Canadian companies are well positioned to benefit from growth in the global aerospace sector over the next decade as rising incomes and an expanding middle class in developing economies drives demand for new aircraft, says Viren Joshi, global accounts director at Export Development Canada (EDC).
The challenge will be adapting to changing market dynamics that have introduced new rules that are harder to play by, he adds.
In the past, Canada’s aerospace exports grew almost organically in line with global demand for new aircraft. But a slowdown in sales by the two dominant manufacturers, Boeing and Airbus, and a streamlining of their supply chains has forced Canadian suppliers to broaden their markets.
“In the past, an aircraft type could have hundreds if not thousands of direct suppliers,” says Mr. Joshi. “Manufacturers like Boeing and Airbus have now focused their supplier relationships to fewer than 100. This is further complicated by offset agreements with certain countries that will only purchase aircraft subject to supply of goods from their own country.”
For example, Airbus initially sourced primarily from Europe, close to its manufacturing base. It has now opened assembly lines in China and the U.S. and will source locally for both operations. Boeing made a similar decision in 2015 with the announcement of its first production plant outside the U.S. to be located in China, where it sees the biggest potential for growth in sales of its 737 aircraft.
The Canadian aerospace sector needs to respond quickly and diligently to the needs of original equipment manufacturers, says Gregory Trippenbach, EDC’s sector vice-president, strategic accounts.
“Instead of dealing directly with original equipment manufacturers like Boeing and Airbus as they may have done in the past, they now must start engaging with the Tier 1 and Tier 2 suppliers to those OEMs,” he says. “Canadian companies need to drive efficiencies through continued innovation and look to acquire complementary business to sustain economies of scale.”
Of course, Canada is itself a significant player in the global aerospace industry with Bombardier ranking third behind Boeing and Airbus in aircraft production.
A report called State of Canada’s aerospace industry 2016 by Innovation, Science and Economic Development Canada and the Aerospace Industries Association of Canada, stated that the industry generated $29.8-billion in revenues and $13.3-billion in direct GDP, and accounted for 89,000 direct jobs in 2015.
According to the report, close to 80 per cent of Canada’s aerospace manufacturing was exported in 2015, and while Quebec-based firms lead the country’s manufacturing activity, Western Canada and the Atlantic provinces account for almost 60 per cent of aerospace maintenance, repair and overhaul (MRO) operations.
In its Global Export Forecast 2016 published earlier this year, EDC stated that Canadian aerospace exports are expected to increase by 13 per cent in 2016 and 7 per cent in 2017 supported in part by the delivery of Bombardier’s new CSeries aircraft.
Mr. Joshi says the launch of the CSeries, Bell Helicopter’s decision to manufacture the Bell 505 in Mirabel, Quebec, and several other positive developments in the sector demonstrate that Canada is more focused on export growth than it was five years ago.
“Canada has a rich history in aerospace, and Canadian suppliers are well established and understand the needs of global aerospace companies,” he says. “We have been making the right changes to higher technology and innovative manufacturing processes, which the global OEMs and Tier 1 suppliers demand.”
Mr. Trippenbach points out that Canada also has a highly educated workforce and that the aerospace industry invests heavily in research and development to maintain its competitive edge.
“Apart from aircraft manufacturers like Bombardier, Bell and Viking Air, Canada has over 700 manufacturers of parts and components and world-class MRO shops that cater to the global aviation industry,” he says.
Being well prepared to serve customers’ needs will be crucial to Canada’s aerospace companies, particularly at a time when the production capacity of global aircraft manufacturers is stretched, as pointed out in EDC’s 2016 forecast.
Major manufacturers’ order backlog of units remains exceptionally high by historical standards, and the fall in global jet fuel prices has resulted in stronger margins for airlines, which is translating into fleet renewal and expansions, according to the forecast.
BY THE NUMBERS
The Canadian aerospace industry’s contribution to GDP in 2015
Jobs attributable to the aerospace sector in 2015
The aerospace industry’s rank as an R&D investor across manufacturing industries
The aerospace industry’s contribution to Canada’s total manufacturing sector R&D investments
Higher annual compensation per employee in aerospace manufacturing compared to the manufacturing sector average
Of aerospace manufacturing was exported in 2015
Source: State of Canada’s aerospace industry 2016, a report by Innovation, Science and Economic Development Canada and the Aerospace Industries Association of Canada