Herculean Task

With its mainline business of the last 45 years hanging in the balance, a revamped Spar Aerospace faces its biggest challenge yet: Export or die

By Sophie Lees

On September 9, Spar Aerospace announced it had won a $20-million contract to provide the United States Coast Guard with aircraft maintenance services for up to eight C-130 Military Transport Aircraft, better known as Hercules. The work, to begin immediately at Spar’s facilities in Edmonton, will continue over the next two years.

Though middling in dollar terms, it’s a huge symbolic victory for a company that is under pressure to expand its export business. As Patrice Pelletier, Spar’s newly installed president, puts it: “It is a vote of confidence from a prestigious organization.” It is also an entrée into what could become Spar’s biggest market: the United States.

Over the last 12 months, the company has undergone big organizational changes, including a head-office move to Edmonton from Mississauga, Ont., and the hiring of Pelletier. The reason: its anchor business for the past 45 years, keeping the Canadian Armed Forces’ fleet of Hercules ready for takeoff, could soon come to an end. In 2003, the Department of National Defence announced it would not renew Spar’s maintenance, repairs and operations (MRO) contract when it expired in September 2005, as it had in the past. Instead, the approximately $200 million, five-year contract would be put out for tender. Spar remains a bidder, indeed the likeliest option. Nonetheless losing the bid could potentially devastate Spar; 40% of its annual revenue would disappear and its credibility in the global industry would be damaged. Faced with this possibility, Spar, to ensure its survival, has had to build its export business – quickly. The contract with the U.S. Coast Guard is evidence that the re-envisioned Spar team has what it takes to become a competitive international company.

Any day now, Spar will learn whether its partnership with Ottawa will continue, but throughout its facilities at the Edmonton International Airport, it’s strictly business as usual. There’s no sign of tension or unease in either the shop-floor workers in blue coveralls, who look more and more like worker ants the closer they are to massive and daunting grey aircraft sitting in the hangar, or the office workers in business suits, who greet each other like they’re family as they move between the three floors via a communal staircase. There’s a pervasive bustle that’s busy, but not hectic. Perhaps it’s the clichéd calm before the storm, or perhaps it’s a testament to Pelletier’s recent leadership.

To increase Spar’s competitiveness, L-3 Communications, Spar’s New York-based parent, moved Spar’s head office to Edmonton, bringing the executive and production teams together in one location. L-3 also hired the savvy Quebecker Pelletier, who, having held several senior executive positions at SNC Lavalin Inc. and Bombardier Transportation, has extensive experience developing international turnkey and other projects, particularly in new and emerging markets.

Since 2001, when L-3 purchased Spar, the company has been repositioning itself as an international company, and has brought together a team of 20 top aviation executives, who have successfully won some key contracts, such as avionic upgrades for the Royal Jordanian Air Force and the Royal Malaysian Air Force. In December 2004, Spar landed its biggest international contract yet: worth more than $100 million, Spar will complete the modernization and maintenance of the Royal New Zealand Air Force’s five Hercs.

The amount of time, energy, and money spent to prepare a bid is a significant investment of company resources. For example, Spar is working on a bid for a contract in Norway. Already, it has spent a year in preparation. By the time the bid is submitted, Pelletier estimates $1 million will have been spent. What Pelletier brings to this process is focus: focusing the company’s resources on fewer bids and selecting bids that best fit with Spar’s capabilities. He has implemented an exhaustive process with which to evaluate potential bids.

“I was selected for a specific reason – reorganize, transform and grow Spar,” Pelletier told the Globe and Mail earlier this year. Pelletier joined the firm in May and is steering Spar through this patch of turbulence – turbulence he refuses to let disrupt business. He won’t speculate on what might happen if Spar loses the DND contract. “It’s not my style,” he says. “I’m an optimist. I also believe things happen for a reason.” He recognizes that his employees may not have the same savoir-faire confidence, so he spent his first weeks at Spar talking to his employees face-to-face, keeping them informed, but focused on the present and future business of the company.

To achieve focus, Pelletier likes to take big pictures and break them down into manageable lists. As to where company’s immediate energies should be directed, for example, he has defined three axes. The first axis is communicating clearly what Spar is and what Spar does to the public, the governments of Alberta and Canada, as well as other governments that are potential clients. The second is to run the business, which, besides working with Ottawa, currently includes completing a program for Greece’s Hellenic Air Force and the Royal New Zealand Air Force. And the third is to procure new clients, which necessitates expanding Spar’s export business.

At present, Spar’s sole platform is the C-130 Military Transport Aircraft. Its market consists of the 1,500 Hercules aircraft, originally built by Lockheed Martin, that are actively flown in over 70 countries. For these aircraft, Spar offers five programs. Spar’s life extension program can increase a fleet’s working life by 15 to 20 years at one-tenth the cost of purchasing replacement aircraft. Besides life extension, Spar offers fleet management, cockpit upgrades, MRO, and missionization (the modification of planes for various kinds of mission). The company could be called a one-stop shop for all things Hercules.

Gary Wolfe, former president of the Alberta Aerospace Association and current chairman of the Aviation Alberta Aerospace Committee, believes the one-stop solution is Spar’s greatest competitive advantage. “It means customers can put their fleet down for a full range of required services, reducing the overall down time and cost,” Wolfe comments. “This is of particular interest to military C-130 Hercules operators that are grappling with aircraft life extension, cockpit and mission system upgrades.”

In considering Spar’s global emergence, Wolfe has a unique and comprehensive vantage point, not only because of his protracted involvement in and knowledge of Alberta’s aerospace industry, but also because he worked as the DND quality manager at North West Industry, the predecessor of CAE Aviation, which Spar purchased in 1998. When Wolfe worked there, NWI worked almost exclusively for the Canadian military on the DND Tutor, T-33 Silver Star and the Hercules aircraft. Later, he observed Spar’s expanding its reach to the global scene as the Canadian military work diminished, along with the Canadian Forces’ fleets of Tutors and T-33 aircraft. Wolfe observes: “The experience gained from work on DND’s aging C-130 aircraft, cockpit upgrades and missionization positioned Spar to be very competitive in this global market.”

But in terms of competitiveness, Spar has more to offer clients than its experience or even its one-stop solution. For one, it is one of 14 Lockheed authorized Hercules service centres, and the only one in North America other than Lockheed itself. Two, it has an unparalleled track record as the sole provider of maintenance, upgrades and missionizations for Canada’s fleet of 32 C-130s, which has the distinction of having the highest usage rate in the world. (Recently, a Canadian Hercules set a new world record, completing 45,000 flight hours.) Three, it offers novel solutions, such as its refurbishment of the centre wing, a life-limiting structural area. Four, according to Wolfe, Spar has employed some of the best aviation executives in the business, not to mention a team of 150 highly skilled, experienced engineers.

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