And five, Spar has Pelletier himself, who has, as the new president puts it, “brought vision as I came into the job.” Pelletier’s vision is mainly directed to his third axis of energy: the procurement of new international clients. Right now, around 60% of Spar’s $150 million or so in annual sales comes from international contracts and 40% comes from DND. Keeping the 60/40 split, Pelletier wants to double the company’s sales to $300 million. Not surprisingly, he has broken down how he plans to achieve this into lists.
“First, you have to consider the market,” he says. For Spar, the market is contained to the 1,500 Hercules aircraft and their operators. When Pelletier looks to the future, he sees the world as six regions: Canada, the U.S., Latin America, Europe, Asia/Pacific and the Middle East. Each region has a priority ranking, according to its market, and its own action plan, designed in accordance to its business and cultural norms. Eventually, Pelletier wants to hire a full-time marketing and sales executive – a “capture manager” – living in each region, wholly dedicated to any prospective bids or contracts happening in the area.
But the market Pelletier is focusing on most is the United States, which is no surprise: the U.S. is home to one half of all Hercules aircraft. This number dictates where Spar must go, and Pelletier is ready with what he describes as his plan of attack. “There are many customers in this market: there’s the U.S. Air Force, U.S. Coast Guard, and the U.S. Navy. These are the three main clients,” he explains. “And each of these require a different approach. Each of them doesn’t necessarily want the same thing. So basically, on these three fronts I have three different teams.”
Besides the three teams, Pelletier believes there are four key elements to Spar’s success in the U.S. market. The first and most important element is a match between Spar’s products and services and the customer’s needs. A match is evident for Spar’s structural refurbishment that extends the life of the aircraft in general, and in particular, Spar’s unique centre-wing refurbishment program. This program would benefit the U.S. Air Force; they have grounded 60 of their aircraft because of centre wing fatigue. Prior to winning the U.S. Coast Guard contract, Spar won a small contract, worth about $1.3 million, with the U.S. Air Force, to tear down the centre wing on a number of planes. Pelletier hopes that this smaller contract will lead to a larger one to refurbish the centre wings.
Pelletier’s second step to success in the U.S. market is partnering with an American company. “I can’t go there with my Canadian cap and my Canadian flag. That’s not going to work,” he says, “So we’re doing this with the largest company of the L-3 group, L-3 Integrated Systems, a $2-billion-plus company. It’s a company that missionizes aircraft, so it puts the mission equipment into aircraft, which is a beautiful combination with us.” Fresh from a visit to L-3 Integrated Systems’ facilities in Greenville, Texas, Pelletier is visibly excited about the fit between the two companies.
Step three in the U.S. market strategy is to have a team based stateside, which he has recently begun to do. Planning to hire an executive to be based in Edmonton, Pelletier changed his mind and, instead, hired an American based vice-president to act as a capture manager for upcoming bids and contracts.
Pelletier’s final element to being successful not only in the U.S. market but also internationally is a supplier partnership. Honeywell, which supplies Spar with avionics equipment outside of Canada, is a large conglomerate with many international locations; its people are spread out over the world. Suppliers like Honeywell that are established internationally will act as a springboard for Spar’s international growth, making it easier for Spar to expand eventually into turnkey projects, whereby the customer will provide the facilities and Spar, the team – a more cost-efficient solution than sending the aircraft to Edmonton.
Pelletier won’t be satisfied keeping Spar’s business limited to North America, however. He wants to enter the second-largest market, the Middle East. Saudi Arabia alone owns 59 Hercs. Familiar with the region after working for 10 years in the Middle East and North Africa, Pelletier understands that business with the Saudis would be a significantly different ball game than with the Americans. In fact, Pelletier says his previous experience in this region was a prime factor in his appointment. There, the most important element is establishing personal relationships based on trust, something Pelletier has accomplished in his previous work. Having those personal relationships, Pelletier says, “will get you to the table to negotiate or a chance to tender. He calls the Middle East “the most complex place to do business.” But as Saudi Arabia has 16% of the African and Middle Eastern market, Pelletier is determined to break in.
According to Pelletier, the other element key to successfully entering the Middle East market is developing in-country partnerships, perhaps different partnerships within the region. Spar’s ability to do out-of-country work will give the company the flexibility to negotiate contracts that serve the needs of individual clients. Already, Pelletier has travelled to the region and begun negotiations with people he describes as key players. When the boss has better contacts than any of his sales people, he doesn’t shirk doing the business development in person.
European competitors (which Pelletier describes as ferocious) become another key element to both the Middle East and European markets. Pelletier names the United Kingdom’s Marshall Aerospace and French company Sogerma as Spar’s main competitors, because of their European mindset, which values flexibility and long-term solutions, just as Spar does.
But for Spar to compete with these European companies, to maintain its flexibility, to venture out of country, it needs a stable base of revenue and a stable workforce that is committed and highly trained. Right now, Edmonton, Alberta, is that stable base from which Spar can expand internationally, and the DND contract, still undecided, is the stable base of revenue.
Ironically, Spar’s international ambitions may be what led to Ottawa’s decision to put the Hercules bid out to tender. Aviation Alberta’s Wolfe comments: “DND was rightfully upset when Spar would not accommodate them when their C-130 fleet was experiencing major problems and they were forced to go offshore to have the work performed while Spar performed work for a new customer.” Still, Spar has put much effort in mending this mistake, including a promise to put the DND’s needs above its other customers and reducing its turnaround time by 50% in the last nine months.
If Spar does lose the DND contract, the real losers will be Alberta for losing its secure foothold toward becoming the aerospace MRO focal point for Canada, Edmonton for losing one of its biggest private-sector employers, not to mention one of its airport’s biggest tenants, and the approximately 600 Edmonton employees who work for Spar Aerospace, many in highly specialized, well paid positions. With its re-envisioning and reorganization, Spar may not need Edmonton as its base.
Even if Spar wins the bid to upgrade and maintain Canada’s fleet of Hercules, the contract will be short-term. Since Ottawa put out the tender, it’s undergone a significant change in thinking towards replacing rather than refurbishing the Hercules aircraft.
For this reason Spar has come up with a strategy to deal with the eventuality of a diminished domestic Hercules business. Enter Team Spartan, an endeavour to sell the Canadian and U.S. governments the C-27J Spartan aircraft for its search and rescue programs, consisting of Alenia North America, L-3 Communications Canada, Lockheed Martin Aeronautics and Rolls Royce. According to Team Spartan’s briefing paper, Spar would provide the same support for the C-27J as it has done for the C-130.
At the heart of Spar’s export business is its relationship with DND, which, in its complexity and dependency on co-operation, is like a marriage. If the marriage survives, it’s one that will bear fruit for both parties. But if Canada and Alberta are serious in their desire to be home to an internationally competitive aerospace industry, they might consider taking their commitment more seriously. As Wolfe sees it, one of Spar’s disadvantages is the lack of access MRO companies have to research and development dollars (in the form of tax relief or direct contributions), which go mainly to original equipment manufacturers.
Spar is certainly doing its part to stay a vital, growing part of a diversified Alberta economy. The company can be forgiven for feeling like it’s alone against the world.
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