Fierce competition, lowered demand big challenges for Canada's aerospace industry

Production growth is expected to resume in 2012 thanks to "modest" increase in demand in North America.

Total output in Canada's aerospace product manufacturing industry is expected to decline for the third consecutive year in 2011.

Production growth is expected to resume in 2012 thanks to a modest economic increase in North America, which should raise demand for commercial and business jets. Moreover, growth in emerging economies creates a more optimistic medium and long-term picture, according to The Conference Board of Canada's Autumn 2011 industrial outlook (http://www.conferenceboard.ca/e-library/abstract.aspx?did=4577).

Although countries such as Brazil, China and India offer new markets to Canadian manufacturers, they are also developing their own aerospace industries, which provide additional competition for Canadian companies.

"The Canadian industry is facing growing and fierce competition as new players enter the market. For example, China and India are building their own aircraft, with the strong financial and regulatory support of their national governments," said Lin Ai, Economist.

"The Canadian aerospace industry must continue to improve the quality of its products and to develop leading technology if it is to compete more effectively in the global marketplace."

Aerospace industry fortunes depend in large part on the economic cycle. And because of a long period between investment decisions and their implementation, the industry's performance lags economic recoveries. Despite the decline in production this year, revenue growth has more than offset cost increases, leading to a near-doubling of profitability to $264 million in 2011. Nevertheless, profits remain well below their 2009 level (almost $500 million) and profit margins over the next five years are expected to remain thin by historical standards.