Could you provide a brief introduction to Fonds de solidarité FTQ (Fonds)?

JW: The Fonds was created in 1983, a time of crisis in which companies lacked equity, particularly SMEs, to help them survive. Since its founding by Québec’s largest central labor body, FTQ, the Fonds’ primary focus has been to invest in SMEs so that they can grow and ultimately provide more employment to Québecers. Over time, as companies stabilized, our method evolved to support companies which were performing well in their respective industries. Citizens receive a tax credit to incentivize them to invest in the Fonds given that it makes unsecured investments. It now has around 645,000 shareholders and C$13.1 billion in net assets.

The Fonds specializes in all the major industries of Québec. We are both proactive and reactive in finding our investments, although we believe a proactive approach is better to identify the best opportunities. Our main focus is the support of local companies but we also want to attract foreign companies to bring more economic activity into Québec. For example, we have invested in French company Mecachrome, which has facilities in Québec. We also participate in the Aerofund run by the French private equity company ACE Management, in order to foster connections between France and Québec’s aerospace industries.

How important is aerospace to the Fonds’ activities?

AV: The Fonds has a portfolio of around half a billion dollars in the aerospace industry, spread over three funds and about 15 companies. Aerospace is hugely important given the number of people it employs in Québec, the quality of the jobs and the contribution it makes to the province’s exports. Through its purchase of Canadair and de Havilland Canada in the 1980s, Bombardier has driven growth in Québec’s aerospace ecosystem by providing a source of demand for local SMEs’ services. 30 years later, Montréal has a very solid aerospace cluster, providing over 40,000 jobs, and is the third-biggest center for aerospace after Toulouse and Seattle.

Could you elaborate on the range of funding offered across SMEs and the OEMs?

JW: We have influence at both ends of the supply chain and our support for the OEMs has positive repercussions for SMEs: better performance in the OEMs translates to better demand for the SMEs’ services. Whilst we do not sit on the board of companies like Bombardier, CAE and Héroux Devtek, we are strong partners and able to communicate our involvement with their suppliers. When investing in SMEs, we are usually minority shareholders, owning 20% to 40% of the company. Unlike other funds, the Fonds favors a long-term partnership: some of our relationships include those with companies such as Avior Integrated Products since 2002, Mecachrome Canada since 2005, Sonaca Montréal since 2003 and Groupe Meloche since 2011.

Is consolidation in the supply chain the best way to increase the sector’s competitiveness?

JW: We support consolidation, especially for services like machining. Many companies are currently too small, typically with revenue at around C$20 million. They must consolidate to form larger companies in order to compete. However, the process is particularly long given the entrepreneurial nature of these companies, which often means owners are unwilling to relinquish control.

AV: The OEMs want fewer but stronger suppliers. Companies of C$20 million are fragile. However, a company of about C$100 million will have a stronger balance sheet and access to funding that will enable them to better support the OEMs. Our strategy is to support the re-grouping of companies so that they can reach this size range. We have also seen consortiums form, especially in the construction industry, where some companies form a joint-venture when unwilling to invest the necessary capital. Consortiums could work but many captains on a boat can be problematic. We are currently more focused on encouraging acquisitions.

How is the industry structure likely to shift in the longer term?

JW: There will be bigger companies in more traditional fields and smaller companies in niche areas. The bigger machining companies will probably come to resemble integrators by adding services such as surface treatment, engineering and sub-assembly. At the same time, there will be smaller companies that are highly specialized and innovative, such as AV&R in robotics.

AV: There are powerful disruptive technologies coming into play such as 3D printing, robotics and more broadly Industry 4.0, which are evolving fast. Companies will have to adapt or be swept aside. In our role on the board of companies, we want to ensure that they have a strategy in place to adapt to these changes.

Do companies have access to the necessary talent pool?

JW: Companies are struggling to find the right talent and sometimes have to search internationally for it. There are not enough younger people pursuing the technical skills needed by the industry. The transition required by the influx of new technologies can also be a challenge.

AV: There has also been a strong trend towards offshoring in the last ten years, meaning jobs which are not as highly skilled have moved to lower cost jurisdictions. The solution to this problem is automation coupled with the right training for employees to be able to work with modern technologies and software. Some companies, like APN, are making big strides towards Industry 4.0 and are finding the right balance between technology and employee training.

What are the main objectives for the Fonds over the next few years with regard to aerospace?

JW: We will continue to support both smaller and larger companies and focus on growing the companies we have in our portfolio. We also plan to take advantage of investment opportunities presented by recent new market entrants.