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Bombardier now faces competition in the regional jet market from rivals in Brazil, China, Russia and Japan. (Aaron Vincent Elkaim/The Canadian Press)
Bombardier now faces competition in the regional jet market from rivals in Brazil, China, Russia and Japan. (Aaron Vincent Elkaim/The Canadian Press)

Canada’s shrinking aerospace horizon Add to ...

Gilles Labbé had a dream to create a diversified aerospace powerhouse.

The head of Héroux-Devtek Inc. spent decades building the Montreal company into a thriving maker of aircraft landing gear, airframes and industrial turbines with an ambitious growth strategy.

But in a strategic about-face in July, the company announced a plan to focus on its landing-gear business and sell most assets in its other divisions. Mr. Labbé said the board, fed up with the company’s languishing stock price, decided to sell non-core assets in a bid to boost shareholder value as a “pure play.”

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The decision has had the desired effect. Héroux-Devtek shares have soared more than 50 per cent since the news.

But the move also highlights growing concern about Canada’s aerospace sector.

After more than two decades of solid progress, Canada’s aerospace industry today is under threat from an increasingly competitive global aerospace market and eager new rivals intent on dominating the sector.

The loss of a promising aero structures research and development hub at Héroux-Devtek weakens Canada’s aerospace sector and makes it more vulnerable to hungrier emerging economies, said Mehran Ebrahimi, a professor and director of a group studying aerospace-company management at the University of Quebec at Montreal.

“A part of our expertise has just been sold,” he said. “This is worrying and we’re seeing more and more of it.”

Canadian aerospace manufacturing owes much of its world-class status to Bombardier Inc.’s game-changing family of regional jets. Where it once had only one rival – Brazil’s Embraer SA – in the regional-jet market, Bombardier now faces competition from new entrants in China, Russia and Japan.

In its business-jet division, Bombardier used to be up against four big rivals. Then, Brazil’s Embraer got into the game and now companies in China and Japan are also planning to join the fray.

Even Bombardier’s much-touted leap into the big leagues with the C Series – its new medium-haul single-aisle jet in the 100-to-200-seat segment – faces fierce competition, not only from giants Boeing Co. and Airbus SAS but also from new players in China and Russia that have the advantage of determined, long-term state backing.

To meet the new global challenge, more Canadian aerospace companies need to move up the value chain, stay ahead of the innovation curve, and pour more resources into research and development to foster the growth needed to take on bigger rivals over the long term, experts say.

But some companies find that’s easier said than done.

Just last year, Héroux-Devtek was touting its decision to expand into Mexico with a facility to supply structural components to Bombardier and others as part of its growth plan.

On a tour of the Longueuil, Que.-based plant – a few weeks before the announcement that the aero structure unit was being sold – plant manager Gaétan Roy said the company was keen to do with aero structures what it did with landing-gear: transform it into a systems integrator working with original equipment manufacturers (OEMs) on the conception, design, engineering and production of innovative new aerospace components.

But Mr. Labbé said the diversification strategy didn’t seem to strike a chord with shareholders. And the growth-by-acquisition program was becoming more difficult in a consolidating market. Larger acquirers such as Precision Castparts Corp. of Portland, Ore., which bought Héroux-Devtek’s two divisions, boasts annual revenue of about $7-billion (U.S.), compared with Héroux-Devtek’s $380-million.

Now the Canadian aerospace industry is at a crossroads. There is a woeful lack of agreement in Canada on how best to support the aerospace sector, with some critics claiming there is already too much government aid and others saying there isn’t enough, Prof. Ebrahimi said. The country needs a coherent, integrated aerospace strategy as opposed to the current piecemeal approach, he contends.

Former Liberal and Conservative cabinet minister David Emerson is conducting a sweeping review of federal aerospace and space policies and his report is expected by the end of the year.

The Aerospace Industries Association of Canada has highlighted the fact that the country has too few partner-suppliers – known as system integrators – with the resources to work with original equipment manufacturers (OEMs) in innovative, risk-sharing projects. That puts the brakes on the ability of our aerospace firms to position themselves on next-generation platforms, which in turn help develop and enrich local expertise.

“The shift in the aerospace business model that works in favour of large Systems Integrator companies (or Tier 1 suppliers) is a major challenge to the Canadian aerospace industry,” said a 2009 consultants’ study of the global aerospace industry for the EU.

“Tier 1 firms are expected to engage in risk-sharing partnerships, which involve considerable investment in R&D but Canada has few Systems Integrators of the size required to take the risks demanded by the OEMs.”

Furthermore, there is too much of a focus on basic and applied research and not enough on next-stage – or technology demonstration – research, according to the report.

Kevin Michaels, aerospace consultant with ICF International, said a nationalistic mindset is no longer appropriate in the segment.

“Canada has not fully leveraged its position to be a global R&D centre in aerospace,” he said. “It should be pursuing non-Canadian companies to set up R&D centres.”

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