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Canadian, U.S. aerospace industry to benefit from emerging markets: report

As orders remain stagnant at home, rising demand in emerging markets around the world represents a key opportunity for aerospace manufacturers in Canada and the U.S., according to a new report.


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June 25, 2013 by Canadian Plastics

As orders remain stagnant at home, rising demand in emerging markets around the world represents a key opportunity for aerospace manufacturers in Canada and the U.S., according to a new report.

The BMO Capital Markets report notes that with a relatively static yet stable market in North America, Canadian and American industries can benefit from strong growth in countries like the United Arab Emirates (UAE) and China.

“Aerospace exports to developing economies have grown significantly over the past two decades,” BMO Capital Markets economist Aaron Goertzen said in a statement. “U.S. producers have a slightly stronger foothold in developing markets than their Canadian counterparts, but Canadian firms are also benefitting from the export of U.S.-assembled aircraft containing Canadian-made components.”

However, even with the expansion of emerging-market players, producers in advanced economies still hold a commanding share of the global market, according to the report, with the U.S. alone accounting for nearly half of global aerospace revenue.

Canada, meanwhile, is ranked as the fifth-largest global aerospace producer.

Overall, the North American industry accounts for $200-billion in annual revenue.

Air travel and freight volumes are expected to grow in 2013, which should support airline profitability and underpin further expansion in aerospace orders.

The gradually improving global economic outlook together with ultra-low interest rates should continue to support industry activity in this year after contributing positively to aerospace demand in 2012.

In particular, private orders for corporate aircrafts in the U.S. are expected to be strong in the coming years. “Corporate aviation is highly cyclical, and we’re starting to see some real momentum,” said BMO Harris Bank vice-president and director of corporate aircraft finance Joe DiLallo. “Deliveries and orders of corporate jets have increased significantly this year, and we anticipate growth will be in the five per cent range for the industry through 2016.”

According to the financial firm, the solid recovery in private demand has created a record backlog of unfilled orders, which would support industry output even if the global recovery were to unfold at a slower-than-anticipated pace.

Over the past five years the aerospace industry has kept two to three years worth of unfilled orders on the books – well ahead of historical norms. As a result, the industry has started ramping up production and should continue to build momentum over the next few years.

Elevated fuel prices are increasing airline demand for more fuel-efficient aircraft.

Although high fuel prices weigh on airline profitability, they also increase demand for newer, more fuel-efficient aircraft, which is a big positive for aerospace producers; indeed, aerospace orders boomed as energy prices surged during the commodity run-up in 2007-08, BMO said. Case in point? Bombardier’s C-Series regional jet – whose maiden flight is slated for late June – incorporates advanced materials and modern engines in order to provide a noticeable improvement in fuel consumption. Also, aging military fleets should support aerospace producers over the longer-term as governments look to renew, BMO said.