Canada's aerospace industry vulnerable to NAFTA renegotiations

OTTAWA, July 5, 2017 /CNW/ - While the Canadian aerospace industry's order book remains healthy, the upcoming NAFTA renegotiations could have a major impact on the Canadian aerospace industry's supply chain, according to The Conference Board of Canada's latest outlook for the industry.

"Canada's aerospace industry is highly integrated and dependent on trade flows, particularly with the United States. As the NAFTA renegotiation process moves forward, it will be critical for the industry to keep these trade channels open to limit disruption of its supply chain," said Carlos A. Murillo, Economist, The Conference Board of Canada. "At the same time the industry needs to continue to expand and diversify its supplier and customer base away from the U.S. market."

Highlights

  • The industry is highly exposed to trade as it is deeply integrated into global supply chains. Imports are equivalent to 77 per cent of the industry's output. For exports, that figure is 84 per cent.
  • While the U.S. remains the industry's main export market, the Asia-Pacific region has been the industry's fastest-growing export destination over the past half-decade, growing at twice the average rate for all aerospace product exports.
  • The single-aisle segment of the commercial aircraft market will be the most significant market for new planes in the coming decades. This presents an opportunity for Canadian companies involved in the production of the C Series.
  • Industry pre-tax profits are expected to drop to $1.7 billion this year, after reaching a record high of nearly $2 billion in 2016.

The United States is the Canadian aerospace industry's largest trading partner. About 40 per cent of domestic demand for aerospace products is fulfilled by U.S. imports, and about half of Canadian-made aerospace products are exported south of the border. Given the rising protectionist trade sentiments in the U.S., the Canadian aerospace industry will need to diversity both its suppliers and customers.

While the U.S. remains the industry's main export market, Canada's trade with the Asia-Pacific and European regions has been growing. Canada's exports to Malta, China, Singapore, Switzerland, and Spain have grown rapidly over the past ten years. Still, these five countries combined accounted for under 15 per cent of total exports in 2016. Canadian firms will continue to look to emerging economies for growth, particularly Asia, where demand for single-aisle aircraft is expanding rapidly. This presents an opportunity for Canada's aerospace companies involved in the production of the C Series aircraft to expand their market share in this segment and for the industry to diversify its supplier and customer base.

Global drivers for the aerospace industry are expected to be solid over the next couple of years. The Canadian industry has an order backlog worth nearly $50 billion, equivalent to close to 30 months of work at current production rates. Meanwhile, the global economy is improving and global airline profits remain at historically high levels, which should support investment in new aircraft.

Industry pre-tax profits totalled nearly $2 billion in 2016—their highest level on record. Pre-tax profits are expected to drop by more than 12 per cent this year as costs increases, mainly due to supply-chain cost escalation, are expected to outpace revenue growth.

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SOURCE Conference Board of Canada

For further information: Yvonne Squires, Media Relations, The Conference Board of Canada, Tel.: 613- 526-3090 ext. 221, E-mail: corpcomm@conferenceboard.ca; or Natasha Jamieson, Media Relations, The Conference Board of Canada, Tel.: 613- 526-3090 ext. 307, E-mail: corpcomm@conferenceboard.ca

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