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Canadian satellite maker MDA turns to U.S. market to drive growth

The offices MacDonald, Dettwiler and Associates in Richmond, B.C.

RICHARD LAM/The Canadian Press

Iconic Canadian satellite technology firm MacDonald Dettwiler & Associates Ltd. had to shift its focus to the United States to ensure it keeps growing, the company's new chief executive officer says.

Howard Lance, an American who was named CEO of MDA in May, said the reorganization of the company that puts control of its operations in the United States was crucial in order to get new military contracts.

"The No. 1 mandate for any public company is around growth and creating value for its shareholders," Mr. Lance said in his first interview since becoming CEO. MDA was able to do that for many years based mainly on Canadian government business, he said, but since 2013 Ottawa's investment in space has softened. Consequently, MDA was forced "to seek international opportunities to drive further growth."

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The first step was made four years ago, when MDA bought California-based Space Systems/Loral Inc., a commercial communications satellite maker. Then last year, the MDA board decided it would also try to get U.S. government business, which Mr. Lance describes as "the largest space market in the world." That includes non-military clients, such as NASA and the weather service, but it also means going after classified defence and intelligence work.

The only way to get that classified business was to reorganize MDA, a move it finalized last month. It now has a U.S. CEO – Mr. Lance – who is based in San Francisco, a majority of board members are Americans, and a U.S. entity called SSL MDA Holdings Inc. is the operating company for all its business, including those in Canada.

"All of this has been done to … satisfy the requirements for security in the U.S.," Mr. Lance said, and official clearance is expected "in the very near future." Still, he insisted, "[This] doesn't make the company any less Canadian."

The parent company, which is listed on the TSX, remains Canadian, and some of its executives are based at head office in Vancouver. MDA has about 1,800 of its 4,800 employees in Canada, with research, manufacturing and office operations in Vancouver, Montreal, Brampton, Ottawa and Dartmouth. The Canadian operations will provide support and components for the U.S. government business, Mr. Lance said.

Still, the reorganization is a dramatic change for a company that is so closely associated with Canada's space efforts. The firm was founded in a garage almost five decades ago by University of British Columbia professor John MacDonald and physics graduate Vern Dettwiler, who developed new technology to process satellite images. Its biggest claim to fame was building the Canadarm for the space shuttle, but it was also the main contractor for Canada's innovative Radarsat imaging satellites.

In 2008, MDA tried to sell its space operations to Minnesota-based Alliant Techsystems Inc. for $1.3-billion, but the then-Conservative government blocked the sale, saying it wanted to protect Canada's economy and sovereignty.

Michael Byers, a political science professor at UBC, said MDA has restructured to accomplish what was effectively denied to it eight years ago: access to the U.S military market. The company may still have the symbols of a Canadian stock listing and headquarters, "while in actual fact the company is morphing into a U.S. company," he said.

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The Canadian government should be scrutinizing this arrangement, Prof. Byers said, because the shift is "an attempt to do an end-run around the Investment Canada Act." Essentially, MDA is suggesting it can't stay Canadian and accomplish the larger goal of becoming a global space giant, he said.

Raymond James analyst Steven Li said in a report that MDA has "effectively become a U.S. run company" but while the "opportunity is substantial," the U.S. military market won't likely make a meaningful contribution to MDA's financial results until 2018 at the earliest. At the same time, he said, its civilian business is soft.

Mr. Lance acknowledged that weakness, but said the commercial satellite business should rebound in 2017 and 2018. At the moment many customers are trying to figure out the best way to expand satellite-based broadband and mobile phone service. "There's a bit of a pause as they are dealing with the current market conditions they face, as well as these new technologies."

As for Canadian government business, Mr. Lance said he would like to see Ottawa come up with a "strategic space plan" that includes multiyear funding for the Canadian Space agency. "With the rich history Canada has in space, we'd like to see them make a longer-term commitment and provide funding for that."

Projects, such as the current extension of the Radarsat program, tend to be "one-offs." he said. "We don't know what comes beyond that."

Canadians should not be concerned about sensitive domestic data falling into U.S. hands, Mr. Lance said. "In the same way that the U.S. government compartmentalizes classified and national security technology, the Canadian government does the same thing. …That information is protected."

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As for the incoming U.S. government under Donald Trump, Mr. Lance was cautious, but optimistic. "I think it is going to be positive. There is a strong concern by the new government … with regard to the need to invest in global security technologies."

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About the Author
Reporter, Report on Business

Richard Blackwell has reported on Canadian business for more than three decades. At the Financial Post and the Globe and Mail he has covered technology, transportation, investing, banking, securities and media, among many other subjects. Currently, his focus is on green technology and the economy. More

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