Don Mills: A Business Point of View – Shipbuilding is a Big Deal for Atlantic Canada
By Don Mills
(Don Mills is the co-founder and former owner of Corporate Research Associates Inc. (now Narrative Research), an active advocate for change and involved as a partner with several private companies. He is also the co-host of the weekly Insights Podcast.)
Shipbuilding is a Big Deal for Atlantic Canada
If you ever have the opportunity to tour the vast shipbuilding facility on the Halifax waterfront, you will understand the momentous achievement of the Irving family in creating one of the most modern shipbuilding facilities in the world, virtually from scratch beginning over a decade ago.
The scale and complexity of the manufacturing is truly impressive. Equally impressive is the creation of a domestic shipbuilding capacity in Canada that will have stable and long-lasting economic benefits not only for Nova Scotia but the rest of Atlantic Canada and Canada overall.
I had an opportunity to tour the facility recently with Nancy Lochhead, the personable Vice-President of Production. Her story alone is interesting, having worked her way up the ranks to her present position over the years of working for the company.
Understanding the Early Challenge
The federal government’s National Shipbuilding Strategy was instituted to develop a sovereign capability to build our own ships in Canada and develop an industry not subject to the boom-and-bust cycle of the past.
Irving Shipyards is owned by JD Irving (JDI), where brothers Jim and Robert are Co-CEOs. Jim has responsibility for the shipyards. When JDI decided to compete for the right to build ships for the Canadian government they were faced with many challenges, including an antiquated ship repair facility that needed to be entirely upgraded.
In my opinion, there is no other organization in Atlantic Canada that had the capacity to compete and win the national shipbuilding contract.
Imagine the challenges of trying to develop a competitive bid for artic patrol vessels and combatant ships that had yet to be designed and never before built. The complexity of estimating the costs and schedules for the bid must have been daunting.
The Irving bid also had to deal with the political realities in Canada where competitors, especially in Quebec, had powerful political clout. Nonetheless, the Irving bid won the competition and the efforts to modernize the shipyards began in earnest. More than $400 million was spent readying the site for the construction of the AOPs.
The next challenge was recruiting the expertise and workforce needed to fulfill the contract.
Irving Shipbuilding entered into working agreements with NSCC to begin to develop a pipeline for the trades needed. It has worked with Indigenous and marginalized groups to diversify its workforce. It has repatriated skilled workers from other parts of the country and the world by creating stable, long-term and well-paid employment opportunities.
The company has worked hard on engaging its workforce and has an apparently good working relationship with its unions.
Progress to Date
I recently had an opportunity to meet with CEO, Dirk Lesko, and his entire senior management team in July to get an overview and update of the progress to date. Lesko was quick to deflect praise and credit to his team for the progress that has been achieved.
Lesko has thirty-five years of shipbuilding experience, mostly for the US military, and lauded his team’s achievements. He stated that the shipyard is now “firing on all cylinders” due to their efforts.
In addition to its shipbuilding contract with the Federal government, Irving has been responsible for ship repair for the current fleet of twelve frigates which the company had built in the 1990s.
Indeed, HMCS Halifax is currently in dry dock for a refit to extend its life until the delivery of the new combatant ships.
The production of the AOPs is nearing completion. There were six AOPs contracted for the military and two more for the Coast Guard. Number five should be delivered this fall and number six a year from now.
It is interesting to note that the design of the AOPs has changed 30 percent since the first ship was completed. The construction of the two for the Coast Guard has started.
Economic Impacts
Currently, Irving Shipyards has 2,400 employees at its three sites in Halifax (Woodside, Burnside and the Shipyards). Of this number, 98 percent are Canadian. The company recently completed a five-year agreement with its union which provided significant wage increases and more flexibility in work arrangements. Employment is expected to increase by another hundred per year over the next four years as the combatant program ramps up.
The work at Irving Shipbuilding has benefitted all of Canada with more than $8.5 billion in spending commitments with more than 340 companies since the beginning of the AOP program.
Irving Shipbuilding has spent more than $500 million on goods and services in Atlantic Canada and supports more than 150 contractors within the region, including 60 in Nova Scotia.
One example is Glamox Canada, a marine lighting company based in Newfoundland & Labrador, that was awarded a contract worth $8.9 million. A recent economic impact study conducted by the Conference Board of Canada (www.shipsforcanada.ca), estimates that employment in Canada has been boosted by 9,300 jobs and more than 4,000 in Atlantic Canada.
Meanwhile, all three levels of government will benefit by $3.7 billion in tax revenue between 2013 and 2025.
The Road Ahead
Irving is readying itself for the transition from AOPs to the Combatant Ships. It is focussed on three priority areas: People, Facilities and Design. With regard to people, senior management seems confident that the required workforce will be available and anticipates the hiring of an additional 350 workers by 2028 for that purpose. It is the same number that the company has hired over the past four years.
Their VP of Human Resources, Nadine O’Neill told me that their turnover is less than 10 percent which is very low for this sector and attributes that success to efforts to engage the workforce.
The company expects to invest a further $750 million in facilities to get ready for the combatant ship production. This includes increasing the footprint of the shipyards to accompany a new painting facility that will be relocated from inside the current facility and new launch infrastructure.
The company has already invested more than $100 million in this effort.
The combatant ship is designed by UK-based BAE but is a new design that is currently being built in the UK. But as Lesko points out, with any new design comes a learning process and the design will likely undergo many changes in the construction of the first three ships until it is refined.
The same process occurred with the AOPS. As an example, the first AOP ship took
nearly 60 months to complete. Number five will be completed in 36 months and require only 50 percent of the manhours the first one did. Lesko feels the company is well positioned to accelerate the learning curve with the combatant ships based on their experience building the AOPs.
Importance of Timing
The key challenge for the company is ensuring that there is no gap between the conclusion of the construction of the A\OPs and the combatant ships. The biggest risk is losing the skilled and engaged workforce that has been painstakingly built. The company is hoping to have a contract for the first three combatant ships completed ideally by the end of this year or early in the new year to ensure continuity of its workforce before the new construction is scheduled to begin in the spring of 2028.
It is expected that eventually fifteen combatant ships will be built between then and 2050. It’s a big deal for this region. Let’s hope the Federal Government can hold up their end of the bargain.
Certainly, there is a lot of pressure from NATO on Canada to live up to its commitment to spend 2 percent of its GDP on its military. Hopefully, it doesn’t take a change of government, but the coming federal election in 2025 is sure to be a distraction in getting that contract signed.
Don Mills founded pollster Corporate Research Associates in 1978. Mills sold the company in 2018 to his top three executives. The Notebook FILE photo.
