Canada's aerospace industry will see prices, production and profits all fall in 2010, with no real recovery until 2011, according to a report by the Conference Board of Canada.
The industry had a healthy order backlog, equivalent to nearly two years of production, going into the recession. But that has been eroded as cancellations have outweighed new orders in four of the past five months.
“If this trend persists, production cuts in addition to those already announced are likely,” the Conference Board, a non-profit think-tank, said in the report.
Lower production at Canada's biggest aerospace company, Bombardier Inc. - maker of the CRJ Series regional airliners and the Learjet business jet among others - have led to over 5,000 job cuts in 2009, with the latest round of layoffs announced last week.
Other major aerospace companies include: Pratt & Whitney Canada, CAE Inc. , Boeing Canada Inc., Magellan Aerospace Corp. , Bell Helicopter Textron Canada Ltd., Vector Aerospace Corp. , Heroux-Devtek Inc. , Northstar Aerospace Inc. and Avcorp Industries Inc. .
Overall, pretax profits in the sector are expected to fall by nearly 20 per cent next year before they begin to recover, the report said.
The biggest drag on the industry has been in the business jet segment. The report said that while corporate profitability is recovering, demand for business jets is expected to remain weak over the next 12 months as excess inventories of used jets are absorbed. New jet shipments are expected to begin rising again in 2011.
On the commercial airline side, high fuel prices, weak tourism demand and the loss of high-margin business travelers are keeping results in the red.
The International Air Transportation Association expects global airlines to record a net loss of $11-billion (U.S.) this year, with the worst of the losses in Europe and Asia.
The recent and projected production cuts will help the industry save on labour costs, due to lower employment levels and wage cuts, and on material costs, with the stronger Canadian dollar also helping by making imports cheaper.
As production rises along with the global economy, so too will costs for wages and materials, the report said. That, combined with limited pricing power, will ensure that industry margins remain low.
“Industry profits will steadily improve in the outlying years of the forecast, but low margins will ensure that profits do not return to their 2001 peak at any point in the foreseeable future,” the Conference Board report said.