Who Is Canada's Biggest Defense Contractor?

By Rich Smith Markets Fool.com

Who is Canada's biggest defense contractor?

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Strange as it may sound, "Canada's" biggest defense contractor actually hails from south of its border. Already a big player in the Canadian defense market, when America's General Dynamics (NYSE: GD) bought General MotorsDefense in March 2003, it instantly became an even more important supplier to the Canadian military.

But is that still the case today?

Canada's military has advanced beyond dogsled-based technology. Image source: National Defence and Canadian Armed Forces.

Ranking the rivals

For more than 40 years, Canadian nonprofit Project Ploughshares has reported on "peace and security issues" in America's neighbor to the north, including keeping an eye on the companies that build the products essential to Canadian defense. In its 2013-2014 report (the most recent on file), PP noted that Canada's 10 largest defense contractors include General Dynamics with its now incorporated General Motors Defense; L-3 Communications (NYSE: LLL), and London-listed Serco Group (LSE: SRP).

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Canadian-listed companies MacDonald, Dettwiler and Associates, Calian Group, HNZ Group (via Canadian Helicopters Limited, which S&P Global Market Intelligence says it owns), also rank in the top 10. So too do a series of privately owned companies: Irving Shipbuilding (warships), Victoria Shipyards (likewise), and Canadian Base Operators (facilities management and logistics). But the difference in size from the biggest defense contractor to the smallest is pretty striking.

In Canada, "big" is a matter of perspective

Between 2013 and 2014, for example, General Dynamics won more than $15.1 billion in Canadian defense contracts through two separate Canadian subsidiaries. At the other end of the scale, No. 10-ranked Victoria Shipyards pulled down less than $88 million in defense contracts.

That was still more money than some of the world's leading defense heavyweights extracted from Canada, however. Lockheed Martin's (NYSE: LMT) Canadian operation, for example, landed only $77.5 million in Canadian defense business. At Lockheed, $77.5 million doesn't even qualify as a good Wednesday for its U.S. business. And European defense giant Thales did less than $50 million in Canadian business last year.

Why is America so big in Canada?

American defense firms largely owe their size and influence in the Canadian market to a wave of acquisitions engineered over the past 15 years.In addition to absorbing General Motors' defense business in 2003, General Dynamics gobbled up SNC-Lavalin's military ammunition business in 2006. Today, General Dynamics' $31.4 billion global defense business does more than $690 million in annual sales in Canada -- and is likely to get even bigger tomorrow.

General Dynamics' move into Canada is paying off handsomely, thanks largely to a huge 14-year 2014 contract to sell Saudi Arabia a fleet of 3,000 light armored vehicles (LAVs). Valued at $13 billion in total, that one will keep General Dynamics' Canadian subsidiaries busy, and General Dynamics' bottom line flush, for years to come.

L-3 Communications, too -- ranked No. 7 among Canadian defense contract winners -- has moved into the Canadian market in a big way, after buying first Bombardier Military Aviation Services (in 2003), then CAE's Marine Controls business (in 2005). Today, L-3 does more than $280 million in annual business in Canada -- $100 million more than CAE does itself.

Result: As of today, defense industry analyst IHS Jane's concludes that "the largest defence contractors in Canada are generally owned by US companies." GlobalSecurity.org puts it even more bluntly. These days, "the Canadian defense industry is recognized as part of a single North American defense industrial base."

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Rich Smith has no position in any stocks mentioned. The Motley Fool recommends General Motors. The Motley Fool has a disclosure policy.