The competition heats up as our country’s top defense contractors vie for a piece of Canada’s $48 billion naval upgrade…
Earlier this year, I discussed the dire need for the US Coast Guard to beef up its patrol vessels up in the far north.
Its current fleet of 2 icebreaker vessels is hardly adequate to defend, much less patrol, Alaska’s 2,500 miles of Arctic coastline.
As climate change brings about the expansion of waterways in the Arctic, it’s expected to lead to increasing transport activities, which could then lead to greater potential for threats on American assets.
But thus far, the US government remains content with sitting on its hands and doing little else when it comes to protecting its lone Arctic outpost.
At the same time, other countries are planning to stake their claims in the region as well, including Greenland/Denmark, China, and Russia.
If push comes to shove, we’ll be grossly ill prepared to handle any conflicts that could arise.
However, our Canadian neighbors know full well that they can’t afford to stand idly by as the polar icecap melts away and reshapes its coastline, potentially leading to lucrative new oil and gas discoveries.
After all, they already boast the world’s largest coastline at 152,000 miles.
If new bounties of resources are revealed when the Arctic ice pack recedes, the Canadians are going to make sure no one else can lay claim to anything that lies within their surrounding waters.
And the first step in marking their territory is by ramping up border patrols in the north.
Through The Perilous Fight
In late June, the Canadian government officially declared its National Shipbuilding Procurement Strategy (NSPS).
It’s a program to invest up to CAD$50 billion (or USD$48 billion) to re-equip its Navy and Coast Guard over the next two decades.
Though that figure is less than a tenth of America’s defense budget, keep in mind that Canada’s population is also about a tenth of ours.
In the proposal, they plan to build 28 warships and 116 smaller vessels that will assist in military and other offshore operations.
Prior to the official announcement, two Canadian shipyards, Irving Shipbuilding of Halifax and the Vancouver Shipyards/Seaspan Marine of Vancouver were already given the nod back in 2011 to take on the vast majority of naval contracts.
But industry representatives, both domestic and international, are expecting to see billions of dollars worth of contracts from providing ship equipment, design, long-term maintenance, and in-service support.
Maritime firms from the UK, Germany, Finland, and Denmark are already receiving work through the NSPS.
And even though nothing’s come down the pipeline yet for America’s own Navy and Coast Guard, the US has already jumped to the front of the line for NSPS projects in Canada.
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Seaspan Corporation’s (NYSE:SSW) Vancouver outpost has been tapped to build the Canadian Coast Guard icebreaker along with a series of Joint Support Ships, while L-3 Communications (NYSE:LLL) was selected by Lockheed Martin (NYSE:LMT) subsidiary Lockheed Martin Canada to support design of the integrated communications subsystems for the Arctic/Offshore Patrol Ships.
However, with Irving Shipbuilding under contract to build the majority of the 28 warships through the NSPS, General Dynamics (NYSE:GD) will likely be the biggest American beneficiary.
Irving and GD has had a close working relationship for a number of years, and this contract will require a great deal of involvement by GD’s Bath Iron Works of Maine.
Upon completion, the Canadian naval fleet will grow by around 50%, which is a huge undertaking for any shipbuilder.
Thankfully, General Dynamics has long been a trusted military supplier for both Canada and the US, having established a successful track record of building solid vessels and vehicles for the US Navy.
Canada recently awarded General Dynamic’s Land Systems-Canada division with a $13 billion contract to supply a large fleet of armored vehicles to Saudi Arabia over the next 14 years.
According to Canada’s Ministry of Foreign Affairs, Trade, and Development, the historic deal is expected to create more than 3,000 jobs and benefit more than 500 local Canadian firms.
Together, the multi-year land and sea projects from our neighbors will help continue the meteoric rise of General Dynamics’ stock.
Should our own DoD finally decide to take note and undertake some major upgrades to our presence in the Arctic, we may see even more market action from General Dynamics.
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