Canadian aerospace industry profits are expected to decrease almost 20 per cent next year as manufacturers reduce production to match lower demand, especially in the business jet market, says the Conference Board of Canada.
Backed by nearly two years of production backlog, the industry has fared better through the recession than many other manufacturing industries.
But slower demand and order cancellations are now forcing production cuts, Michael Burt, associate director of the board’s industrial outlook report, said in a news release Tuesday.
Production is forecast to decline by 2.1 per cent this year and by 2.3 per cent in 2010.
Net new orders have decreased in four of the last five months. Additional production cuts may be required if the trend persists.
Bombardier Aerospace (TSX:BBD.B) last week announced the layoff of an additional 715 Montreal-area employees next year as it reduces production of regional jets.
That’s in addition to 4,360 layoffs announced earlier this year around the world because of lower commercial and business jet orders.
Other industry players, including simulator and training provider CAE Inc. (TSX:CAE), and parts suppliers have also been forced to reduce staffing.
Despite decreased demand, pre-tax profits are expected to reach $461 million in 2009, thanks to the weaker Canadian dollar at the beginning of the year, the Conference Board said.
With prices and production now falling, profits are forecast to decline by 18.6 per cent next year.
However, improving business confidence and profits should prompt a recovery in demand by the end of 2010.
Aerospace industry profits should improve in 2011 but low margins will keep overall profits below their 2001 peak for the foreseeable future, it added.
Filed Under: Aerospace + defense