In London, Ont., a $15-billion Saudi deal gets personal

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For years, residents of London, Ont., heard or said little about the sprawling industrial facility east of the downtown. Many drove past the imposing black fence, the signs warning of video surveillance and the sleek office shielded by tinted windows, without a second glance. The name out front, General Dynamics Land Systems-Canada, was inscrutable. It was just one more factory in a region once home to many.

The facility is impossible to ignore these days. GDLS-C manufactures light-armoured vehicles (LAVs) for the Saudi Arabian National Guard. LAVs are massive, weaponized, eight-wheeled combat vehicles weighing upwards of 30 tonnes. The Saudi contract was years in the making. The previous federal government heavily lobbied the kingdom and Ottawa is the prime contractor in the deal. GDLS-C invested considerable resources over three years to beat out competitors.

On the day the contract was announced in February, 2014, hundreds of workers crowded onto the plant floor, waving miniature Canadian flags and pennants emblazoned with the company logo. The mood was electric. A few months earlier, the government cancelled an open multibillion-dollar procurement project for combat vehicles for the Canadian military that GDLS-C had hoped to win. Any disappointment over that lost opportunity evaporated when GDLS-C vice-president Danny Deep ascended a stage in front of the crowd to champion the largest advanced manufacturing contract in Canadian history, a deal valued at $15-billion. “We faced our foes and defeated them,” he said to cheers and applause. “I can’t tell you [how] many times I’ve literally dreamt of looking into your faces and eyes and being able to say we’ve won this program.”

Despite the enthusiasm, the deal has been a slow-boiling controversy since the beginning. Saudi Arabia has an abysmal human-rights record, and critics have argued the regime cannot be trusted to use military equipment without further violations.

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The deal is now a full-on economic, political and ethical quagmire. The grisly killing of journalist Jamal Khashoggi in the Saudi Arabian consulate in Istanbul last month has sparked international condemnation. Germany halted future and existing arms contracts with Saudi Arabia, while Denmark and Finland froze new deals. Canada is reviewing its weapons sales to the country and Foreign Affairs Minister Chrystia Freeland has said no new export permits will be issued during that time. Some argue that doesn’t go nearly far enough. Federal NDP Leader Jagmeet Singh urged Ottawa to scrap the deal, while Prime Minister Justin Trudeau has warned of steep financial penalties for cancelling the LAV contract. The government has said it is willing to suspend existing export permits that allow the LAVs to be exported.

And it’s not just the murder of Mr. Khashoggi stoking alarm. A Saudi-led coalition is waging a brutal war in Yemen, where more than 17,000 civilians have been killed or injured since 2015. Photos and videos have shown Canadian-made armoured vehicles deployed by the Saudis in the region.

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“We are all challenged on a moral and ethical dilemma on this one,” says Andy Mavrokefalos, president of Attica Manufacturing in London. The company produces components for GDLS-C, and about 10 of the firm’s 60 employees are dedicated to that work. Mr. Mavrokefalos put his trust in the federal government to complete its due diligence before clinching the Saudi contract. “If this was a bad deal to begin with, it was certainly out of our hands at the time,” he says. “I don’t know what the answer is or how to fix this particular deal.”

Many in London are looking to the federal government for that answer, but the way forward is anything but clear. Locally, jobs are the first thing on everyone’s mind. GDLS-C, a subsidiary of a U.S.-based conglomerate, is one of the city’s largest private employers, and says it has 1,850 people on the payroll. The majority of its work today is dedicated to the Saudi contract. The company also does business with more than 240 suppliers in the London region.

Jobs are not the only thing on the line. Facing an election year, the federal Liberals are loath to lose support in Southwestern Ontario. The London area is home to more than 520,000 people. The province’s bruised manufacturing heartland is something of a swing region, where voters have elected members of all three federal parties in recent years. How the Liberals handle the Saudi contract is crucial here. While the government weighs its options, some in the London are grasping for explanations to justify continuing to sell combat vehicles to Saudi Arabia, while others are dismayed the deal is still in place. The ultimate decision is not the city’s to make, but it will bear the consequences.

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London is by no means a one-company town. Talk to enough people here, though, and it starts to feel that way. Many residents did not want to be interviewed about GDLS-C, saying they have friends and family who work there or that their own employer does business with the company or serves its employees. The company declined to make anyone available for an interview, other than answering some e-mailed questions. Some employees approached by The Globe and Mail did not want to talk, even off the record, citing confidentiality agreements.

Two employees – who asked not to be identified – somewhat reluctantly offered thoughts, however. The controversy is perplexing – even hypocritical, they said. The company manufactured combat vehicles sent to Saudi Arabia even before 2014, and no one complained. Canada conducts business with China, which also has a subpar human-rights record, yet there’s no mass outcry. Surely there are bigger issues than what happens in Saudi Arabia, they said. Why pick on this contract?

“Everybody’s nervous,” one employee said. “Nobody wants to lose their job.”

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They’ve been living with that uncertainty almost since the deal was signed and critics starting asking questions. They blame Ms. Freeland for disrupting relations with the kingdom with a tweet in August calling on Saudi Arabia to release two jailed human-rights activists. The Saudi government responded by expelling Canada’s ambassador, freezing new trade deals and ordering thousands of Saudis studying here to return home.

GDLS-C inspires a lot of loyalty in some parts of town, owing to its work for the Canadian Armed Forces, which deployed the company’s LAV III in Afghanistan. In November, a monument featuring a full-sized replica LAV was unveiled in London to honour veterans. The company sponsors military appreciation nights at London Knights hockey games, rolling the huge combat vehicles onto the ice. GDLS-C recruits from the University of Western Ontario and Fanshawe College in town. It also contributes to more than 90 charitable organizations each year.

The plant was owned by General Motors Corp. until General Dynamics Corp., a US$50-billion multinational with headquarters in Falls Church, Va., purchased it in 2003. GM also owned a locomotive plant in London, which ended up with Caterpillar Inc., until that company shut it down in 2012, putting 450 people out of work.

GDLS-C remained while other manufacturing companies pulled up stakes, so it has fierce defenders such as London Chamber of Commerce CEO Gerry Macartney. GDLS-C suggested speaking with him, in fact. Pulling the contract would be devastating for the region, he argued.

Mr. Macartney pointed out Canada’s export controls state Ottawa must not allow the shipment of weapons to countries with poor human-rights records unless it can be shown there is “no reasonable risk” the goods might be used against civilians. "Well, what’s that got to do with Khashoggi?” he said. “Yeah, it’s a human-rights violation, but it really has nothing to do with this contract.”

His concern is avoiding another blow to the region’s manufacturing sector. London’s economy has improved since the depths of the most recent recession, and unemployment is 4.9 per cent, below the provincial rate. (It hit 11 per cent in 2009.) There is a sense in town that London is on the upswing, and locals wants to keep the momentum going.

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The wounds of the recession haven’t entirely healed for everyone, though. Dj DeJesus, co-owner of Rho-Can Machine & Tool Co. Ltd., secured a deal in 2014 to do tool and die work for GDLS-C. The two-year contract accounted for 40 per cent of Rho-Can’s revenue during that time. In the past, suppliers to auto manufacturers made up the bulk of the business. One by one they left. “We’ve been hit pretty damn hard,” Mr. DeJesus said.

His head count has remained unchanged at 88 for years, with revenue flatlining. “It’s very tiring,” Mr. DeJesus said. “Every year it just seems to get worse.” He wonders sometimes if he should pack it in, but with dozens of employees depending on the firm, he keeps going. GDLS-C has been an important client, and Mr. DeJesus hopes the company will land another large contract, generating more work for his firm. (Southern Ontario is the centre of combat-vehicle manufacturing in the country, which accounted for 23 per cent of defence industry sales in 2016, according to the Canadian Association of Defence and Security Industries.)

But with the Saudi deal mired in controversy, he’s nervous. “What scares me is that for people in the whole of Canada, what is London to them?” he said. “Who would really care?”

He has arrived at a pessimistic assessment of the benefits of taking a moral stand by cancelling the contract: “The truth is, it’s not going to change nothing. If we don’t build them, somebody else will."

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Steve Fenton didn’t anticipate he would be concerned about such things when his company, based an hour and a half drive from London in Cayuga, Ont., started selling coupling devices for air compressors two decades ago. He soon found he could also sell to makers of unmanned aerial vehicles. Mr. Fenton’s firm, Battlefield International Inc., secured a contract with a U.S. firm building drones to be deployed during the war in Iraq – even though he personally opposed the war.

“I’m in a weird situation,” he recalled. “I was against that war because that war had no reason, and I’m selling to the people making the spy planes flying over Iraq.” Company officials even asked him about his views at one point, and Mr. Fenton told them what he thought. “They were really outraged with me,” he said, “but we do make the best parts in the world, so they swallowed their pride and kept buying.” He’s less sure why he kept selling. “I struggle with that, and I haven’t totally resolved it.”

Battlefield’s success with drones allowed it to enter new markets, though. It secured a five-year, multimillion-dollar contract with GDLS-C after the Saudi deal was announced. Battlefield spent two years perfecting coupling devices for LAVs. GDLS-C is a demanding customer, Mr. Fenton said, but Battlefield is a better company for it and now works with other LAV makers.

The ethics of this deal are something Mr. Fenton has thought about many times. It’s not about money, he said. (He once turned down a contract with a company making drones for China.) For any criticism of the deal, he has a rebuttal that, for him, keeps the issue firmly in a grey area – and sounds familiar: If GDLS-C doesn’t manufacture these vehicles, a foreign company will. (Saudi Arabia could turn to South Korea, China or even Russia, according to arms researcher Pieter Wezerman with the Stockholm International Peace Research Institute.)

The credibility of Canada’s defence industry would also be damaged if the contract were rescinded, Mr. Fenton continued. The killing of Mr. Khashoggi is appalling and unjustified, he said, but it’s possible the Saudis believed that if something wasn’t done about him, the regime would falter, replaced with something much worse. “As we learned in Iraq and Libya, new governments can lead to more serious human-rights abuses,” he said.

But “if anywhere along the line Canada says we’re not supposed to deal with Saudi Arabia,” he said, “I’ll be the first guy to stop.”

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On a map of federal ridings, London is a splotch of red and orange surrounded by a sea of blue. Like other urban areas, the city tends to vote for the Liberals and the NDP, while the Conservatives are more entrenched in rural areas. With a federal election looming in 2019, the Liberals will need to hold on to ridings like those in London.

There is no guarantee the party will be able to do so. Two of London’s electoral districts were Conservative until the Liberals won them back in 2015. With the government’s actions on the Saudi contract in the spotlight, there may be little room for missteps. “This is my lead issue,” said Peter Fragiskatos, a Liberal MP for London North Centre. “I have the workers on my mind and their families on my mind. I know so many of these people. I grew up with them.”

Mr. Fragiskatos and his fellow Liberals are trying to maintain a difficult balance. The party did not usher in the original deal, but once in government, the Liberals approved export permits for the LAVs. The government wants to protect jobs while standing up for human rights – a task made enormously more difficult by the fact those jobs are dependent on a country that routinely violates such rights.

“I don’t think there’s a contradiction here,” Mr. Fragiskatos said. The government has responded appropriately by working with its allies and calling for an investigation into the death of Mr. Khashoggi, he said. He leaves aside Saudi Arabia’s campaign in Yemen and its record on human rights. “We will exercise options at that time once the issue becomes clearer.”

His counterpart in London West, Kate Young, also won back her riding for the Liberals from the Conservatives. Ms. Young says she’s not concerned about hypothetical political outcomes. “I’m just focused on the jobs,” she said. “I have been talking to officials within our government to make sure they understand that a decision will have a major impact on London.”

Political consequences will undoubtedly factor into the government’s decision-making, however. Complicating matters is that recent public polling on the issue is hardly definitive. An Angus Reid Institute poll released in November found Canadians overwhelmingly in favour of banning future arms sales. But respondents were split on the current deal: Forty-six per cent said the contract should be cancelled, while 44 per cent said it should be left in place.

Still, cancelling the contract could leave the Liberals vulnerable to the Conservatives. One attack the Tories could deploy is the “populist card,” said Adam Harmes, an associate professor of political science at Western. The party could criticize the Liberals for punishing workers instead of retaliating against Saudi Arabia by stopping oil imports, for example. “Whether possible or not, this line might play well,” Mr. Harmes said.

Inaction comes with risk, too. In most metropolitan areas, the Liberals’ chief opponent is the NDP, which has been very critical of the contract. That could push the Liberals to take a more aggressive stand. “They may calculate that a rights-oriented foreign policy will win them more votes among urban voters across the country than it costs them in London,” said Zack Taylor, an assistant professor of political science at Western.

The NDP has a strong presence in London. In 2006, Irene Mathyssen became the first member of the federal NDP to win a London riding when she took London-Fanshawe, where GDLS-C is located. She says the contract should be cancelled, even if it means people in her city could lose their jobs. “I don’t see that we have a lot of other choices,” she said. Ms. Mathyssen does not believe the sale of armoured combat vehicles to Saudi Arabia can be justified when Canada purports to value human rights. “It’s sidestepping a moral obligation,” she said, “and I’m sorry that London will suffer and I’m sorry we haven’t employed these folks in jobs we can all feel positive about.”

She wants the federal government to find a solution to protect jobs, though there are no easy alternatives. She points out that the Department of Defence has an open $2-billion contract for trucks for the Canadian Armed Forces, for which GDLS-C could compete – though that’s just a fraction of the Saudi deal.

After serving as a federal MP for a dozen years, Ms. Mathyssen is set to retire and will not be running in 2019. Her daughter, Lindsay, will be the NDP candidate for London-Fanshawe. It’s a rare thing for a politician to call for something that could result in job losses in her hometown, but Lindsay Mathyssen, who has worked as a political staffer in Ottawa, is aligned with her mother. “I would want to say to those workers that you’re not alone and your government is here to support you,” she said. “I understand this is about putting food on the table. But when you look at what’s right, and what Canada values, that balance has to come into play.”

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No matter how much support is provided, job losses can be psychologically devastating – as London well knows. Despite the region’s low unemployment rate, London has one of the worst labour-force participation rates in Ontario at 61.1 per cent. “A few years back when unemployment was very high, a lot of people gave up on trying to compete in the labour market,” said Nancy McQuillan, CEO of the London Employment Help Centre. Some displaced manufacturing workers have found jobs at a reduced salary or have opted to retrain for a skilled trade. But committing to a new profession can take months, even years, and people have bills to pay in the meantime.

The possibility of suspending approved export permits for the LAVs, as the Liberals have indicated, is still worrying for those in London concerned about jobs. Uncertainties abound. Owing to confidentiality provisions, Global Affairs Canada says it cannot comment on how many LAVs have already been exported and how much of the order still has to be fulfilled. GDLS-C also declined to comment on the impact of a suspension. The Globe and Mail previously reported the Liberals have already approved export permits covering more than 70 per cent of the value of the transaction.

“I hope for the sake of the individuals they all keep their jobs,” Ms. McQuillan said. “But there is this huge moral question involved here, and one that I’d rather stay out of.”

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The moral question is the one Kevin George can’t avoid. He’s served as the rector at St. Aidan’s Anglican Church in London for almost seven years. He’s an affable Newfoundlander, working from an office packed with books and hockey memorabilia. The church counts some GDLS-C employees as parishioners. As a follower of the gospel, Mr. George adheres to the principle of non-violence and is not a supporter of the deal. Reports that Canadian-made LAVs have been used in Yemen are deeply disturbing for him. But he has to put his personal views aside when someone from GDLS-C, worried about the future, confides in him. “What they need is my ear and my support, and that’s what they’re going to get,” he said.

Others at the company are concerned about what’s happening on the other side of the world – and questioning their own role in it, Mr. George says. “There are people out there in that company who work in that tension daily because of their own moral compass and they can’t walk away from their jobs.” The right thing to do in that circumstance isn’t straightforward. If someone needs that job to pay for a child’s education, maybe the right thing to do is to keep working. “Any of us in that situation is going to be forced to deal with the most local thing in front of us and protect the people we love,” Mr. George said.

What seems to rankle him, though, is the deflection some people employ when talking about the Saudi contract. The discussion quickly becomes about why Canada does business with other countries that don’t share our values or why we’re focused on this issue when there are more important problems at home – anything but Saudi Arabia.

Three years ago, Mr. George was shattered by the photograph of three-year-old Alan Kurdi lying face down on a beach in Turkey, having drowned trying to flee Syria with his family. The following Sunday, he told his congregation he had failed them. He knew about the devastation in Syria and, like many people, did nothing. His repentance was the catalyst for the community to raise $30,000 to resettle two Syrian families.

He wonders if there will be a similar wave of refugees from Yemen as the conflict grinds on. The questions around GDLS-C and Canada’s LAV deal with Saudi Arabia would only intensify. “We might know intrinsically in our hearts what the answer needs to be, but we don’t like it because there’s a cost,” Mr. George said. “If we’re going to own our values, we’re going to pay for them. That’s the unfortunate part.”