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Amber Batool: Welcome to CIBC Insights. I’m Amber Batool, the Managing Director in Government Relations at CIBC, and I have with me today Krista Friesen, who’s the Executive Director, Equity Research and Global Markets. Krista, thanks so much for joining me today.

Krista Friesen: Thank you, Amber.

Amber Batool: So today we wanted to talk about one of the most important issues in geopolitics, defence and resiliency, and the Government of Canada’s defense industrial strategy anticipated over 500 billion in cumulative investment across the country by 2035. And Krista, today I really wanted to talk to you about one of those really significant defence procurement announcements within that, which was made on the 6th of July, by the government selecting Germany’s TKMS as their preferred supplier of Canada’s next generation of submarines. We know that Canada is looking to acquire 12, replacing the 4 aging Victorian-class boats they currently have in service. And the government has described this as the largest defense procurement in Canadian history. So I think there’s a couple of ways to look at this decision. There’s obviously the national security and defense rationale. Tells us quite a bit about how the government intends to approach procurement, how quickly it wants to move, how quickly it can move, and really how it uses defence spending to support industrial capacity in Canada. But from your perspective, covering Canadian industrial companies and looking at this through more of a capital markets lens, can you tell me about what stood out for you?

Krista Friesen: Absolutely, thank you, Amber. For me, there are really three things. First, after years of discussion about increasing Canadian defense spending, this is a tangible sign that some of that spending is beginning to translate into major procurement decisions. Second, it’s probably the clearest real world example we’ve seen so far of the government’s build-partner-buy strategy. And third, this is particularly interesting from my perspective. The fact that the preferred supplier is German doesn’t mean all the economic benefit leaves Canada. In fact, we’ve already seen a fairly substantial Canadian industrial ecosystem beginning to form around this program. But we before we get into the companies and the economic implications, Amber, maybe we should start with the decision itself. How significant is this from the government’s perspective?

Amber Batool: It’s a great question. Look, I think it’s significant for two reasons. One, because of the size of the procurement, and two, because what it says about how the government is approaching defence. And as I mentioned, the plan is for up to 12 modern submarines, which would give the Royal Canadian Navy substantially greater capacity across the Atlantic, Pacific, and Arctic, the latter of which, as you know, has become increasingly important in recent years, and I think submarines are something really interesting for Canada because of our geography. Canada has the world’s longest coastline, has growing security requirements. They provide persistent surveillance, intelligence gathering, and deterrence in a way that’s really difficult to replicate with other partners. But I have from a policy, from a policy perspective, I think the other important point to note is speed. The two qualified suppliers, TKMS and South Korea’s Hanwa Ocean, were identified in August 2025. Proposals were submitted in March 2026, and by July, the government had selected a preferred partner. Now, for government, that’s extraordinary speed. Like we haven’t seen anything like that. It really speaks to their ambition here, but it’s really interesting to also see that they are ready to kind of get that execution and that ambition together.

Krista Friesen: And that’s something that jumped out to me as well. From an investor perspective, there has been a bit of skepticism around Canadian defense spending because historically there has been a big distinction between announcing spending intentions and actually getting money out the door. I wouldn’t characterize this announcement as money already spent, though. The final contract still needs to be negotiated. But we’ve moved much further along that continuum. We’re no longer talking about whether Canada might eventually replace its submarines. We’ve selected a platform and a preferred supplier. Contract negotiations are underway, and the government has said contracting should be completed no later than the end of 2027. And the first four submarines are targeted for delivery in 2034. And for me, that’s a key capital market message. Canadian defense spending is gradually moving from policy documents and budget commitments into identifiable programs with suppliers, schedules, and industrial work attached to them. And the sheer scale matters. The government is calling this the largest defense procurement in Canadian history. We don’t have a final contract value yet because negotiations are still underway, but we’re clearly talking about a program measured in tens of billions of dollars. Amber, maybe this is a good point to explain build-partner-buy because the name is fairly intuitive, but I think the submarine program gives us a useful real world example of what the government actually means.

Amber Batool: Exactly. And I think it’s a really important point you raise. And I know that from my time in government, announcing something and getting money out the door to completely different things. but you asked about the framework. Let me talk you through it, so it’s called Build- Partner-Buy. It’s essentially a framework for deciding how Canada develops or acquires defence capabilities. So, for example, where we already have strong domestic capability or whether there’s something that we consider strategically important to produce domestically, the preference would be to build in Canada. Where Canada doesn’t have all the required domestic capability or there’s an opportunity to work with a trusted ally, the government can then partner. That can involve joint production, technology transfer, or you know, participation in supply chains and domestic sustainment. But when neither of those approaches make sense, then Canada can buy an existing solution. And the submarine procurement has been explicitly identified as a partner product. Canada doesn’t have a domestic company capable of designing and delivering an entire modern fleet of conventional submarines from scratch. And trying to recreate that capability solely for this procurement would require enormous amounts of time, capital, and execution risk. And we know there’s an urgency and there’s a speed around this work because of geopolitical developments. So instead, Canada is partnering with Germany, Norway, TKMS around existing submarine programs while trying to build strategically important capabilities around that platform here in Canada.

Krista Friesen: And I think that’s an important distinction, because at first glance you could hear largest defense procurement in Canadian history, followed by German supplier, and reasonably ask how exactly is that consistent with a strategy that’s supposed to strengthen Canadian industry? But the objective isn’t necessarily that Canada manufactures every component of every defense platform itself. The more interesting question is what capabilities do we want to own in Canada once we’ve bought it? And submarines are a good example. The hull itself is only one portion of the economic value associated with a program that’s going to operate for decades. There’s maintenance and sustainment, training and simulation, bases and infrastructure, sensors and software, upgrades, advanced manufacturing, critical minerals, potentially intellectual property. And those are areas where Canada does have industrial capabilities today and where there is an opportunity to develop them further.

Amber Batool: Right. And that’s also where industrial and technological benefits policy also becomes really important, and this submarine procurement will be subject to Canada’s ITB policy, which was specifically designed to ensure that major defence procurements actually create economic activity and value in Canada. And that’s such an important point for politicians. It doesn’t just become a question of where is the prime contractor headquartered. It’s also things like what work is being done in Canada? You know, to your point on intellectual property, what technologies are Canadian companies gaining access to and developing here? And what are we creating that is going to allow us to kind of participate in things like international supply chains? And I think that last point matters because the objective isn’t simply to create temporary work associated with one Canadian procurement. Ideally, you’re using Canadian defence policy to strengthen companies and technologies that can then compete internationally as well, and you’re creating somewhat of a defence industrial base in Canada.

Krista Friesen: Absolutely, and we’re already getting some pretty interesting examples. One that’s particularly relevant to my coverage is CAE and TKMS have signed a teaming agreement covering training and simulation for the Canadian submarine program, as well as potential long-term in-service support. One interesting aspect of the agreement is that it also contemplates opportunities on other TKMS international naval programs. So potentially, the opportunity isn’t just that CAE earns revenue from Canada’s submarines. It could strengthen CAE’s position within a broader international submarine ecosystem. You’ve also got C SPAN, which is teamed with TKMS around sovereign sustainment of the fleet in Canada, and sustainment is important because this is a fleet that could be operating for decades. The objective is for Canada to have the domestic workforce, facilities, and technical knowledge required to support those submarines throughout their operating lives, rather than remaining perpetually dependent on an overseas shipyard. Then there’s Marman in Quebec, which has an agreement to manufacture selected submarine sections and complex assemblies in Canada. Ellis Dawn has an agreement around maintenance, sustainment, and training infrastructure, and General Dynamics Mission Systems Canada and TKMS have proposed an undersea research and development center called Arctic Sentinel, focused on underwater surveillance and Arctic sensing technologies. So this starts to look less like Canada’s buying a German submarine and more like Canada’s joining a German Norwegian submarine program while developing a domestic industrial ecosystem around it.

Amber Batool: That’s a really good point. And I think that’s exactly the strategic objective of the partner category. I think if the government were sitting in this conversation with us, they would actually say this points to why we want to create broader strategic benefits. It’s not about Canada developing a bespoke submarine system that only we can operate. The 212 CD program is already a German-Norwegian partnership. And bringing Canada into that ecosystem creates these opportunities for things like common training, shared sustainment approaches, and potentially common upgrades over the life of the fleet. And that matters because modern defense programs are becoming increasingly multinational. And that’s really a nod to this fragmented geopolitical world we live in and the importance of having supply chains with our allies. And we’re seeing some of that cooperation start to become institutionalized. And so Canada, Germany, Norway, TKMS have begun joint planning work ahead of the final contract negotiation. So I don’t think the partnership component is just a label that’s been attached to the procurement after the fact. It’s actually starting to determine how the program is structured.

Krista Friesen: And that brings us back to what I think is the broader investment takeaway. We’ve spent a lot of time talking about Canada’s rising defense budget, but ultimately investors need to understand where that money actually ends up. And the submarine procurement gives us one example of how some of it could flow through the Canadian economy. You have the major foreign platform, and then around that you build Canadian manufacturing, Canadian construction and infrastructure, training and simulation, you have Canadian sustainment, sensors, technology, and potentially Canadian intellectual property and exports. And that creates a much broader industrial opportunity than simply asking which company is building the submarine itself.

Amber Batool: It’s a great point. And I think it’s worth emphasizing as well, though, that this doesn’t mean that every defense procurement should be structured the same way. That’s really, I think, the intent behind the government’s build-partner-buy approach. There are areas where Canada has got globally competitive capabilities and where building domestically makes sense. And then there are areas like submarines where partnering with an allied country can give Canada access to an established platform while still allowing it to develop important capabilities at home. There’s going to be other areas where buying an existing solution is just the simplest, fastest, and most practical option available. And the important change is that industrial considerations are supposed to be incorporated into those decisions much, much earlier rather than being treated like an afterthought that once the equipment itself has already been selected.

Krista Friesen: That’s good point. And I think this is probably where we should introduce a little caution as well. Selecting a preferred supplier is not the same thing as signing the final contract. The ultimate Canadian work share still needs to be negotiated and executed. Teaming agreements don’t necessarily mean every dollar of contemplated revenue ultimately materializes. And given the size and duration of this program, cost, schedule, and execution will matter enormously. So I don’t think the takeaway should be that every Canadian industrial company with its name attached to the submarine program suddenly has a massive earnings opportunity tomorrow. That’s not necessarily the case. But I think the more important conclusion is that we’re beginning to see how higher Canadian defense spending could translate into domestic industrial activity. And I think that’s significant for the Canadian industrial complex.

Amber Batool: Absolutely. I agree. Look, for decades, one of the recurring criticisms of Canadian defence policy has been the gap between ambition and execution. The submarine announcement doesn’t solve every procurement challenge, but it does represent a move forward. Canada identified a requirement, it ran a competitive process, it selected a preferred supplier, and it chose to partner with close allies. I think those are all excellent signals. And it’s tempting to use that procurement process to build domestic capabilities that Canada will need for decades and decades to come. And I think that’s, essentially, what the new defense industrial strategy was supposed to accomplish. These are all, you know, really kind of welcoming and positive developments.

Krista Friesen: I certainly agree with you, Amber. And maybe that’s the best way to sum it up. The headline is that a German company has been selected as the preferred supplier for the largest defense procurement in Canadian history. But the broader story is what sits underneath that headline. This is a major signal that Canada’s defense spending commitments are beginning to turn into actual procurement decisions. It’s a tangible example of build-partner-buy with Canada choosing to partner, where developing an entire capability domestically would make little economic or strategic sense. And if the government executes the strategy as intended, the economic benefits shouldn’t stop at the German shipyard. It should extend into Canadian manufacturing, construction, training, simulation, sustainment, technology, and supply chains. And potentially create capabilities Canadian companies can ultimately sell into Allied markets as well. For Canadian investors, that’s what makes a submarine decision particularly interesting. It’s not just a defense story, it’s increasingly an industrial policy story as well.

Amber Batool: Such a great point. And I think we’re going to see many interesting developments in the coming months and years. So thank you very much, Krista, for joining me. And I think your insights are going to be so useful for our clients. And we look forward to having some ongoing discussions as we continue to see, I’m sure, many interesting geopolitical developments that will implement impact defence and resiliency policy going forward, both in Canada and the wider world.

Krista Friesen: Thank you, Amber. Appreciate the conversation.

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Beneath the surface: Canada’s submarine strategy

Amber Batool

Managing Director, Global Government Relations

CIBC

Krista Friesen

Executive Director, Institutional Equity Research

CIBC Capital Markets