EXECUTIVE VIEWPOINT - John Schmidt, President & CEO, Federal Fleet Services

BY JOETEY ATTARIWALA

John Schmidt
PRESIDENT & CEO, FEDERAL FLEET SERVICES

 CDR recently sent Senior Staff Writer, Joetey Attariwala, aboard the CSS Asterix in Esquimalt, BC, to interview the President and CEO of Federal Fleet Services, John Schmidt. The conversation focused on the company’s leasing of the Asterix and why the provision of service model has worked well for Canada’s Navy. Here is that conversation. 

CDR: Mr. Schmidt, thank you for taking the time to speak with CDR. You have been on the government side of procurement and now you are in industry. Please share some of your career milestones that have led you to your current position. 

John Schmidt: It’s great to see you again, Joetey. I’d have to say my most gratifying accomplishment was leading the proposal for the CSS Asterix, which at that time we called Project Resolve. That was the first time an unsolicited proposal to the government had gone from concept to contract, to execution to delivery, and now to in-service. So, it’s been rather a historic journey over the last 10 years. I stayed on at Federal Fleet for a year after we got the contract in place and we delivered the service, after which I went back to Davie to do some other projects. One of those was the conversion of three icebreakers for the Canadian Coast Guard, which the Coast Guard refers to as the Medium Interim Icebreaker program. We converted three Norwegian-owned icebreakers for the needs of the Canadian Coast Guard. I was involved in that from concept to delivery. After that project, I was assigned by Davie to negotiate the long-term Halifax-class maintenance, refit and upgrade program contract with the Navy and PSPC. That was another contract that was unique in my career because I was the originator of that contract when I was on the government side — I actually wrote that contract so it was kind of full circle. I have to say it was interesting negotiating with ex colleagues. Some things had changed, but I can assure you, they didn't give me any breaks. In fact, I think they treated me harder in that negotiation than they would normally treat someone because I think they wanted to make sure that I didn't get any breaks. 

CDR: You’re now President and CEO of Federal Fleet Services so I’d love for you to share your perspective on delivering capability to customers. 

John Schmidt: We are all in this industry for the defence of our country and for the betterment of the industry in general. That’s certainly my motivation, so I was honoured to be asked to lead Federal Fleet Services, and lead the ship [CSS Asterix] hopefully on to some new challenges, but also lead the company into more innovation and more challenges. 

I can tell you that we believe that the operational management of support and auxiliary ships should be lean and leverage the best international industrial practices. That is why Federal Fleet uses proven operations, maintenance and logistics solutions that continually improve the outcome for our clients like the Royal Canadian Navy. Within both Federal Fleet Services and the wider group of companies, we have extensive experience in building, operating and maintaining mission-critical ships in all regional theaters of operation, including in some of the world’s harshest environments. 

By providing Asterix to the Canadian government, we’ve just touched the tip of the iceberg on what could be accomplished, because throughout my career, I’ve always tried to look for ways to innovate and new ways to do things, while always keeping in mind the best value for the taxpayer, because at the end of the day, we all pay for this.

PROVISION OF SERVICE MODEL 

CDR: The provision of service model that Federal Fleet Services is providing to the Government of Canada and the Royal Canadian Navy is one that hasn’t been seen in Canada before, but it’s not entirely unique as the Royal Fleet Auxiliary supports the Royal Navy, and USNS ships support the US Navy. How is this model working in Canada? 

John Schmidt: I’m glad you mentioned the other countries that are doing this, because we didn’t create this model, but we innovated it in Canada through how quickly we converted the vessel and were able to bring the service to Canada. We did copy some elements, but how the provision of service happens is uniquely Canadian. 

While outsourcing the operational management of naval auxiliary vessels has been common practice with many of our allies, private ownership of the vessel has been uniquely Canadian. The private ownership of the vessel has both advantages and disadvantages. We have all witnessed the advantages in terms of us, as owner, putting our money where our mouth is and going on full risk to deliver a capability at a fixed price by a fixed date, but the disadvantages are maybe more subtle. For example, the Navy has been reluctant to install several defensive items which the ship was fitted for but not with, such as CIWS [Close-In Weapon System], due to its private ownership. And of course, leasing a ship is always going to be more costly than a purchase but this is mitigated by the existence of continuous purchase options in the contract. 

I think there’s other services that could benefit from this model in the government sector. There have been talks over the years, for example, to be able to provide icebreaking services by the private sector. I mentioned earlier the Medium Icebreaker program where we converted the three ships at Davie. The original plan was again an unsolicited proposal by Federal Fleet Services, and it was to lease those vessels back to the Coast Guard and operate them by Federal Fleet Services as an icebreaking service. We actually proposed a fixed price for the conversion of those three ships and a turnkey operation, where we were going to have an integrated crew, in other words, a combination of Coast Guard folks and Federal Fleet Services folks. We would be in charge of the day-to-day operation of the vessel, but once we went into a service delivery mode, like if we were ice breaking, a Coast Guard ice breaking captain would be on board on behalf of the Coast Guard, and they would take command of the vessel. If it was buoy handling, or search and rescue, it would be the same thing. 

The Coast Guard struggles with getting crew members, just as the Navy does — everybody’s struggling with this issue, and I think that is validated by the fact that the government decided to recognize certain foreign certificates as equivalent to Canadian. There’s absolutely nothing wrong with that, but it points out there is a gap that we need to address. We’re not able to do that on Asterix because our PSA requires lots of security clearances since it’s a combat support vessel, so it has to be Canadian citizens only, and I don’t think that’s going to change overnight. My point here is that something like the Asterix contract model is considered ‘alternative service delivery’ as we used to refer to it in the government sector, and there’s a lot of areas in the marine world that can use it. I just highlighted Coast Guard icebreaking as one, but it can also be for DFO [Department of Fisheries and Oceans] services as they do a lot of scientific survey work, so there’s lots of areas where this work can be done by the commercial world. Outsourcing operations management is really a common practice globally, in various industries, and it is something Canada could benefit more from in defence procurement. There really is much to learn from the way commercial ships are leanly operated and managed. 

CDR: It sounds like the provision of service model is going quite well as my research has indicated that the Asterix has not missed a single day of operations over the past 5 years since the contract began. 

John Schmidt: You’re right Joetey, and we are extremely proud of that. CSS Asterix was converted to the highest specification. There were no shortcuts taken and that is why the ship is probably the most reliable and best performing platform in the Royal Canadian Navy fleet right now. 

We were given 60 or so high-level requirements by the Government of Canada and our plan, which was successful, was to go well above and beyond their expectations. That included everything from the comfort and quality of the interiors to cargo handling systems to the navigational and military systems. We made sure to install the same equipment, machinery and systems that are going to be installed on the future Protecteur-Class so that the three ships will be interoperable over the coming decades, won’t require different training or spares and can be used in the same areas of operation. 

In terms of being able to operate for 5 years without a single day of down time, I would say that when you make someone take the risk, they're extra careful on how they deliver. We took the risk of financing, we took the risk of conversion, we delivered the ship to the requirements, and we committed to have that ship available to the Navy 365 days of the year. That's the sort of model that we believe in going forward for a multitude of services in our industry, not just for the government, because it's done like that in most of the marine industry, and we think the same can apply for other entities, such as domestic ferry operators. For example, in the European ferry market, I would say 90% of the ferry vessels are privately owned and are leased by the governments. We'd like to go to that model for the benefit of Canadian industry, the Canadian economy, Canadian taxpayers, and for service reliability 

CDR: It seems like that’s a win-win for Canadian industry and it benefits the economy. 

John Schmidt: It is a win-win, but there is another aspect we have to consider as well, and that is geo-politics and the world we live in today. It is public knowledge that some Canadian ferry operators are leasing vessels from a company that is building their ships in China. Now, we don't have sanctions with China, but that same shipyard builds warships, so is that where the Canadian taxpayer should be putting their money — in shipyards that are building warships that might be trailing the Asterix and the rest of our fleet as they were on our last mission in Asia. We were in the South China Sea being trailed by Chinese frigates, and they were quite aggressive. The point is, we have to walk the talk, so we cannot build ships in Chinese shipyards that are also building warships, while at the same time say it’s a good thing for Canada. The Chinese are aggressively pursuing a strategy known as Military-Civil Fusion whereby they rely on the development of their civilian sectors to achieve military dominance. In other words, encouraging ferries to be built in China to support those same shipyards as they develop their naval fleet is a well thought out strategy. 

There is no ferry operator that does not have a subsidy from the federal government, and certainly from their provincial governments and their taxpayers in one way or the other. I'm very passionate about doing the right thing here, and it just bothers me when we don’t go to our own industry, and there's plenty of them.

MARSS NiDAR 

CDR: Federal Fleet Services has invested its own money to add the MARSS NiDAR capability to the Asterix. Why did you choose to do this, and why is it important? 

John Schmidt: Now would be a good time to talk about the company’s ownership. Something which distinguishes the ownership of Federal Fleet Services and Davie from most of the other groups involved in shipbuilding and the marine industry is that these two gentlemen, Mr. Vicefield and Mr. Davies, are not generalist entrepreneurs who just happen to also own shipyards and ships. They are 100% focused on this industry, they are involved in every aspect of the business down to the smallest details and they are global players fixated on technology, patterns and innovation because they recognize, that is how they have gained their edge. That is why you will often see Davie and Federal Fleet Services showcasing new and better ways to do things. 

Given the overwhelming trend towards autonomous systems, as we have seen in Ukraine and the Middle East over the past years, the need for such a system was clear, particularly given the areas of operations we have been active in recently. When we started investigating counter autonomous system capabilities it became very clear very quickly that MARSS was at the top of their game, both at-sea and on land. 

The NiDAR has C2, multi-domain surveillance and counter autonomous system capabilities integrated into one very easy to use tactical display. It is an intelligent turnkey solution which delivers an automated multi-layer protection shield, including long-range UAS, unmanned surface vessel and even subsea detection, machine learning classification, operator alerts and countermeasure layers. I believe the NiDAR capability will eventually become standard equipment on all military vessels. I think it’s critically important that we are able to detect autonomous aerial and surface systems at long range so we keep an eye on them and be able to engage them quickly and automatically should the need arise. It’s another tool that gives us situational awareness of what’s going on and provides more protection for the integrated Federal Fleet and Royal Canadian Navy crew, so kudos to the ownership to invest out of their own pocket to have that in place.

MCDV 

CDR: What are your thoughts about the eventual recapitalization of the Royal Canadian Navy's Maritime Coastal Defence Vessels — the Kingston class. Eventually they will need to be replaced, so have you looked at that capability? 

John Schmidt: Our sister company, Davie is looking at it but I can’t speak for them and given that the replacements aren’t needed until well into the 2030’s it is neither a priority for Canada nor the three NSS yards right now. As large ships which will be well over 1000 tonnes, the replacement vessels will be built by one or two of the NSS shipyards. One of the problems for the NSS shipyards into the 2030’s will be that there will be production gaps so the construction of these vessels will be important fillers to ensure the success of the National Shipbuilding Strategy and keep the shipyards working. 

We are in a rapidly evolving world in terms of defence strategy, NATO commitments and global political instability so I would not rule out the replacement vessels eventually becoming something altogether different, such as a much larger ice-class corvette. Unlike many of the other requirements such as CSC and icebreakers, there is plenty of time to decide on the Kingston Class replacement. 

That question of what type of ship will Canada need for the future is what led to the G-LAAM vessel design which Davie showcased at CANSEC earlier this year. In a world of insurgencies, asymmetric warfare, natural disasters and a focus on the Arctic, it’s a design that makes a lot of sense. So the real question is, does Canada keep doing the same thing, just maybe a little bigger and little better or does it react to the world around us and innovate solutions for tomorrow’s theater of combat. For sure our adversaries are doing the latter.

LOOKING AHEAD  

CDR: What is the future of Federal Fleet Services? 

John Schmidt: There are two sides to it. One is the financial element of building and leasing vessels and the other is the lean operational management of ships. 

The recent news that Denmark’s future warship fleet will be privately owned by pension funds and leased to the navy is a good indicator that our financial model is the future. 

The ownership of Federal Fleet Services is really focused on innovation and the NSS has been a catalyst to bring our industry back to where we were maybe 20 years ago. Now we’re gradually rebuilding the industry, but we can do more by expanding the industry such that we actually put a dent in the needs of the federal fleet and also the commercial fleet in Canada. How do we do that? We go back to basic principles, and one of the key things is to stop building offshore and stimulate our own industry here in Canada by following the model that we did here with Asterix — that's where we build and then lease back to the government the vessels that we built or assembled here. Canada needs a lot of ferries so that is definitely a course we are taking right now with our Build, Own, Operate, Transfer or ‘BOOT’ model. 

In terms of operational management, there are several classes of vessels where we can add value and it is also an export product for us. There are a lot of commercial ship managers worldwide but none with the kind of focus on and knowledge in military operations as we do. I wouldn’t be surprised to see Federal Fleet Services bringing value to one of the many allied Navies whom are transitioning from coastal Navies to blue water Navies with larger, more complex vessels. 

CDR: Thank you.

Joetey Attariwala is CDR’s Senior Staff Writer