Good news gets less attention than bad news.
For years, the setbacks of the Davie shipyard have been making headlines. An interminable cycle of threats of bankruptcy, appeals for help from the federal government, protests from Quebec which considers that the other provinces are favored, promises of contracts then delays, postponements and back to square one. So when the news broke on Tuesday, it was tempting to shrug and say, yet another chapter in this never-ending saga.
But no. This time it looks good. And it is major.
After 12 years of waiting, the Davie finally qualifies for the national shipbuilding strategy. It joins shipyards in Vancouver (Seaspan) and Halifax (Irving), which shared these contracts totaling nearly $85 billion. The largest public contract in the country’s history.
By way of comparison, it is four times more than the budget for the purchase of fighter planes.
Not only is this strategy more expensive, but it is also more complex. Canada is replacing its old combat and research vessels as well as its icebreakers. The models do not exist before they are ordered. You have to do the whole design, for example to integrate sensors or weapons.
When operating and maintenance costs are factored in, the bill for the program could exceed $300 billion, the Parliamentary Budget Officer estimated last fall.
Before Tuesday’s announcement, this windfall escaped Quebec. The balance has just been restored.
The Conservatives launched the shipbuilding strategy in 2011.
Only two shipyards qualified to build and maintain large ships: Vancouver and Halifax. La Davie, which had taken shelter from its creditors in 2010, was considered too fragile. It was his second bankruptcy in a decade.
The yard was then bought. The federal government gave him small contracts to repair ferries. But seen from Quebec, it was a consolation prize. The objective remained to work on large vessels.
Subsequently, Seaspan in Vancouver accumulated delays, and pressure increased on the federal government to replace its fleet. Like the United Kingdom in another era, the United States could not do everything for us.
The Auditor General has sounded the alarm: Canada will soon be unable to monitor its Arctic waters as traffic there will increase due to climate change.
Reinforcement from the Davie became necessary, and she had modernized her equipment. Again with the help of the public, it must be said. For example, in 2018, Quebec took a $188 million stake in a heavily indebted subsidiary of the company.
It was a bet to allow him to receive the coveted federal public contracts.
In 2019, the Trudeau government announced its intention to add Davie to the shipyards that would participate in its shipbuilding strategy. In 2021, it indicated that it could build a polar icebreaker and six other icebreakers. Then, in 2022, negotiations began.
It was a succession of announcements, always made in the conditional. This time, the Davie can almost claim victory. It becomes an official supplier. All that remains is to negotiate the contracts.
The approach of Quebec and Ottawa is not unanimous.
Military procurement experts wonder if it wouldn’t be more economical to expand tenders to foreign yards1, 2.
The federal government responds that the program aims to create jobs and maximize economic spinoffs in the country. That was the goal in 2010. However, the context has changed. There is now a shortage of manpower. The proof, the Halifax shipyard must now bring in Filipino workers.
Will Davie have the means to carry out the expected contracts? François Legault relies on the recruitment of workers attracted by a better salary – Davie pays 30% more than the average in the manufacturing sector. And the chief caquiste salivates at the idea that the 900 suppliers of Davie see their turnover increase.
This explains why Quebec is still pulling out the checkbook. In addition to the 325 million subsidy, 144 million will be invested in capital, in the hope of making a profit there.
It should be noted that if these contracts escaped the shipyard, Davie and the federal government would reimburse this subsidy and this investment respectively.
It also remains to be seen what corporate taxes will be paid here. To facilitate negotiations with the federal government, the owners of Davie had transferred their company from the British Virgin Islands to the island of Guernsey. It is less opaque with the tax authorities, but it still offers low or zero corporate tax rates3.
Despite these reservations, Davie’s announcement is unquestionably excellent news for Quebec. Billions of dollars will be redirected to the Capitale-Nationale. For Justin Trudeau and François Legault, it’s a victory. And they are right to want to celebrate for more than 24 hours.