ANALYSIS: Was Quebec ships bid sunk by history of red ink?

The Quebec government is predictably outraged that the province's darling Davie shipyards has been frozen out of the $33 billion worth of federal naval and coast guard contracts awarded this week.

The shipyard near Quebec City was the big loser among three Canadian companies thatbid for the two mega-contracts Irving of Halifax won a $25-billion contract to build naval combat ships; Seaspan of Vancouver gets an $8-billion deal for coast guard vessels.

Quebec's Economic Development Minister Sam Hamad called it "absolutely incomprehensible" that Davie didn't win one of the contracts.

"Now we want to know why."

There are some pretty good clues.

The Quebec dockyard has a long history of floundering in a sea of red ink, kept afloat mainly with taxpayers' moneymore than $300 million of it in the past three years alone.

Davie submitted its final bid for the $8-billion coast guard shipbuilding deal in July.

At that moment, the Davie shipyard had been insolvent and shut down for most of the previous 18 months, had only one employee, and was three weeks into new ownership, the second change of helm in five years.

While the company boasts its shipyard is "the largest and best-equipped in Canada," Davie has launched more bankruptcy proceedings than ships in recent times.

Since 2007, Davie has had contracts with two foreign customers to build five commercial vessels worth over $750 million, the two deals backed by more than $300 million in government loans.

In that time, it has been forced into bankruptcy protectiontwiceand has yet to complete a single ship.

So far, three of the vessels being constructed for the Norwegian company Cecon are already millions of dollars over budget, and more than a year past their promised delivery date.

They were barely half-built when Davie ran out of money last year.

The remaining two vessels on Davie's order book for the past four years are offshore drilling accommodation vessels ordered by Ocean Hotels of Cyprus with delivery promised last year.

A Davie official confirmed this week that construction hasn't even started on either boat, and millions of dollars advanced by Ocean Hotels are long gone into keeping the shipyard afloat.

Ocean Hotels is currently in court claiming $141 million in damages.

While there are no doubt many reasons Davie has become such a commercial shipwreck, a lack of taxpayers' money is apparently not one of them.

Buoyed by taxpayers

In the past 20 years, the federal and Quebec governments have pumpedmore than$100 million into upgrading Davie's facilities, the largest and oldest shipyards in the country.

In 2006, the mainly empty shipyard was bought by Teco Marine of Norway.

A year later, Davie had signed the two deals with Cecon and Ocean Hotels to build the five vessels, and began hiring over 1,000 workers for the shipyard.

The euphoria doesnt last long.

By mid-2008, Davie is out of money, and forced to file for protection from its creditors.

The Quebec government coughs up $12.7 million to keep the shipyard afloat.

Not for longa month later, Davie temporarily shuts down the shipyard and lays off 1,070 workers.

Davie subsequently renegotiates both shipbuilding deals with Cecon and Ocean Hotels, increasing the prices for all five vessels by a total of almost $100 million.

Both customers agree to the price hikes when Canadian taxpayers provide $275 million in long-term loans through the federally owned Export Development Corp.$200 million to Cecon; $75 million to Ocean Hotels.

Cecon also gets a one-third ownership in Davie.

Six months after the shipyard was shut down, Davie recalls its employees and resumes operationswith another $53 million in loans, this time from Quebec taxpayers.

That didn't last more than a few months.

In February 2010, Davie laid off almost all of its 1,700 employees, and was back into bankruptcy proceedings only 14 months after the last time.

A year later, Davie announced the Italian conglomerate Fincantieri was prepared to take over the idle and insolvent shipyards in time to bid on the $33 billion in federal naval and coast guard contracts announced this week.

As usual, the announcement was followed by more public money.

The Quebec government announced it was handing Davie $24 million to build two new ferries.

A month later, the same government coughed up $4.7 million to keep Davey afloat long enough to bid on the massive federal contracts.

But a week before the deadline for bids, Fincantieri walked away from Davie.

Deadline extended

In a controversial move, the federal government agreed to extend the bidding deadline by three weeks to give Davie time to regroup.

Upper Lakes shipping of St. Catharines quickly cut a deal to take over Davie's assets, and relaunched the Quebec shipyards as Davie Canada.

Davie Canada then partnered with the Quebec engineering firm SNL Lavalin to submit a last-minute bid for the $8-billion coast guard contract.

And, of course, there was another shot of public money$18.7 million from Quebec to support the new consortium until the awarding of the federal mega-contract.

Even Quebec officials admit the bidding on the federal contracts was fair, free of political interference, and based on the merits of the shipyards.

Now that Davie has been officially shut out of the federal boat-building bonanza, it is unclear whether the company will survive, even under its new ownership.

If not,it will be taxpayersmanning the lifeboats.

Greg Weston can be reached atgreg.weston@cbc.ca