Thank you, Mr. Chairman and committee members, for having us here today.
I joined Irving Shipbuilding in 2013 after a long career in the shipbuilding industry, including 36 years in the U.S. Navy. I was honoured to be appointed president of Irving Shipbuilding at a time when the shipbuilding industry in Canada was changing significantly as a result of the national shipbuilding strategy.
This strategy was first conceived by Canada due to a lack of sustainability in the marine and shipbuilding industry nationwide. This boom-and-bust cycle of the industry was experienced at all major shipyards and in the communities in which those shipyards reside. It resulted in an inability to stay up to date with modern shipbuilding practices and created significant challenges in recruiting the best shipbuilders.
In developing the framework for the strategy, Canada acknowledged that there was not enough large ship construction required for the navy and the Coast Guard to sustain more than two shipyards and their skilled workforce for the future. It was through a fully transparent and competitive process that Irving Shipbuilding was selected as the centre of excellence to build Canada's future combatant fleet.
Today we are well on the way to re-establishing the capability to build large ships in Canada, and we are making excellent progress towards providing the navy with the ships they need to operate as a true blue-water maritime force. Currently our shipbuilders are hard at work building Canada's first two Arctic and offshore patrol ships, or AOPS. We expect to deliver the first AOPS, the future HMCS Harry DeWolf, at the end of 2018.
The work we're doing now on AOPS will afford our workforce the experience and expertise required to construct Canada's next combatant fleet, the Canadian surface combatants, or CSCs, starting in the early 2020s. We're working closely with Canada to ensure the right foundations for this program, including the appropriate ship requirements, budget, and schedule. As a prime contractor, we look forward to awarding a contract to start working with the CSC ship and combat systems designer in the fall of this year.
It's imperative that we work at a steady pace and minimize delays. There are several pressing reasons for this. First and foremost, the navy needs the capability that these ships bring to the fleet. Canada's only three air warfare destroyers, which were to be replaced by CSC, have already been removed from active service. Second, starting in the fall of 2019, production work on AOPS starts to wind down. If we don't put our skilled shipbuilders to work on CSC, we face significant layoffs. If there is a production gap between the two shipbuilding programs, the cost to reconstitute the workforce and the experience will be borne by the CSC program. Third, the impact of inflation is very real on a shipbuilding program such as CSC. With shipbuilding inflation running 3% to 5% annually, on a 15-ship program you lose the buying power equivalent to 45% to 75% of one ship for every year of delay. Delays have a serious impact on a huge program such as CSC.
Now let me shift to economic benefits and the impact our work is already having across Canada. The benefits span far beyond the walls of the Halifax shipyard, where our head count has already surpassed 1,400 and in fact is almost 1,500 today. With the CSC program, we expect to reach over 2,500 employees. As of December 31, 2016, we've issued purchase orders totalling more than $1.2 billion to over 250 companies across Canada.
According to the Conference Board of Canada analysis, this will support an estimated 16,560 full-time equivalent person-years of employment and generate an estimated $895 million in income, $385 million in taxes, and $620 million in consumer spending. These are real benefits for Canadians from coast to coast to coast.
In Ontario, where over $543 million in contracts has been awarded, we have a seven-year contract with General Electric Canada for electrical power, propulsion systems, installation, and commissioning services for six AOPS vessels.
In Quebec, where over $61 million in contracts has been awarded, we have the pleasure of working with Bronswerk Group, which is supplying heating, ventilating, and air conditioning solutions for AOPS.
Bronswerk's AOPS contract has allowed the company to grow by 25%, open two facilities in Halifax, and be able to compete for global contracts.
In addition to our direct contracts, there is work happening throughout Canada that may seem unrelated to the construction of navy ships, yet would not exist without the national shipbuilding strategy. For example, Aspin Kemp & Associates in Montague, P.E.I., was awarded an initial $80-million contract with GE's global offshore and marine division to provide electrical components for drilling ships. This was a direct result of GE's industrial regional benefits obligation, under their contract with Irving Shipbuilding, to provide AOPS propulsion equipment. The spinoff work for drilling ships awarded to Aspin Kemp, which GE had previously been performing internationally, is now valued at more than $160 million, and has created new jobs and millions of dollars in economic growth in P.E.I.
These are just some examples of the hundreds of companies across the country—from Toolcomm, an aboriginal-owned company in B.C. providing communication systems and Internet protocol, to Glamox, a lighting supplier located in a former fishing plant in Newfoundland and Labrador—that we're proud to be working with to create a sustainable shipbuilding industry.
We have also invested in training and education programs to develop 21st century shipbuilders and modernize the face of shipbuilding. Two programs that we're very proud of, Women Unlimited with 17 female students and Pathways to Shipbuilding with 19 indigenous students, are the first of many designed to provide training and employment opportunities at Irving Shipbuilding to under-represented groups. These are Canadians who now look forward to a bright future with long-term, stable careers in the trades with salaries of over $70,000 per year, plus benefits. These are jobs you can raise a family on.
While we're hard at work on the Canadian navy's future combatant fleet, we also need to keep in mind how we are maintaining our current fleet, because it has a direct impact on day-to-day readiness. In November we were pleased to complete the refit portion of the Halifax-class modernization project on time and under budget. This involved extensive work on all seven of the east coast frigates to modernize the ships and their combat systems. This project not only sustained over 400 jobs in Halifax for the past six years but also once again provided the navy with the equipment required to successfully serve at home and abroad.
The success of this project can largely be attributed to the close proximity of our facilities to the navy's east coast home port. The same is true for Seaspan on the west coast. During this program, the shipbuilders at both Irving Shipbuilding and Seaspan honed their skills and truly developed into Canada's centres of excellence for maintenance and modernization, in addition to shipbuilding.
We are very concerned that Canada's current approach to running individual procurement competitions for ship maintenance is not in Canada's or the RCN's best interest, and strongly recommend that Canada take a holistic strategy with regard to ship construction and maintenance.
Let me explain. First, let me talk about the real cost to Canada. During the Halifax-class modernization project, the cost of shipbuilding at the Halifax shipyard was decreased, as a significant portion of our fixed overhead was spread across both new construction and maintenance. In 2016 alone, this resulted in lowering the cost by over $20 million for AOPS. This is equivalent to getting roughly 130 shipbuilders per day for free.
Second, I'll talk about sustaining the shipbuilding workforce. Both new construction and maintenance work go through peaks and valleys of demand for individual trades. Critical to eliminating the boom-and-bust cycle for employees and this industry is having both new construction and maintenance work in the shipyard at the same time. As Canada's shipyards have clearly experienced over the last 20 years, ship maintenance alone is not sufficient to eliminate boom-and-bust periods.
The third point concerns the impact on ship readiness and crew morale. Canada's current strategy could result in the Halifax-class frigates and crews leaving home port in Halifax for maintenance elsewhere. This would result in undue stress on crews and their families, increased costs for the navy and Canada, and the need for another shipyard to familiarize itself with the ships and procedures on which Irving Shipbuilding is now an expert.
I will also point out that Halifax is an ice-free port year-round, allowing ships to be maintained and deployed at a moment's notice.
Finally, there is the impact on leveraging long-term investment. The current strategy of spreading out maintenance to many shipyards across the country does not leverage the significant investments in people, facilities, and processes that come with a sustained shipbuilding program. Investment in these areas requires long-term certainty.
Canada's allies in both the United Kingdom and the United States actively manage maintenance and in-service support as part of their overall strategy for shipbuilding, enabling a steady workforce year-round and leveraging investments and facilities for both construction and support. We strongly encourage Canada to take a similar approach.
In closing, we're proud to continue our long history as Canada's shipbuilder and to create a legacy for the navy and Canada through the national shipbuilding strategy. The Halifax shipyard and employees take that responsibility very seriously, and we look forward to a bright and productive future that will benefit not only the men and women in uniform but all Canadians.
Thank you again, and we're happy to take your questions.