Ottawa has awarded a $95-million unmanned aerial vehicle (UAV) surveillance system contract to a Vancouver-area company that earlier this year was barred from selling a subsidiary to U.S. interests.

The two-year contract calls for MacDonald Dettwiler and Associates Ltd. (MDA) to provide a long-endurance UAV surveillance system to the Department of National Defence (DND) for use in Afghanistan.

The system is slated to begin operations by February 2009. The agreement contains a federal government option for a third year at an additional cost of $35 million, increasing the total value to $130 million.

Publicly traded MDA attempted to sell its information systems division in a $1.325-billion deal with Alliant Techsystems Inc., of Edina, Minn., but the move was blocked in May by federal Industry Minister Jim Prentice on the grounds that it was not beneficial to Canada.

Photo courtesy of MDA
Canadian Forces units will soon have Heron drones in their arsenal.

Critics said the block would hamper future foreign investment in Canada, but opponents of the sale said it was a threat to Canada's sovereignty, Canadian space secrets would be in U.S. government hands and Ottawa would no longer have access to a classified satellite system that Washington intended to use to launch conventional bombs.

The drone deal is the second contract in the $100-million range that MDA has received since the sale of assets to the U.S. firm was scuttled. MDA has also been awarded a four-year contract to help the Canadian Space Agency do sophisticated robotics work on the International Space Station.

The contract between MDA and DND comes after a panel headed by former Liberal deputy prime minister John Manley called for Ottawa to supply UAV support for the Canadian Forces in Afghanistan.

Under the terms of the deal, MDA will provide the technology that allows soldiers to operate an undisclosed number of Heron UAVs built and supplied by Israel Aerospace Industries (IAI) Ltd.

"We buy the aircraft from IAI and then it's our responsibility to put together the system itself," says David Hargreaves, a vice-president within MDA's information systems group.

MDA will also send 20 employees to Afghanistan. They will be responsible for UAV takeoffs and landings, training, support and maintenance, while military personnel will operate the drones during missions.

Bob Bergen, an adjunct professor in the University of Calgary's Centre for Military and Strategic Studies, says Canadian soldiers have been using French-built UAVs that can only fly for about five hours at a time.

"(The Heron) gives them the longevity they were looking for," says Bergen. "I think the (soldiers) are going to be happy. It's a lot better than what they've got."

When it came to acquiring new equipment, he adds, UAVs were DND's first priority, followed by helicopters. When announcing the UAV contract, Defence Minister Peter McKay also announced the acquisition of six used helicopters from the U.S.

However, Bergen questions whether MDA will succeed in obtaining more contracts for domestic UAV use.

"There's lots of talk about them being useful in the Arctic patrols," says Bergen. "But the big problem with UAVs right now and operating in a civil environment is other commercial aircraft. There's not a whole lot of other commercial aircraft flying around Afghanistan. In the future, you will see more (use of UAVs) for sure - not necessarily in military operations."

MDA will also build hangars and other infrastructure required to house the system at Kandahar airfield, through private subcontractor Atco Ltd. of Calgary. MDA will also provide UAV training for its employees at CFB Suffield, near Medicine Hat before they head overseas.

"This is a very large service contract as opposed to a system-delivery contract," says MDA's Hargreaves.

The deal serves as an important milestone since MDA's decision to enter the UAV market four years ago, he adds. It will also allow for a longer ongoing partnership with DND and more consistent revenues.

"It's a good business deal for us," says Hargreaves. "It's highly strategic in two important areas. The first is for us to break into the UAV business ... It complements what we do with satellite surveillance and other aircraft-surveillance capabilities."

The second strategic component relates to the firm's business model. MDA's systems group has historically been involved with large-scale systems delivery, he adds. The deal will bring his division in line with MDA's products group, which has traditionally followed a service model.

"What we'd like to be doing more of now is delivering these types of services, because it allows us ... to work with our customers on a much longer-term, ongoing basis, and provide support to them and make them more successful," he says.

The UAV, which has a 16-metre wingspan, can fly 24 hours a day at full payload over a range of 200-250 kilometres and provide line-of-sight images in real time back to the Kandahar airfield or to soldiers in the field.

Defence Minister McKay has announced Canada will send 200 more troops to Afghanistan to help fly the UAV drones.

Hargreaves says MDA is looking to capitalize on Ottawa's long-term plans to use more UAVs in the international theatre as well as other parts of Canada.

(Monte Stewart can be reached at monte@businessedge.ca)