It is fitting, whether or not by coincidence, that the federal government unveiled Canada’s ambitious Defence Industrial Strategy (“DIS”) in the same week Canadians mark “Black Friday,” the day in 1959 when then-Prime Minister John Diefenbaker abruptly cancelled the Avro Arrow program and annihilated any trace elements. That decision remains one of the most poignant chapters in Canadian aerospace history: a moment that witnessed a significant hollowing out of Canada’s aerospace talent, skill set and, in many respects, its confidence to compete.
The DIS arrives not only as a reflection of the global geopolitical environment but perhaps as a counterweight to that heritage. Whether it becomes corrective to that legacy will depend not on the government’s ambition but on determined execution.
The DIS is the federal government’s strategy to modernize Canada’s procurement process, build and integrate its industrial base, and signal its focus to ensuring domestic self-reliance (sovereign capability). Importantly, it gives Canadian companies and investors the confidence to underwrite difficult business risks and out-compete on the global stage.
The strategy’s emphasis on sovereign capability and industrial resilience reflects a welcome recognition: defence policy absent industrial capacity is strategy in name only.
Supported by the federal government’s Canada Strong 2025 Budget, the DIS will allocate billions in new spending prioritizing 10 initial core strategic sovereign capabilities, among them Space. This matters because our defence capabilities, global commerce, financial markets and energy networks are all deeply reliant upon an interconnected backbone of data, communications and intelligence technologies originating from Space, impacting far more than just one’s daily GPS-tracked jaunt. That backbone is provided predominantly by other nations, is growing increasingly antiquated and is becoming more vulnerable.
Space as a contested domain
Globally, potential adversaries are developing ways to disrupt, degrade or destroy core on‑orbit infrastructure. Exquisite assets that once ruled government ambitions are shifting to strategies and mission architectures that prioritize proliferation, low-cost and rapid replenishment. In a contested domain, industrial surge capacity is not merely economic strength, but operational resilience.
Canada’s challenge, however, is that our current industrial base does not yet serve this modern mission architecture. While we excel at innovation and niche payloads, we lack low-cost serial production capability, supply chain depth and domestic launch options to suit. This tension between modern defence requirements and Canada’s current industrial capabilities, is where the DIS finds significant import and is potentially most consequential.
A policy shift to industrialize capacity
The DIS signals several important shifts. From its Build-Buy-Partner approach with domestic content ambitions, its focus on reshoring capabilities, to growing and retaining domestically built IP, among others, the core tenets of the federal government’s ambitions read clear – all of which will impact positively on defence broadly, and Space specifically.
Perhaps most consequential is the strategy’s proposed updates to Canada’s Industrial and Technological Benefits (“ITB”) Policy.
For decades, ITBs have required defence contractors to reinvest dollars in the Canadian economy. Today, outstanding ITB obligations exceed $20 billion. But the system has not always directed investment toward the capabilities Canada most urgently needs. The DIS aims to change that and appears to address, in part, the tension in the Canadian Space ecosystem.
Chief among the proposed ITB policy changes is a narrowed focus on 10 sovereign capabilities, which includes Space, and the introduction of a new “Strategic Investment Transaction” concept. Through targeted enhanced ITB multipliers, this mechanism encourages the deployment of ITB credit obligations in investments that advance national defence priorities by building defence industrial capacity, strengthening sovereign capabilities and supporting long-term infrastructure development. For Space, this potentially unlocks a key financial tool to underwrite key infrastructure risk in order to build industrial production capacity, thus enabling service to not only Canadian defence needs but also the broader commercial export market.
Companies seeking to securitize supply chains and deploy scalable production capacity (whether components, payloads, spacecraft or launch) may now find Canada an attractive environment to scale.
The moment of opportunity
The global Space economy is in a period of unparalleled growth, driven by defence demands and commercial ambitions in a volatile world. Countries that can build, deploy and replenish Space assets quickly and reliably will shape the future strategic environment.
The DIS does not guarantee Canada’s success. Ultimately, its effectiveness will depend upon determined execution, predictable funding and the willingness to prioritize long-term capabilities. It is early days, but the DIS represents an impressive start with potentially far-reaching benefits.
Marek Lorenc is a Partner at Aird & Berlis. He is a member of the firm’s Capital Markets and Mergers & Acquisitions Groups, and is Chair of the Space Tech Group.
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