Conference Board Of Canada Forecasts Growth Despite Economic Slowdown

The order book for Canada's aerospace manufacturing industry is growing, and production is set to increase starting in 2017, according to The Conference Board of Canada's latest outlook for the industry.

"Despite the current global economic slowdown, new orders of commercial aircraft continue to outpace shipments, resulting in a growing backlog," said Carlos Murillo, Economist, The Conference Board of Canada. "At current delivery rates, the global commercial aircraft backlog would take close to eight years to be cleared. This is good news for Canadian aerospace manufacturing companies, as Canadian firms continue to make inroads in this market segment and a large backlog supports future production.

Furthermore, like other manufacturing industries, Canada's aerospace industry is also benefiting from the current exchange rate environment."

The board forecasts that:

• Canada's aerospace manufacturing industry's order book is growing and production is set to increase in 2017.
• The industry's pre-tax profits are expected to drop slightly in 2016 to $1.5 billion, before increasing steadily through 2020.
• Industry production is expected to fall by 0.8 per cent this year, before rebounding by 4 per cent in 2017.
• Aging aircraft fleets, rising fuel prices over the coming years, growing concerns about climate change, and increasing air travel are encouraging airlines to replace their less fuel-efficient aircraft.

The Canadian industry's order book for commercial aircraft was recently buoyed by a string of new orders for Bombardier CSeries from Air Canada, Air Baltic, and Delta Airlines. Bombardier now has a total of 325 firm orders from 15 customers across the globe for C Series Aircraft, which amounts to an estimated catalogue value of between $20 billion and $25 billion. In all, industry production is expected to fall by 0.8 per cent this year, before rebounding by 4 per cent in 2017.

One factor clouding the outlook for the industry is the private business jet market, which remains subdued due to weaker global economic prospects. Nevertheless, the long-term forecast points to a growing market. As such, the global business aircraft fleet is projected to grow to around 19,000 jets by 2020, compared with about 16,000 in 2015.

After contracting by close to 20 per cent in 2015, the industry's workforce is also expected to bounce back and grow by an average of 4 per cent per year through 2020. However, as firms continue to struggle to attract skilled workers to the industry, the average wage should increase at an annual pace of 2.5 per cent between 2016 and 2020—above the pace of inflation in the Canadian economy.

Canada's aerospace manufacturing industry's pre-tax profits are expected to drop slightly to $1.5 billion this year. However, industry profits should see strong annual increases of more than 9 per cent from 2017 through 2020, due primarily to rising aircraft deliveries. Provided the industry can contain its material and labour cost pressures that come with increased production, it should experience a period of financial stability over the coming years, with profit margins expected to reach above 7 per cent by 2020.

(Source: Conference Board Of Canada news release)

FMI: www.conferenceboard.ca