Canada Makes Big Investments In Its Defense, U.S. Industry To Benefit
Since 9/11 Canada has been one of the most supportive allies of the United States committing troops multiple times to Afghanistan. They have suffered over 150 military casualties and four civilian ones in that fighting. The Canadian government has also made efforts to modernize and equip their forces with better equipment to aid in their operations such as Boeing’s (BA) CH-47 heavy lift helicopters and Lockheed Martin’s (LMT) C-130J transport aircraft.
At the same time both the Liberal and Conservative Party government’s that have been in power since 2001 have planned to improve the nation’s basic armed forces. One of their responses to the world economic downturn since 2008 has been to spend targeted funds on selected military projects to aid the economy and counter unemployment. This has included investments in infrastructure and training capabilities. Canada has benefited from these contracts even when they award them to foreign suppliers, primarily the big U.S. defense contractors, because they have a 100% offset requirement.
This means that the foreign company must invest an amount equal to 100% of the value of the contract in the Canadian economy. This means they may hire Canadian suppliers for parts or maintenance or just do it in a completely unrelated part of the economy. For example Sikorsky Aircraft, part of United Technologies (UTX), sold helicopters to upgrade Canada Navy’s anti-submarine, search and rescue and surveillance capability. The program has seen delays and cost growth and Canada adjusted it by accepting more offsets from UTX.
In this vein the country announced two major contracts this week to continue their improvement of their military. The first is a major new armored vehicle upgrade contract that will go to General Dynamics Land Systems (GD). GD has been building wheeled military vehicles for Canada and the U.S. for several years. This $1 billion contract will allow the current LAV III fleet of vehicles to remain in service for another 20 years by improving armor, weapons as well as survivability against the IED and mine threat. GD is an American company and the contract will help it weather cuts in the U.S. defense budget but it will also help Canada as most of the work will be done in that country and it will employ significant amounts of domestic workers.
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