Aerospace takes off

In mid-February 2011, officials from the Aerospace Industries Association of Canada (AIAC) and various aviation firms went on a seven-city, cross-country tour. The assorted group met with the media and local boards of trade and economic development in each city they hit in the first-of-its-kind campaign.

“Our objective is to inform Canadians about our industry. We need to do a better job letting Canadians know that [aerospace] is an industry that’s good for the whole country,” says Maryse Harvey, vice president public affairs at the Ottawa-based AIAC, which represents some 400 firms. Touring aerospace officials also hope to impart a message of hope about their sector. “The future looks bright,” insists Harvey.

Two reports—an industry overview by New York-based Deloitte and Touche, and Chicago-based aerospace giant Boeing’s annual market forecast—echo this view. Both acknowledge the recent recession has wrecked havoc with the industry (global passenger air travel declined two per cent in 2009, says Boeing). The same reports, however, paint a rosy future, with dramatic increases in air travel, plane orders and aerospace revenues. As commissioned by the AIAC, the Deloitte and Touche study, entitled The Strategic and Economic Impact of the Canadian Aerospace Industry, was released October 2010.

The report puts Canadian aerospace revenues at $22.2 billion in 2009 (last year for which numbers are available) and employment at 78,965 people. This represents a decline from 2008 when revenues were $23.6 billion and employment stood at 83,000. Deloitte and Touche predicts a quick turnaround, however, and forecast revenues of $24.1 billion with employment at 82,956 in 2010.

Aerospace consists of two separate sectors—civil and military. Canada’s aerospace industry leans heavily towards the former. In 2009, some 83.4 per cent of Canadian aerospace revenue came from civil markets with only 16.6 per cent coming from military. In addition to being primarily civil-based, the aerospace sector is export-driven—77.9 per cent of revenues in 2009 were derived from foreign sales. Our biggest aerospace customer is the US, which purchased $9.9 billion in Canadian aerospace parts, products and services in 2009. Because our industry is so export-focused, the health of Canada’s aerospace sector depends greatly on the fortunes of international aviation giants such as Boeing and Airbus. Fortunately orders have increased at both firms.

Boeing reported 530 net orders for new planes in 2010 up from 142 in 2009. Despite the uptick, this is still far from Boeing’s recent record of 1,413 net orders in 2007. Airbus (which is headquartered in France and controlled by parent company European Aeronautic Defence and Space Co.) reported 574 net orders for 2010, an improvement from 2009 when 271 net orders were reported but nowhere near the recent peak of 1,341 net orders in 2007.

Several domestic firms and Canadian branches of US companies serve as suppliers to Boeing including Honeywell, Messier-Dowty, Thales, Magellan and Goodrich. Canadian Airbus suppliers include Honeywell, Goodrich, Messier-Dowty and Magellan. Passenger air travel and new plane orders are closely linked to the state of the economy, says Harvey—an observation seconded in the Deloitte and Touche report. According to the latter, a one per cent rise in a country’s GDP leads to a one per cent increase in air passenger travel in developed nations and a 2.5 increase in developing countries. The International Monetary Fund (IMF), meanwhile, “expects global GDP to increase by 4.6 per cent in 2010 and 4.3 per cent in 2011,” states the report.

Boeing’s Current Market Outlook 2010 – 2029, the latest in an annual series of industry forecasts, takes a similarly upbeat view. Boeing forecasts that international air travel will rise six per cent in 2010 and continue growing annually at the same pace through to 2014. More air travel means more plane orders. To this end, Boeing’s outlook report predicts there will be demand for 30,900 new planes valued at $3.59 trillion over the next two decades. The Asia Pacific region will lead this demand, with orders for 10,320 new planes. By contrast, Boeing predicts there will be demand for 7,200 new planes in North America, 7,190 planes in Europe, 2,340 planes in the Middle East, 2,180 planes in Latin America, 960 planes in the Commonwealth of Independent States (CIS, the successor to the USSR) and 710 planes in Africa. Of the 30,900 new planes, 21,160 will be single aisle. There will also be orders for 720 large planes, 7,100 twin aisle and 1,920 regional jets.

In addition to an improving economy, a pair of government initiatives—the Joint Strike Fighter (JSF) program and the Strategic Aerospace and Defence Initiative (SADI)—have also contributed to the AIAC’s positive outlook.

The JSF program is a multi-country, multi-decade initiative led by the US to build state-of-the-art F-35 Lightning II fighter aircraft. The program has a total value of US$383 billion based on a projected run of more than 5,000 planes. Since Ottawa signed onto the initiative in 1997, over 65 Canadian companies have won $350 million worth of JSF work.

This revenue, says Harvey, only represents the first phase of the JSF program. Once the program goes into high gear in the near future, contracts for Canadian firms “will become bigger,” she states. Asco Aerospace Canada, the Delta, BC-based Canadian branch of a Belgian firm, picked up a JSF contract with Lockheed Martin (the main company making the F-35) in July 2010. Asco will be manufacturing large complex titanium parts for Lockheed in a seven-year deal worth US$25 million.

July 2010 also marked Ottawa’s decision to expand from JSF supplier to customer with the purchase of 65 F-35 planes. Delivery on the $9 billion contract has been pencilled in for 2016. The F-35s are supposed to replace aging CF-18 fighters. While the AIAC didn’t lobby for the deal, the association hopes to convince Ottawa to “maximize Canadian content on the aircraft” now that an order has been placed, says Harvey. The purchase of 65 F-35s did not go without controversy. The Liberals, for example, criticized aspects of the decision—something that makes Harvey uneasy. “We say the political debate around the decision is creating uncertainty and investors don’t like uncertainty,” she states.While JSF is an international effort, SADI is a Canadian government program, launched April 2, 2007 with the aim of pumping funds into aerospace, defence, space and security R&D.

In December 2010, Longueuil, QC-headquartered aerospace giant Pratt &Whitney Canada (a division of the US parent firm) announced it was investing $1 billion for R&D on new aircraft engines. Some $300 million of this investment came in the form of a repayable SADI loan.

Industry Minister Tony Clement said Pratt & Whitney’s initiative had the potential to create thousands of jobs over the next few years. Pratt & Whitney’s research will focus on reducing fuel consumption, emissions and noise in engines for business and regional jets and helicopters.

The drive for more fuel efficient, environmentally friendly aircraft technologies is part of a “key technological trend” in the sector, notes the Deloitte and Touche report.

Other aerospace firms have also landed sizeable contracts in recent months.

Montreal-based Bombardier announced a US $446 million deal in December 2010, with SpiceJet, an Indian company. SpiceJet ordered 15 Q400 NextGen turboprop planes and optioned an additional 15. Should SpiceJet convert the options to firm orders, the deal would rocket up to US $915 million in value. In February 2011, meanwhile, Bombardier penned a deal worth $175 million with Quebec firm Heroux Devtek to make structural components for airplanes. CAE, a Montreal company that makes aircraft flight simulators, announced in January 2011 it had landed a recent series of contracts worth a total of $140 million to provide flight simulator and training technology to militaries in 12 countries. It’s this kind of bustle that prompted a highly favourable conclusion from Deloitte and Touche. Canada “has the potential to double aerospace employment by 2020,” states the report.

Such optimism is also apparent on the shop floor, among companies that service the aerospace sector.

These firms include A-Line Precision Tool of Toronto where 80 per cent of the workload is aerospace-related, says company president Rob Muru.

A-Line makes “engine parts for supersonic platforms, engine parts for future development engines, radar invisible engine parts, helicopter gear parts, submarine search equipment on helicopter platforms, etc.,” says Muru. A-Line’s website (http://www.a-linetool.com) describes the firm as “a proud supplier of critical components for the world’s most advanced [jet] fighters and weapons systems.” To highlight this commitment, the site contains pictures of Chinook military helicopters, the F-117 Nighthawk fighter and the JSF F-35.

Muru frets about competition from offshore locales: “You are on drugs if you are not concerned about competition from offshore,” he states.That said, he’s anticipating more aerospace work in the near future. John Saksun Jr., president of Queensway Machine Products (QMP) in Toronto says much the same. Founded in 1952, the shop has 45 machine operators and roughly half of its business is in aerospace. It manufactures structural aluminum, steel and titanium parts, primarily for tier two aerospace companies.

Saksun Jr. says the aerospace part of his business “has been a bit in neutral in the last couple years ... I believe that it is starting to engage and we are doing more than in the past ... I do believe that we will get more as things pick up, maybe in the next six months.” CM

Nate Hendley is a regular contributor and freelance writer based in Toronto.