When federal officials gave $1.3-million to a company that was supposed to turn North Bay into an aviation manufacturing powerhouse, they didn't know that one of the company's products was a jet that killed two test pilots and drove its creator into bankruptcy.
That revelation came long after Human Resources Development Canada pumped the money into a failed manufacturing operation by Canadian Aerospace Group International (CAG), a Burlington, Ont., company that promised to create 500 jobs. Today, all that's left of the taxpayer-financed dream is an empty hangar. Twenty-seven former employees are looking for work. And the RCMP commercial crime unit is searching for answers.
What the RCMP investigation will yield is anybody's guess. RCMP Corporal Alain Chabot has refused to elaborate on the probe.
One of the most obvious questions is what happened to the HRDC grant money -- part of the $1-billion grant scandal that now engulfs Ottawa and is clouding the political future of Human Resources Minister Jane Stewart.
Joseph Rotolo, CAG's chairman, said the money was used to pay workers, buy equipment and finance activities related to starting the manufacturing operation.
"Everything was done by the book," he said. "There's nothing to hide."
The troubled history of CAG's most high-profile product, a two-seat jet trainer called the Monitor, was unknown to the politicians and bureaucrats who pushed through the 1997 grant that was to partly underwrite the project.
The Monitor was presented as a "state-of-the-art" jet, made of advanced composite materials. In fact, it was a failed design with a series of faults documented by the U.S. National Transportation Safety Board. Its history included two fatal crashes. "No one knew all that stuff," said Bob Wood, the federal MP who represents the riding of Nipissing, which includes North Bay, where CAG was going to assemble its planes. "We had no idea."
The unknown record of the Monitor is just part of the multimillion-dollar mess left in North Bay after the collapse of CAG's manufacturing operation in April.
The company's departure from the city was the end of a long and costly debacle. CAG was supposed to manufacture a series of aircraft at the old North American Aerospace Defence Command base in North Bay, including the Monitor, but the project broke down amid a dispute between the company and the manager of the property.
"I'm as disappointed as anyone else," Mr. Wood said. "And let me tell you, there are a lot of disappointed people. It's been a big, big nightmare."
CAG is one of several HRDC grant recipients being investigated by the RCMP. CAG spent $917,000 of the $1.3-million it was granted under the Transitional Jobs Fund program.
Mr. Rotolo said his company welcomes the RCMP investigation as a way to clear its name.
"They can go ahead and look at everything they want. We haven't done anything wrong. We've got nothing to hide. We did everything according to the rules. We were trying to make airplanes. And we still are."
The HRDC grant was not the only contribution to CAG by Canadian taxpayers. The company also received $1-million from Air Base Property Corp., a federally funded agency set up to redevelop the former NORAD base. That money was later repaid by CAG after Air Base filed a lawsuit.
In June, long before the HRDC scandal erupted in Ottawa, CAG was awarded a $1.625-million grant to develop a new manufacturing facility in Saint-Hubert, Que., near Montreal. The grant was given by Canada Economic Development, a government agency that underwrites Quebec-based projects.
CAG will receive that money in installments as work on its new facility progresses. So far, the Saint-Hubert operation consists of a temporary storage site for some of CAG's equipment and an architectural drawing of the new factory it wants to build.
Jack Noodelman, a regional director at CED, said his agency won't distribute the grant until CAG rearranges its finances to come up with the $8-million it is supposed to contribute to the project.
How long that will take is anybody's guess. The RCMP probe has been a public-relations disaster for the company. Although it has orders for another aircraft called the Panda, it still doesn't have a working assembly plant -- and at least one customer has cancelled because of the delays and the adverse publicity generated by the RCMP investigation.
"We're having trouble, I'll admit that," Mr. Rotolo said at the company's Burlington headquarters. "But we're not going away. We'll get through this, and we'll make it happen. Nobody should count us out. In five years, this could be a $1-billion company."
Mr. Rotolo thinks his company can become an aviation success by developing and marketing three airplanes, the Panda, which is a Chinese-built copy of the de Havilland Twin Otter, a single-engine light plane called the Windeagle and the Monitor.
The Monitor jet has created the most excitement. Its sleek look was reminiscent of a miniaturized F-15 and sparked interest among politicians and bureaucrats. When CAG's $1.3-million HRDC grant was announced in 1997, Mr. Wood stood up in the House of Commons to proclaim the event.
He invited his fellow parliamentarians to join him that evening when the Monitor would be unveiled so they could see "the future of military aviation manufacturing in Canada."
"I am very proud of this success story which will see a surplus defence department hangar utilized to build the first Canadian-made military jet in over two decades," Mr. Wood said.
If he had known more about the Monitor, Mr. Wood might have been more restrained.
The Monitor is in fact an old airplane with a new name -- and a troubled history that was well known in aviation circles. It was originally called the BD-10 and its designer was Jim Bede, a flamboyant engineer and promoter who billed it as a personal supersonic jet that could be built for $500,000.
The jet received copious publicity in the early 1990s. It was on the cover of Popular Science and aviation specialty publications. Mr. Bede arranged publicity rides for such celebrities as Jerry Seinfeld and John Travolta.
But there was a troubled engineering reality behind the hype. The jet was plagued by a series of accidents, all traced to flawed design. Its first test flight, on July 10, 1992, was delayed after both of the main landing gear legs collapsed. In August, 1994, the jet went off the runway after the canopy popped open during takeoff because of a faulty latching system.
On Dec. 30, 1994, a BD-10 broke apart in flight over Gardnerville, Nev., killing the pilot. The National Transportation Safety Board traced the breakup to a faulty vertical stabilizer that broke at just 40 per cent of the load it was designed to handle, throwing the jet out of control.
In August, 1995, another test pilot died when a BD-10 rolled upside down and dove into the ground. The NTSB blamed the crash on a faulty flap-drive design that allowed one of the flaps to retract while the other was still extended.
Robert Goyer, an aviation journalist, said the BD-10's reputation within the aircraft industry is deeply troubled.
"It's not a good design," he said. "I can't imagine anyone buying it. You'd be further ahead starting with a clean sheet of paper."
Mr. Rotolo said he is well aware of the BD-10's history and intends to redesign the tail structure to eliminate the deficiency. He estimated the cost of bringing the jet to market at $10-million (U.S.).
Industry observers doubt it's possible to develop the aircraft for that amount. Mac McClellan, editor of Flying magazine, puts the cost of developing and producing a jet trainer like the Monitor in the hundreds of millions.
"What you're talking about is a $1-billion [U.S.]program -- and that's if you already own an aircraft company with factories and several thousand employees. I don't want to rain on their parade, but the odds sound infinitesimal."
Mr. Rotolo said Mr. McClellan's view is "a fair assessment" of the problems faced by a start-up airplane manufacturer, but said the Monitor program, which is based on an existing design, is less expensive than starting from scratch.
"We're not working from ground zero. We've got something to work from."
Mr. McClellan also doubted that CAG's other aircraft programs could be completed for anything close to the figures estimated by CAG. Mr. Rotolo, for example, thinks the Windeagle can be brought to market for about $2-million (U.S.). Mr. McClellan pegged the cost at closer to $50-million (U.S.), perhaps higher.
The Windeagle is a composite airplane, originally developed by a Texas dentist in the 1970s and was known as the Windecker Eagle. Although it became well known as the first composite aircraft ever certified by the FAA, the Windecker never made it into production, although a number of different groups considered the idea.
Mr. McClellan said the Windecker is considered a respectable but not spectacular design, but said starting a new aircraft maker is like starting a new car company.
"I can't think of a tougher business to break into," he said. "The obstacles are enormous. The capital and the engineering requirements are huge."
The fact that only one company has made it to production with a certified new light plane in the United States since the Second World War -- Cirrus Design, a Minnesota company that is now selling the SR 20, an aircraft similar to CAG's Windeagle -- illustrates the obstacles faced by CAG and others.
Cirrus official Chris Maddy said the company has spent about $100-million (U.S.) bringing the SR 20 to market. The cost of producing a certified aircraft far exceeds most people's expectations, he said.
"This is a complex business. You have to come into it with deep pockets."
HRDC officials would not release documents CAG provided to back up its grant application. They said applicants have to provide detailed business plans, including detailed breakdowns of expected revenues and expenses, plus an analysis of their products and markets.
Despite the obstacles he faces, Mr. Rotolo insisted that his company can succeed and that taxpayers' money has not been wasted.
The key, he said, is getting the Panda program back on track after the North Bay fiasco. "The Panda is our most effective, do-able program," he said. "It's a proven airplane. We have orders for it. We can make that work. And we will."
Critics have a point about the difficulties the company faces, he acknowledged, but he thinks CAG can bring the products to market.
"We think there are key niches we can fit into and that's what we're trying to tailor our products to. We're taking existing technology and packaging it for those markets . . . We aren't dreamers. We are people trying to build airplanes and make jobs. And that's what we intend to do. I would ask that people show some faith in us."