MONTREAL — Canada’s aerospace industry profits are expected to increase nearly five per cent to $620 million this year despite declining business jet demand, the Conference Board of Canada said Friday.
But additional profits earned in 2009 are expected to be wiped away in 2010 as earnings slip slightly below last year’s total of $592 million.
“The Canadian aerospace industry tends to lag the general economic cycle so maybe the downturn will come in 2010 and that’s what we expect,” economist Valerie Poulin said in an interview.
The board’s spring industrial outlook said that although the aerospace sector is being affected by the recession, it is faring better than many other industries.
However, customers are rethinking or cancelling orders because of a drop in air travel and difficulties in raising credit to pay for new jets.
Despite cancellations, the nearly two-year backlog of orders is only slightly below an industry record.
Production is expected to slow in the next two years, but will outperform the rest of the manufacturing sector.
Several industry leaders have already adjusted to weaker demand by laying off workers.
Bombardier Aerospace (TSX:BBD.B) announced the layoff of 4,360 employees in February and April as it planned to ratchet down business jet production because of an estimated 25 per cent drop in deliveries.
Flight simulator and training company CAE Inc. (TSX:CAE) cut 10 per cent of its workforce, or 700 positions and imposed cost-cutting measures on remaining workers because of an anticipated order dropoff.
Pratt & Whitney shed 1,000 workers around the world, including 500 in Longueuil, Que., and 45 in Halifax.
Revenues from aerospace production in Canada are forecast to fall to $21.4 billion in 2010, down only slightly from 2007, even though profits are expected to be nearly 30 per cent lower than the $837 million earned in that year.
Spillover from last year and a good start to 2009 are expected to help improve profits, employment and production this year, she said.
“Profits are still positive so it will weather the storm but we know that some specific segments of the industry are more hit than others and one of them is the business jet segment, that is hit right now.”
A slowdown of business aircraft orders is affecting Bombardier, but its strong backlog and diversified portfolio of turboprops and regional planes should help it withstand the pressures ahead of the anticipated recovery, Poulin added.
“We expect things are going to get better in 2011 to 2013 because we expect orders to rise up quite significantly and for business jets to recover.”
The Conference Board said production growth will slow to 1.7 per cent this year and decline slightly in 2010, after increasing more than 10 per cent in 2008.
Profits fell to $592 million in 2008 and should remain relatively stable over the next two years. They should then grow steadily beginning in 2011, the economic think-tank said.
However, profit margins, which fell to a low of 2.7 per cent in 2008, are only expected to average three per cent annually for five years as new manufacturers increase pricing pressure.
Despite the turmoil affecting civil aerospace, the defence segment remains a safe haven during the economic turbulence as governments maintain defence spending, the report added.
The outlook is sponsored by the Aerospace Industries Association of Canada, the trade group representing Canada’s aerospace manufacturing and services sector.
Filed Under: Aerospace + defense