out of business in times of uncertainties.”
Finally, the cost of staying current with the market can be very expensive for training and simulation companies. This is particularly true for a hardware-intensive pilot training firm like Top Aces. They currently fly Dornier Alpha Jet and Douglas A-4N Skyhawk trainers and is planning to add Lockheed Martin F-16As in the future.
"The main obstacles to growth are the challenges in introducing new fleets and capabilities to meet our evolving client’s needs," said Top Aces' Toussaint. "Government procurements have not yet looked far enough into the future to fund parallel development of evolving capabilities. Instead, industry is expected to shoulder the risk of acquiring and developing new technologies, while procurements have been crafted to reward lower cost solutions that may not replicate warfighter threats adequately, and also not provide an open architecture to evolve in future years."
HOW GOVERNMENT CAN HELP
It is common for Canadian defence companies to ask Ottawa for help. But the fact that this request is common doesn’t mean it is misplaced. There is a lot of good that can result from government support for the military training and simulation industry. With the right kind of support, the government could foster faster growth, more job creation, and increased international sales in this sector; the last point being vital to this industry’s continued long-term success.
So how can Ottawa help this country’s military training and simulation industry? According to the executives who spoke with CDR, money is always a good place to start. This includes reliable funding that helps businesses through short-term crises like COVID-19, and helps them grow and pursue new markets over the long-term as well.
"Government procurement needs to provide adequate funding and flexibility to support continued innovation to keep Canada and Canadian companies competitive in a modern training world," said Top Aces' Toussaint. "We need to continuously invest in advanced and realistic operational capabilities to provide the most relevant training to our CAF members. Government procurement should continue to lean forward in funding and enabling innovation and advanced capabilities."
This funding has to be made available to a full spectrum of companies operating in varying circumstances and with respect to a range of time lines, the executives added. Only then can this money make a real and positive difference.
So where to begin? “The first thing (government needs to do) is to ensure funding remains in place for the simulation and training initiatives and projects that have already been identified,” replied ADGA’s Fawcett. “The next is to ensure that the procurement strategy for these opportunities ensures Canadian companies can compete and win. Finally, Ottawa needs to support the continued growth of Canadian-owned capabilities and intellectual property through programs like IRAP.”
CAE’s France Hebert takes Fawcett’s argument one step further. “What Canada needs to do is to really ensure that procurements – particularly defence procurements – maximize Canadian content,” she said. For instance, “we need to ensure that air crew training remains a key industrial capability so that we can ensure sovereignty and independence for Canada.”
The training and simulation domain is a key industrial capability that needs to be enhanced and become self-sustainable,” agreed Bluedrop’s Siew. “Existing policies such as Value Proposition and ITB are in the right direction but will need improvements to ensure SMEs’ participation not only in the large programs’ acquisition phase but also on the In-Service-Support phase.”
Money also has to be provided to help the military training and simulation industry develop new products with long-lasting global appeal. “Further investments in research and development within training and simulation will allow full exploitation of this sector, helped by a specific focus on integrated training systems,” said Leonardo Canada’s Norante.
Finally, Ottawa needs to improve “access to traditional prime plus loans, R&D grants, and create a Simulation category for Innovation Solutions Canada’s Test Drive program,” said RaceRocks’ Dewis.
This concludes the financial shopping list compiled by Canada’s military training and simulation industry on Ottawa’s behalf. But money isn’t all that the industry wants from the federal government.
For instance, “the best thing governments can do for industry and themselves is establish standards and requirements, and stick to them,” said Cubic’s Rundle. “Clear information signals industry to develop according to published standards. Predictability allows industry to offer the best capabilities.”
As well, “government training procurement such as FAcT and FLIT (Future Lead-In Trainer) need to have a well-designed and funded continuous improvement schedule to link education, research and development, industry and procurement in a single strategy like the National Shipbuilding Strategy," said Top Aces' Toussaint. "If training is really to continue to be a key industrial capability vital to the future of Canadians, then we need to develop it as part of a coherent national strategy."
James Careless is CDR’s Ottawa Bureau Chief
