Saudi Arabia is $1.8B in arrears to Canada in arms deal

A financial report from the Crown corporation that acts as broker between Saudi Arabia and General Dynamics Land Systems shows the kingdom has fallen behind on payments to the tune of more than $1.8-billion.

Debt is 'another complicating factor' in controversial contract, analyst says

General Dynamics Land Systems Canada builds its light armoured vehicles at this factory in London, Ont. About 500 Canadian companies supply the plant. (Ed Middleton/CBC)

A financial report from the Crown corporation that acts as broker between Saudi Arabia and General Dynamics Land Systems shows the kingdom has fallen behind on payments to the tune of about $1.8-billion.

According to the report from the Canadian Commercial Corporation, trade receivables increased from slightly less than $1-million to $1.8-billion in less than a year.

"Trade receivables are considered past due when the payor has failed to make the payment by the contractual due date," the report says. "The significant increase in the past due trade receivable is mostly attributable to the ABP contract."

ABP refers to the armoured brigade program, which is part of the deal to supply armoured vehicles, equipment, and training to the Saudi government over 14 years.

Prime Minister Justin Trudeau, in an interview that aired Dec.16, said for the first time that he was looking for a way out of the deal.

Political opponents, citing the killing of journalist Jamal Khashoggi and Saudi Arabia's involvement in the war in Yemen, insisted Trudeau should scrap a pact that was negotiated by the previous Conservative government.

Scrapping the deal would come at a significant cost to the Canadian government, according to a senior analyst.

"Because there is this gap in payments, it's another complicating factor that would incur another set of financial liabilities if the prime minister does what he says he's trying to do," said David Perry, vice-president of the Canadian Global Affairs Institute.

"If this deal was scrapped ... the government of Canada would be out of pocket in having to compensate General Dynamics, who would then be able to compensate all of the people that it needs to in the supply chain across the country."

According to Perry, the federal government is contractually obligated to make good on the payments to General Dynamics.

Potential fallout

He warns any changes to the deal could have far-reaching consequences.

"What the current government of Canada's musings, including the prime minister's, about this deal, would be conveying to the General Dynamics board in the U.S. is that Canada isn't, at least any more, a country from which you can reliably export," he said.

A General Dynamics LAV 6.0 vehicle stands in the background as delegates gather around a scale model at the CANSEC trade show in Ottawa on May 30. (Justin Tang/Canadian Press)

Perry warns that if the government creates uncertainty about the rules around exports, it could become difficult for General Dynamics to keep that work in Canada.

"There's potential other places in the U.S. where that work could be done," he said.

According to Perry, other people who work in the defence and aerospace sectors in Canada make products and perform services that fall under the same export and regulatory rules as General Dynamics does.

Ongoing worry over contracts in London

In August, employees at General Dynamics expressed anxiety as they waited for details on the future of arms contracts with Saudi Arabia after a political spat over a social media post.

Saudi Arabia accused the Canadian government of meddling following a social media post calling on the kingdom to release women's rights activists. In retaliation, the Saudis threatened to freeze trade and new investment with Canada.

The diplomatic dispute raised questions about doing business with a country that has a history of human rights violations.