News
Aerospace industry expects another year of turmoil

Dec. 18, 2009, Montreal – Canada's economy may be showing signs of
improvement but the aerospace industry faces continued turbulence in
2010 with a full recovery from the worse crisis to strike the sector
possibly as far as two years away.

"Clearly in 2009 there were still orders that had come in from the
previous years, so what we're looking at is a more difficult year in
2010,'' says Claude Lajeunesse, head of the Aerospace Industries
Association of Canada.

"Hopefully, if the economy continues to recover, then towards the end
of the year or early 2011 we can expect that it will pick up.''

Production curtailments, particularly among business and regional jets,
resulted in 3,000 net layoffs in Canada in 2009, including from the
supplier base. Most of these were located in Quebec, which houses the
country's largest aerospace cluster.

The figure is net of the hundreds of workers hired for new projects,
including engineers hired to get Bombardier's CSeries off the ground
and others taken on by Bell Helicopter.

Bombardier alone cut 4,360 jobs around the world in 2009, including
1,740 in the Montreal area. Parts suppliers also shed 1,100 of the
12,000 people employed in the area.

Additional layoffs are expected in 2010 as manufacturers continue to
scale back production in the face of reduced demand. Bombardier has
already announced that more than 600 workers at its regional jet plants
in Montreal will be laid off.

Lajeunesse said the companies that will likely do best next year are
those that are part of the supply chain for Boeing's 787 Dreamliner,
which had its maiden flight this week and avionics firms such as CMC
Electronics.

Lajeunesse characterized 2009 as a transition year. The industry which
typically lags the general economy started the year with a strong order
book, but saw the situation worsen when new orders became increasingly
rare and customers deferred and cancelled deliveries.

Marc Parent, president and CEO of simulator and training giant CAE has
seen several cycles in his 25-year career but said the global recession
and financial crisis pushed the industry to its deepest crisis, even
surpassing the time following the 2001 terrorist attacks.

"This is unprecedented in its impact on the civil aerospace industry in particular,'' he said in an interview.

Parent said the civil industry will come back as it has in the past
once GDP improves, airline traffic increases and corporate profits
rebound. He expects the sector will double over the next 20 years to
support globalization and industries' needs for transportation.

The business jet market is expected to face continued challenges next
year, although manufacturers are seeing signs that worst may have
passed.

For the first time in a year, Bombardier recently enjoyed a positive,
albeit small, net number of business plane orders with 26 new orders
offset by 24 cancellations.

"Although the business jet market is still experiencing difficulties,
we are seeing some signs of stabilization,'' chief executive Pierre
Beaudoin said during a recent conference call.

But stabilization isn't the same as recovery and its certainly not the
same as growth, noted Richard Aboulafia, aerospace analyst at research
firm Teal Group.

"But given the terrors of 2009 stabilization is welcome,'' he said in an interview.

Aboulafia said the outlook for Canada's aerospace industry is fairly
bright despite uncertainties about the CSeries, the future popularity
of regional jets and whether the heavy impact on the small business jet
market will expand to larger planes.

He forecast that it could take years for the industry to return to its peak period in late 2007 and early 2008.

In addition to losing business as OEMs reduced production, parts
suppliers also faced financing challenges, says Jacques Saada,
executive director of the Quebec Aerospace Association.

While no companies have shut their doors, consolidations that are customary in a downturn are likely, he said.

Saada expects it will take time for an eventual recovery to sift through the chain of small and medium-sized suppliers.

The aerospace sector also isn't monolithic. It is a series of markets
with unique issues that won't necessarily rebound at the same time.

In the meantime, suppliers are continuing to invest in research and
innovation to further develop niche markets such as composite
materials, air quality on planes and machining techniques, he said.

The federal government also needs to optimize its military procurement
policies to help Canadian firms and maximize employment, said
Lajeunesse.

Ottawa's new industrial regional benefit policy is positive but it needs to move on overall procurement, he said.

"It's quite clear that right now we do not benefit as much as we could.''

Ottawa plans to spend upwards of $20 billion over the next 15 years to modernize its military infrastructure.

While the contracts will mostly be with foreign-based manufacturers,
Canadians should benefit from spinoffs and lucrative after-service
contracts, he said.

"We have to make sure that Canadian industry is at the forefront and
that we are making decisions that will protect our sovereignty and
ensure that Canadian companies will be able to service these planes.''

Growing military programs has helped aerospace companies such as CAE
and landing gear manufacturer Heroux Devtek to cushion softness in
civil programs.

While Canada plans to spend, global defence expenditures are expected
to slow after nearly seven years of incredible growth as governments,
particularly the United States, look to trim their deficits.

"We're not going back to what the industry was in the 90s but it's
tough to move beyond those excellent growth rates,'' said Aboulafia.