The industry saw record profits last year. Thriving airlines and demand from emerging markets are expected to create opportunity, but American protectionism and rising supply chain costs present challenges
OTTAWA—While the Canadian aerospace industry’s order book remains healthy, the upcoming NAFTA renegotiations could have a major impact on the industry’s supply chain.
This is according to a new report by The Conference Board of Canada.
“Canada’s aerospace industry is highly integrated and dependent on trade flows, particularly with the United States,” said Carlos A. Murillo, economist, The Conference Board of Canada.
Imports are equivalent to 77 per cent of the industry’s output. For exports, that figure is 84 per cent.
The United States is the industry’s largest trading partner, with roughly 40 per cent of domestic demand for aerospace products fulfilled by U.S. imports, and about half of Canadian-made aerospace products are exported south of the border.
“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 Murillo.
The Conference Board says that given the rising protectionist trade sentiments in the U.S., the Canadian aerospace industry will need to diversity both its suppliers and customers.
The report finds Canada’s trade with the Asia-Pacific and European regions has been growing.
Exports to Malta, China, Singapore, Switzerland and Spain accounted for under 15 per cent of total exports in 2016, but have grown rapidly over the past ten years.
The Conference Board says Canadian firms will continue to look to emerging economies for growth, particularly Asia, where demand for single-aisle aircraft is expanding rapidly—an opportunity for companies involved in the production of C Series aircraft.
The report says the Asia-Pacific region has been the Canadian industry’s fastest-growing export destination over the past half-decade.
According to the report, global drivers for the world’s 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.
The global economy is also improving and global airline profits remain at historically high levels, which the Conference Board says should support investment in new aircraft.
The report says Canadian aerospace industry pre-tax profits totalled nearly $2 billion in 2016—their highest level on record—but are expected to drop to $1.7 billion in 2017 due to rising supply chain costs.
Despite the expected drop in profits and challenges posed by high prices and American protectionism, rising demand, particularly in the Asia-Pacific region, and thriving airlines look to be sources of optimism for Canadian aerospace.