On a Tuesday morning in late June, a crowd of investors, government officials, entrepreneurs and bankers huddle in a small conference room on the 53rd floor of the TD Bank Tower in downtown Toronto to mull over the possibility of imminent conflict.
Kevin Reed, president of the European Defence, Security, and Resilience Bank, asks the attentive crowd before him how many of them think Canada will be at war in five years. Nearly half of them raise their hands. Next, he asks how many think Canada will be at war in two years. A few put down their hands, but many remain. Then, he asks, “How many think we’re at war now?” Some hands are still raised.
While the country isn’t involved in direct armed conflict at the moment, Mr. Reed says the sense of urgency in the room is one that should be shared by the broader public – as our country faces threats on multiple fronts, from cyber to kinetic warfare.
This session of panels about working and investing in defence was supposed to be a bit of a sleeper event, with organizers expecting a dozen people at most to sign up when it was initially created as part of Toronto Tech Week. Instead, more than 100 people signed up and at least 50 more were left on a waiting list.
The interest reflects an awareness that something has changed. Sovereignty and security matter again as the country confronts growing pressure from the U.S. and other allies to do its part for the Western alliance.
New NATO target will require Canada to spend $150-billion annually on defence, Carney says
For the first time anyone can remember, Canadians are considering the possibility that the peace we’ve enjoyed for decades could end – along with the deep reliance we’ve had on the United States as our protector. Defence has returned to the top of the list of government priorities and the country is trying to figure out how best to allocate a new wave of military spending.
“This is a generational shift in Canadian defence policy,” said Goran Pesic, president of Ottawa-based Samuel Associates, a defence advisory and government relations firm.
For Canadian industry, the prevailing question is: What’s the opportunity here? For major players, such as CAE Inc. and Bombardier Inc., the focus on military spending could mean major new lines of business and lucrative government contracts. To startups and emerging technology companies, the shift is already transforming a sector they were previously discouraged from entering into the hottest ticket in town.
Defence hasn’t been a priority for the country in decades. In 2006, Canada and its fellow North Atlantic Treaty Organization members agreed to the goal of spending 2 per cent of its gross domestic product on defence. Canada still hasn’t met that target. For the latest fiscal year, the country spent about $41-billion on defence.
At the end of June, Prime Minister Mark Carney made it clear he intended to break this status quo when he committed to raising defence-related spending to 5 per cent of Canada’s GDP by 2035. This will require Canada to spend up to $150-billion annually, more than doubling the existing budget.
He made this reorientation in the face of mounting pressure from some of the country’s biggest allies, namely the United States, with President Donald Trump claiming NATO members have relied too heavily on the U.S.’s military might for too long.
“We are a laggard, our allies will all tell you that, but we have the opportunity to be a leader,” said Erin O’Toole, president and managing director of business intelligence and risk advisory firm ADIT North America, former Conservative Party of Canada leader, and a former captain in the Canadian Armed Forces.
Multiple generations of both Liberal and Conservative governments in Canada have undermined the sector, he said. In 1959, prime minister John Diefenbaker cancelled the Avro Arrow program – a cutting-edge project which positioned Canada as a world leader in fighter jet technology. In 1993, prime pinister Jean Chrétien cancelled the overdue replacement of the Sea King helicopters. In 2015, prime minister Justin Trudeau pledged to cancel a multibillion-dollar purchase of 65 F-35 stealth fighters to replace an aging fleet.
Canadians prefer more debt over higher taxes to finance increased military spending, poll finds
Costs to taxpayers and shifting priorities were regularly cited in each of these decisions or announcements.
The sector has become something Canadians don’t associate with other civil liberties, said Glenn Cowan, founder and managing partner of defence-focused venture capital firm One9.
“We’ve got ourselves into such a deficit with the state, size and role of our military, that the question has become an either/or: Do you want social programming and dental care and health care, and $10-a-day daycare, or do you want a military?”
Officials at the Canada-EU Summit in June. During his campaign, Mr. Carney pledged to create a stand-alone defence-purchasing agency to speed up procurement and prioritize buying Canadian gear and materials.Sean Kilpatrick/The Canadian Press
The present
For generations now, Canada’s defence policy and capabilities have largely been framed by the massive shadow cast northward by the United States.
We have relied on our neighbour to provide political direction through formal alliances – such as the North American Aerospace Defense Command and NATO – and to support Canada with its military technology and industrial might.
While the country’s own military capabilities have withered, areas of significant domestic expertise remain that fit with an expanding defence strategy. That includes companies that build icebreakers to help provide security in Canada’s North, earth-observation satellite systems, surveillance aircraft, military transport vehicles, training and simulation systems, along with a range of military products such as firearms and drones.
Yet, Canada’s military industry remains heavily intertwined with the U.S. Of the 600 companies that make up the country’s defence industrial base, roughly 40 per cent are subsidiaries of U.S.-headquartered companies. They include arms of U.S. defence giants General Dynamics, L3Harris and Lockheed Martin.
That close relationship with the United States has benefitted Canada in many ways. But analysts say it has also made us weak and lax in how we’ve set up our own security strategies and spending – a flaw that now demands a deep rethink. How, for example, will we patrol our North when we’ve been so dependent in the past on U.S. assets in Alaska? More broadly, how will we recalibrate the institutional relationships our military has with the U.S. Armed Forces and their suppliers?
Canada’s military procurement system is also a bit of a mess.
The buying of tanks, aircraft, bullets and other equipment is a shared responsibility in Canada between several federal organizations, including the Department of National Defence, Coast Guard, Public Services and Procurement, Innovation, Science and Economic Development and the Treasury Board. Together, they handle projects worth billions of dollars, focused on acquiring systems and infrastructure to support the military.
However, many hands have not made light work. Instead, the excess of agencies involved have created a labyrinth of paper trails and red tape, leaving those trying to navigate it feeling lost.
In a 2024 report, the House of Commons committee on national defence identified several key challenges facing the procurement system, including bureaucracy, risk aversion, personnel shortages, a lack of transparency, delays and cost overruns. The committee made 36 recommendations – several of which Mr. Carney has promised to execute.
For example, when announcing his cabinet, the Prime Minister appointed former CF-18 fighter pilot Stephen Fuhr as secretary of state responsible for defence procurement. During his campaign, he also pledged to create a stand-alone defence-purchasing agency to speed up procurement and prioritize buying Canadian gear and materials.
John Molberg, vice-president of drone and radar company Canadian UAVs, says the government must fix its procurement processes if it expects to have what it needs to keep up.Chris MacArthur/The Globe and Mail
Still, John Molberg, vice-president of drone and radar company Canadian UAVs, said there’s a big difference between announcing something and executing it.
“The number one challenge that we have as small defence companies is, from the time a government announces what they want to do, to when they buy it, you can go out of business.” With the technology of warfare rapidly changing, Mr. Molberg said the government must fix its procurement processes if it expects to have what it needs to keep up. “It just has to go faster.”
Crown corporations such as the BDC have long operated under the assumption that defence simply wasn’t a priority for Ottawa.
“It’s not a big secret that we have not been highly involved in that sector,” said Isabelle Hudon, the organization’s president and CEO. Now, however, the bank is planning to seek out new investments in defence-related technology and bring on new staff with knowledge of the sector, she said.
Opinion: It’s not your grandfather’s war any more, and defence procurement must evolve
Involvement by the big banks in financing the country’s defence sector is limited. However, the lenders’ economists and analysts have been weighing in on Mr. Carney’s fresh wave of defence spending, saying its positive economic impact could be quite large, and that it could be a tactic in helping Canada dodge U.S. tariffs.
Banks such as RBC, CIBC and Scotiabank also seem to be waking up to the defence sector, publishing reports and analyses on an issue they’ve traditionally shunned.
It all amounts to a major opportunity to reindustrialize and grow the manufacturing sector to the level it should be on the world stage. In 1987, when Canada was last allocating 2 per cent of GDP to defence spending, the country had a roughly 2.2-per-cent share of world manufacturing, nearly double where it stands today, according to a recent analysis by National Bank of Canada economists Ethan Currie and Stéfane Marion.
At the time, it ranked 9th overall in the world for manufacturing output. In 2023, it had fallen to 18th.
“This arms race is not only about hitting a spending target,” they wrote. “It’s an opportunity for Canada to stage a comeback in productivity and industrial competitiveness.”
The opportunity
CAE Inc. CAE-T was born in the aftermath of war. The pilot training company, then known as Canadian Aviation Electronics Ltd., was founded in 1947 by Ken Patrick, an ex-officer for the Royal Canadian Air Force. His goal, according to the company’s website: “Create something Canadian and take advantage of a war-trained team.”
Working out of an empty aircraft hangar at the Saint-Hubert Airport, CAE’s 18 employees began repairing and overhauling ground communication equipment and installing antenna farms in the Arctic for the military.
Today, the company is one of the largest defence contractors – employing about 13,000 people and boasting a market capitalization of $23-billion. It stands out as “the biggest potential beneficiary” from higher defence spending among the companies tracked by National Bank, said the group’s analyst Cameron Doerksen.
CAE is already under contract to provide training and other support services on multiple major procurement programs underway, Mr. Doerksen said. And most of the large-scale new procurement programs he sees coming from the increased spending, such as the purchase of submarines made abroad, will require some form of training program for which CAE is ideally placed, he said. Last year, CAE’s Defense & Security segment accounted for 42 per cent of total company revenue and the segment sports a backlog topping $11-billion.
The CAE 7000XR Series Boeing 737 MAX 8 full-flight simulator is a high-fidelity training device used to train, certify, and maintain pilot proficiency on the 737 MAX aircraft.Alex Lysakowski/The Globe and Mail
The Carney government’s new direction on defence is “a potential gamechanger” for Canada’s armed forces and corporations alike, said France Hébert, who leads CAE’s Canadian defence business. Although these are early days, she said the clear mandate from the Prime Minister to prioritize defence suggests a break from past views of defence as “an easy place to cut,” she said.
At satellite and robotics maker MDA Space MDA-T, chief executive Mike Greenley said Canadian companies have been hamstrung in his ability to conduct business internationally and win respect from trade partners, owing to Canada’s minimal defence spending in recent years. Now, “this commitment to increase our spending on defence is important for [Canada’s] overall business position,” Mr. Greenley said. “But it’s also important for our security and sovereignty.”
Mr. Greenley said he’s seeing a new desire by federal leaders to fast-track some defence programs already being talked about, and MDA “would expect our pipeline to expand” over the next six months as things get more specific.
Kevin Ford, CEO of Ottawa-based Calian Group Ltd. CGY-T, also sees new opportunities for his 43-year-old company, which employs about 90 per cent of its 5,800-person global work force in Canada and makes almost 50 per cent of its revenue from defence-related work in fields such as manufacturing, healthcare and training.
About two years ago, he found himself in Europe when Ottawa announced it was searching for nearly $1-billion in savings in its defence budget. He said his business partners there regarded him with incredulity. “They’re just looking at us like, ‘What are you guys doing?’”
Opinion: Defence spending should be leveraged to boost Canada’s R&D
Now, he’s counting on the federal government to include Calian as a strategic partner while it builds capacity and moves ahead with projects such as NORAD modernization.
If Ottawa wants to increase its military power in a way that’s helpful to its allies, MDA’s Mr. Greenley said it should add more capabilities related to space because it’s becoming increasingly contested.
“We need space-based surveillance and communication to be able to conduct any type of military operation on the surface of the Earth. And we need space-based observation to be able to protect and defend our satellites and space assets as part of a global conflict,” he said.
Mr. Greenley evoked the possibility of Canada building a “counterspace spacecraft” – basically an attack or shield satellite that could maneuver enemy equipment or jam their signals. “We have all those capabilities in the country,” he said.
Other executives are also thinking big.
Bombardier says it has only begun to scratch the surface of sales possibilities for its Global 6500 business jet as a defence platform.Justin Tang/The Canadian Press
Luxury jet maker Bombardier Inc. BBD-B-T, which has a growing business building specialized aircraft for military surveillance and reconnaissance missions, said it has only begun to scratch the surface of sales possibilities for its Global 6500 business jet as a defence platform. The company and partner Saab recently won an order for their GlobalEye surveillance system from France, and Canada is also in the market for its own early warning systems aircraft.
Bombardier’s defence segment revenue is modest at the moment, but chief executive Éric Martel is aiming to build the business to $1.5-billion in sales by 2030.
“We clearly see defence growing but I’m not going to stop it if we can go even further than that,” he said in an interview. “Right now, there’s even more momentum” and opportunities that weren’t on the radar a year ago, he said.
Canada has to think long term about domestic industrial capabilities that might serve military purposes, Mr. Martel said. It’s one of the few places in the world that can design and develop an airplane from start to finish, for example.
Bombardier’s EcoJet research project, which is testing a blended wing-body design, could potentially be scaled up for a defence application, the CEO said. And though the federal government abandoned its last attempt at building a fighter jet program in the late 1950s, Ottawa could also revisit that idea in partnership with allies, he said.
“Where do we want to be in five years, 10 years, 15 years, 20 years as a country?” Mr. Martel asked. “Do we want to significantly grow our military capability and sovereignty?” Canada’s industry can “bring solutions” that offer an alternative to buying “off the shelf” weapons and equipment, he said.
Seaspan is working on a ‘block’ subcontracting system, setting up a network of smaller manufacturers who build pre-fabricated sections of the ship’s hull and structure.
Hubert Kang/The Globe and Mail
At Seaspan Shipyards in Vancouver, chief executive John McCarthy is encouraged about Ottawa’s new direction and bullish about the company’s prospects.
Seaspan has spent the better part of a decade building up its capacity on the West Coast under the National Shipbuilding Strategy, an effort launched by former prime minister Stephen Harper’s government to renew the fleet of combat and non-combat vessels. The new spending commitments now cement the “continuous build” design and manufacturing power the company deems essential to continue to drive costs down and retain staff, Mr. McCarthy said.
Seaspan employs about 4,300 people, including steel cutters, welders, electricians and engineers. As the designated “non-combat” constructor under the NSS, it is building up to 16 new icebreakers for the Canadian Coast Guard as well as support ships, and eyeing new contract mandates to further expand its capabilities. The company is working on what’s called a “block” subcontracting system to maximize throughput and deliver ships faster, by setting up a network of smaller manufacturers who’ll build pre-fabricated sections of the ship’s hull and structure.
“You don’t do that if you have this ebb and flow of your defence budget because there’s an investment required to actually do that,” Mr. McCarthy said. “I am more optimistic with the Carney administration and where I think his head is going given the geopolitical climate in the world. And I’m very optimistic about NSS, because I see us only growing.”
Seaspan CEO John McCarthy says he’s encouraged by Ottawa’s new direction and bullish about his company’s prospects.HUBERT KANG/The Globe and Mail
Mr. Carney’s defence spending promises have also fed into the hopes of a growing number of small-to-medium-sized technology companies with dual-use products, meaning they have both commercial and defence applications.
Major investments being made in the Arctic, for example, are a prime opportunity for dual-use technology, said former Conservative leader Mr. O’Toole. “If you’re running a cable that has sensors and acoustic devices on it for tracking ships and submarines, you can also deliver high-speed connectivity to remote communities.”
The multipurpose products will also be essential in helping investors grow the next generation of defence companies. Speaking on a panel in June, Mark Maybank, co-founder and managing partner at Maverix Private Equity, said he has contracts with pension funds that don’t allow him to invest in purely defence companies. But, he said, dual use technology “provides a legal route for us to invest in the space, support the space, while remaining compliant with our investment mandate.”
Opinion: More money for Canada’s military should mean more transparency and accountability
Quantum, cybersecurity, surveillance technologies, robotics and artificial intelligence are all industries that can be adapted to a dual use context. Whereas Canada lost the advantage it once held in the global AI race, Mr. Maybank said its renewed defence spending and leading work in the field of quantum offers it a rare second chance at commercialization and IP retention.
“Whoever has the lead in quantum will have a distinct commercial and military advantage, and it’s an all-out global arms race at the moment,” he said.
As Ottawa decides to get serious about defence, the world of warcraft is changing.
Scenes of drone attacks from the war in Ukraine are making it increasingly clear the role new technologies play in who has the upper hand in conflict, and the sectors Canada decides to champion moving forward must reflect this if it hopes to remain relevant for decades to come, said John Risley, chairman of the Arctic Economic Development Corporation.
“The guy who’s got the best computing power, and best being defined as both the most and the most appropriate, is going to win control of the battlefield,” he said.
As the designated ‘non-combat’ constructor under the NSS, Seaspan is building up to 16 new icebreakers for the Canadian Coast Guard as well as support ships, and eyeing new contract mandates to further expand its capabilities.
Hubert Kang/The Globe and Mail
The pathways and pitfalls
Industry is now looking for the Carney government to produce the paperwork around its defence talk.
Ottawa should first release a Defence Industrial Strategy, maybe in tandem with a new defence policy, said Christyn Cianfarani, president of the Canadian Association of Defence and Security Industries.
Ideally, that document would include a list of key capabilities the government wants to see produced domestically and which it’s willing to secure from allies. Then it should detail a spending plan with procurement targets and timelines, and sketch out the structure of its new procurement department, Ms. Cianfarani said.
In a backgrounder released in June, Ottawa promised such a strategy and even earmarked $2.1-billion to help establish it. The Department of Defence said when it’s released, the strategy will “designate specific capabilities as sovereign,” but it has yet to publicize a timeline for its completion.
Ms. Cianfarani said getting this work done involves understanding what capabilities the Canadian Armed Forces wants and needs. She sees several big buckets for investment, including ships, air power, digital and cyber capabilities, and infrastructure – in the North and elsewhere.
“This is a massive step change,” Ms. Cianfarani said, adding that sustained government-industry dialogue is essential. “To do it and actually get growth out of it, you need to change your mindset from just spending money to spending and investing for the long term … We’re in nation-building mode.”
It could be a hard slog. There are already several impediments to Canadian industry competing for Canadian defence spending, notably a company’s size and financial health.
Opinion: Canada has much to learn from the Israel-Iran war as we boost defence spending
“You’ve got to pay to play” and many of our smaller and mid-sized firms do not have the critical mass to get the attention of the Canadian government, said Mark Norman, a retired navy vice-admiral who’s now a senior fellow at the Canadian Global Affairs Institute. His thought on how to move beyond this financial vulnerability: Consolidate some of these companies into one or more large Canadian “Apex corporations” that can compete against top foreign rivals.
There are other models Canada can consider to maximize the efficacy of its broadened defence boost.
At Bell Helicopter Canada, part of U.S. defence giant Textron, executives say there’s a big opportunity to pivot towards a more nationalistic view of defence espoused by our allies, including Britain. Bell makes choppers for the Canadian Armed Forces in addition to commercial aircraft.
The British have a tiered approach to defence procurement that spells out a mandate to support industry, said Marc Bigaouette, a former military helicopter pilot who now leads Bell’s Canadian government programs. They look beyond the cost of a particular product when buying equipment and consider instead whether their domestic suppliers can deliver it and how that could bolster local employment, intellectual property and exports.
“The Europeans in particular look at defence as an investment whereas we have looked at it as an expenditure,” Mr. Bigaouette said. “And the way in which you look at it makes all the difference.”
Canada will also need to sharpen its views on procurement to better understand what domestic companies can do and recognize dual use potential that’s not immediately obvious, industry leaders say. “Most of Canada’s defence capabilities are not branded defence,” Mr. Bigaouette said.
“The defence ecosystem lives inside the commercial ecosystem,” he said, adding that Bell’s Griffon helicopters, which were used in the war in Aghanistan, are essentially military offshoots of commercial products.
Robert Dimitrieff, chief executive of Patriot Forge Co., said he’s thrilled by the prospect that Canada is waking up again to the need to build an industrial base that’s mobilized for the purpose of deterring or waging war.
To understand the ground that needs to be made up, take his own company, Patriot Forge. Part of the corporation’s business is making forged defence components for use in artillery, shipbuilding, submarine pumps and other equipment. Patriot has been supplying the U.S. military for more than 25 years by way of a government-to-government agreement facilitated by the Canadian Commercial Corporation.
CCC knows Patriot. But Canada’s defence department doesn’t, according to Mr. Dimitrieff, and it “has taken a very long time of me trying to convince them that I exist.”
“They didn’t realize that someone down the road on Highway 401 actually made things like that for the U.S. government.”
Mr. Carney’s commitment to raising defence-related spending to 5 per cent of the country’s GDP by 2035 will require Canada to spend up to $150-billion annually, more than doubling the existing budget.Cole Burston/Getty Images
Flick at the future
Canada is not at war. At least, not officially. But the momentum it’s building nationally behind defence is akin to a wartime effort. To help afford it, other federal departments are being asked to find major internal savings, deficits are expected to deepen beyond forecasts and suggestions such as hiking the goods and services tax have been floated.
It’s a production that will continue to have an impact for generations to come. And while public support is strong for Mr. Carney’s commitment to spend 2 per cent of the country’s GDP on defence this fiscal year, a June poll by the Angus Reid Institute found almost half of Canadians consider the 5-per-cent target too high and compromising for other priorities.
The effects of the coming budget on other key issues, such as housing, health care or the climate will take some years to be fully realized. But Mr. Risley, with the Arctic Economic Development Corp, said one outcome is certain: the fabric of Canadian culture must be woven from a different cloth.
Opinion: Where’s the economic calculus in Canada’s bold new defence pivot?
“The bureaucracy has been schooled over decades to be slow moving, to be risk averse, to err on the side of not doing versus doing and so, we need to have frankly a bit of a culture change. A government is no different than a business. It takes years to build a culture and it can take a long time to change,” he said.
The culture change required of government is in fact “unheard of” to get to the proper military posture, said Samuel Associates’ president Mr. Pesic. Prime Minister Carney has to motivate an entire civil service to be more efficient and faster while thinking differently and taking calculated risk, he added. And he has to convince federal parties to put aside partisan politics to prioritize defence spending and security, even after he’s gone.
“Is Canada mature enough as a country to look after itself in its own backyard? I think this is the biggest question,” Mr. Pesic said.
The present is a moment in time that’s been described by industry as both a new chapter and a once in a lifetime opportunity. Whether any of that is true, Mr. Dimitrieff said, rests entirely in the hands of Canadians.
“The new defence spending is important, but what matters is what we as a nation build with it. If we do it right, this is our change to create a lasting capability that will strengthen our country, support our allies, and secure a free and prosperous future for our children.”
And if we do it wrong? “We risk spending massively without building the industrial strength or sovereignty we need,” the CEO said. “Worse, by relying too heavily on foreign capital, we could trade one form of dependency for another – building critical capability financed by debt held abroad, exposing us to economic leverage rather than military vulnerability.”
The stakes have rarely been higher.