As Global Warming Melts the Arctic, Who Will Build Canada's $50 Billion New Navy?

Blessed with ample landmass, and one of the craggier coastlines found on this planet, Canada boasts the longest coastline of any nation on Earth -- 152,100 miles long, as the drunken crow flies. That's a devilish amount of water-border to defend. And as global warming continues to melt the Arctic, that coastline is only getting longer.


Canada's Iroquois-class destroyers help to keep the Arctic sea lanes safe -- but with only three of them in the fleet, they're getting a bit stretched. Photo: Wikimedia Commons.

This all makes for quite a dilemma for the Canadian government, and the mere 34.4 million taxpayers who support it. This month, though, Canada committed to spending what it needs to in order to defend its borders, announcing a program to invest up to CAD$50 billion (that's about $48 billion in American money, or $1,395 per man, woman, and tiny Canadian) to build up the strength of its Navy and Coast Guard.

Canada? Oh! Canada!
Down here south of the border, we don't ordinarily think of the Canucks as a particularly militaristic nation. But $48 billion is a sizable chunk of change to spend on defense, even from the perspective of the U.S. defense market. As such, Canada's plan to build 28 warships, and 116 smaller seagoing vessels, over the next 20 years is raising some eyebrows in America.

According to DefenseNews.com, two Canadian shipyards, Irving Shipbuilding of Halifax and the Vancouver Shipyards/Seaspan Marine of Vancouver have been chosen to perform the bulk of the construction work. But sensing chum in the water, foreign defense contractors are swarming Canada for their share of the loot.

French shipbuilder DCNS and Britain's Babcock International have already expressed interest in capturing some of the Canadian work. Franco-German defense conglomerate Airbus (NASDAQOTH: EADSY  ) and Germany's ThyssenKrupp also number among the interested parties.

They may have to get in line, however. America's General Dynamics (NYSE: GD  ) is already a close partner of Canadian shipbuilder Irving. Defense contractors L-3 Communications (NYSE: LLL  ) and Lockheed Martin (NYSE: LMT  ) own a piece of a Canadian contract to design new Arctic/Offshore Patrol Ships. Meanwhile, civilian ship specialist Seaspan Corporation (NYSE: SSW  ) has already won a contract to build a Polar-class icebreaker for the Canadian Coast Guard.


Canadian medium icebreaker CCGS Henry Larsen will soon get some help breaking the ice. Photo: Wikimedia Commons.

What it means for investors
Their interest is entirely understandable. This is a really big deal for investors in America's defense contractors. Faced with increasing competition from a growing Russian Navy presence in the Arctic, Canada's plan to build 28 new large warships implies close to a 50% increase in the size of the Canadian fleet, which currently boasts only 15 warships and four submarines (plus an assortment of support ships, minesweepers, and training vessels), over the next 20 years.

Which American companies will win a piece of the action? Which ones should investors be looking at? Certainly, you should start with the four U.S.-based firms named above, all of which already boast significant Canadian business. Historically, Canada's Navy vessels have been mostly homegrown, with Iroquois-class destroyers and Halifax-class frigates, for example, all being built at shipyards in Quebec and New Brunswick. But the fact that the U.S. firms already have contracts in hand will surely give them a leg up on new awards as they are parceled out over the next few years.

If I had to pick just one single stock to focus on, though, I'd say General Dynamics probably will be the most likely winner. The company's history of shipbuilding for the U.S. Navy gives General D the expertise that Canada will be looking for as it builds out its fleet over the coming decades. General Dynamics' "in" with Irving Shipbuilding should help as well. Topping it all off, the company is building a nice reputation as one of Canada's most trusted military suppliers, as evidenced by it recently getting tapped to build thousands of new Canadian light armored vehicles for sale to Saudi Arabia.


GDLS's LAV-25, on patrol. Photo: US Marine Corps

Canada's Ministry of Foreign Affairs, Trade, and Development called that deal "historic," boasting that General Dynamics' work would create "more than 3,000 jobs" for Canadians, "benefiting more than 500 local Canadian firms," and bringing some $13 billion in revenues into the country. If that didn't win General Dynamics some good will in Ottawa, I don't know what will.

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Read/Post Comments (4) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 30, 2014, at 12:00 AM, predfern wrote:

    Arctic sea ice grew 40% from August 2012 to August 2013. The ice comes and goes because periodic, episodic fluctuations in temperature development also take place in the Arctic.

    German Prof Friedrich-Karl Ewert Dismisses Visions Of Future Ocean Acidification…”Exaggerated Claims”

    By P Gosselin on 25. Juni 2014

    http://notrickszone.com/2014/06/25/german-prof-friedrich-kar...

  • Report this Comment On June 30, 2014, at 2:11 AM, siquijorisland wrote:

    I recommend you read the U.S. Senate Minority Report containing statements from 700 scientists rebutting Climate Change. Several of the scientists were previously involved with the UN-IPCC, and to put it bluntly, they say it just isn’t so, and the 52 scientists on the IPCC are wrong.

    also become familiar with

    Over 900 peer reviewed scientific papers supporting natural climate cycles as the cause of climate change.

    www.populartechnology.net/2009...

    Over 1000 international scientists dissent from man made climate change theory http://www.climatedepot.com/a/... more than-1000-international-scientists-dissent-overmanmade-global-warming-claims

    Over 31 000 American graduate scientists, including over 9000 PhDs, sign the Oregon petition stating that the use of fossil fuels will not harm the environment www.petitionproject.org

    Then for those undecided read the NIPCC report

  • Report this Comment On June 30, 2014, at 12:51 PM, hanman51 wrote:

    I DO NOT GET IT!

    GLOBAL WORMING SUPOSE TO FLOD THE COAST LINE AND COVER IT WITH SEVERAL FEET OF WATER, HOW COME THAT CANADA WILL GAIN DRY LAND AND EXPAND ITS COAST LINE?

    IS THIS BECAUSE THEY ARE CANADIENS, OR THE SO CALLED “GLOBAL WORMING” IT IS A SCAM?

  • Report this Comment On June 30, 2014, at 10:36 PM, alskdjfhg wrote:

    I think he means that there will be more ocean will be free of ice and that land will have to be defended. The north west passage will have to be patrolled because it would be a busy shipping lane. Though I can't see any problems from hostile countries invading land frozen solid for most of the year.

    Maybe the Inuits will become like the Somalians and start pirating?

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