Ottawa’s lifeline to Saudi LAV maker raises questions

During 2019, parent company General Dynamics Corp. – a factory in London, Ont. seen here in August, 2019 – disclosed publicly that the Saudis had been tardy in making payments on the LAV deal. GEOFF ROBINS/THE CANADIAN PRESS

By Steven Chase & Robert Fife, The Globe & Mail, June 7, 2020

The federal government tapped a seldom-used account at Ottawa’s export-financing agency last fall to extend $650-million of support to the defence contractor building combat vehicles for Saudi Arabia, aid that came as Riyadh was falling behind on payment for these machines.

The support, in the form of a repayable loan, was provided to General Dynamics Land Systems Canada last September through what is called the Canada Account, according to Export Development Canada (EDC).

The government made brief mention of this loan in an August, 2019 press release that was otherwise devoted to a separate announcement on purchasing new light armoured vehicles for the Canadian military from General Dynamics, based in London, Ont. The news release did not reveal what prompted Ottawa to make this loan or that the government was tapping the special Canada Account to do so.

The Canada Account is used to authorize transactions that are considered riskier than EDC can support but are deemed by the Canadian government to be in the country’s “national interest,” according to the federal export credit agency’s website. EDC also makes regular commercial loans through its corporate account.

Transactions made through the Canada Account are backstopped by the federal treasury rather than EDC itself and require authorization from the Minister of International Trade with the concurrence of the Finance Minister; those that exceed $50-million or are “of a sensitive nature” require the approval of cabinet, the agency says.

Ottawa has previously used the Canada Account to bail out the auto industry, help a Quebec shipbuilder, spur civilian aircraft exports by aerospace companies, and to buy the Trans Mountain pipeline. In the past 20 years, it’s been by used by governments to help 16 companies, Crown agency Atomic Energy Canada and, in one instance, an unspecified number of softwood lumber companies.

The loan to General Dynamics is the first to this defence contractor from the Canada Account in the past two decades. EDC does not make transaction information public from years prior to 2001.

General Dynamics Land Systems Canada (GDLS-C), the Canadian subsidiary of massive U.S. defence company General Dynamics Corp., is building light armoured vehicles (LAVs) for Saudi Arabia in a controversial $14-billion deal brokered and approved for export by Ottawa. Earlier this spring, the Canadian government said it resumed approval of new permits for military exports to Saudi Arabia.

Thomas Juneau, an assistant professor at the University of Ottawa’s Graduate School of Public and International Affairs and a Mideast affairs expert, said he presumes the fall 2019 loan was to help General Dynamics cope with cash-flow problems caused by the Saudis repeatedly failing to make payments on the LAV contract.

During 2019, parent company General Dynamics Corp. disclosed publicly that the Saudis had been tardy in making payments on the LAV deal. In an October, 2019 earnings report call with investors, the company said missed payments by that point totalled US$1.5-billion.

 

Prof. Juneau said he understands why the Canadian government would have wanted to have played down this loan to the defence contractor.

“Loaning money to an arms dealer to support a deal with Saudi Arabia when Saudi Arabia is not paying its bills by the due dates – politically, that’s like six strikes against you,” Prof. Juneau said.

Cesar Jaramillo, executive-director of Project Ploughshares, an arms-control group, asked why it was necessary for the Canadian government to intervene to help a company parent – General Dynamics Corp. – with reported sales last year of more than US$39-billion and profit of more than US$3.4-billion.

General Dynamics Land Systems Canada didn’t answer any questions about the loan, including why it was necessary. “We’ll decline to comment,” spokesman Doug Wilson-Hodge said in an e-mail.

A spokeswoman for EDC referred all questions about the General Dynamics Land Systems Canada loan to the Department of Global Affairs.

Global Affairs declined to say precisely why the loan was necessary, but noted that it was made while “the company navigated a challenging and dynamic international defence market.”

Department spokesman Sylvain Leclerc said the loan was needed to “maintain and support thousands of jobs not only in Southwestern Ontario but also across the entire defence industry supply chain, and to ensure GDLS-C could maintain and continue operation of their London, Ontario facility and support their employees and Canadian suppliers.”

Asked whether General Dynamics has repaid the loan, Mr. Leclerc declined to comment, saying that because of the need to maintain “commercial confidentiality” the Canadian government “cannot disclose specific terms of status of Canada Account transactions.”

NDP foreign affairs critic Jack Harris said the federal government owes an explanation to Canadians.

“It is not very transparent. Obviously they are going to extraordinary lengths to support this project,” Mr. Harris said. “It is extraordinary that it is being done without any public information or explanation.”

The NDP MP said his party does not support the sale of armoured vehicles to Saudi Arabia, which human-rights groups say are being used by the Saudis in its war in Yemen.

“To bend over backwards to support this effort is uncalled for,” he said.

Conservative MP Peter Kent decried the lack of forthrightness over lending $650-million to a major U.S. arms manufacturer.

“This is a classic example of the Liberals failure to live up to their constantly restated claim of transparency in government,” Mr. Kent said.

 

Posted July 6, 2020