profits in aerospace industry

[Blastor]

All of a sudden, it's raining profits in aerospace industry

Forecast for $1.27-billion windfall in 2005

By BRENT JANG
TRANSPORTATION REPORTER
Tuesday, January 11, 2005 - Page B1

Canada's aerospace industry has been bruised by fierce competition, high jet fuel prices, the 2001 terrorist attacks and dwindling orders at Bombardier Inc.

But from the ashes now the industry is poised to reap the benefits of a spate of new aircraft construction, the Conference Board of Canada said yesterday, forecasting a 33-per-cent surge in operating profit for the sector.

Aircraft and aircraft parts manufacturers in 2005 could make $1.27-billion in operating profit, which excludes tax, up from $958-million in 2004, said Louis Thériault, associate director of the board's Canadian industrial outlook service.

The Ottawa-based think tank forecasts that Canada's aerospace industry's operating profit may rise steadily to $2.1-billion in 2006 and $2.7-billion in 2008.

"The worst is behind us," Mr. Thériault said in releasing the board's report on the country's aircraft and aircraft parts sector.

The prediction of a $315-million boost in operating profit this year is based on the assessment that the domestic aerospace sector bottomed last year, and a comeback is shaping up for commercial and military aviation, he said.

For the nine months ended Oct. 31 last year, Bombardier's aerospace unit had an operating loss of $42-million (U.S.), before special items and taxes, compared with a $102-million gain in the same nine months of 2003.

While Montreal-based Bombardier faces much uncertainty with dwindling orders for its regional jets, other players such as Pratt & Whitney Canada Corp. of Longueuil, Que., have prospered with turbine-engine manufacturing for Bell Helicopter Textron Inc., Mr. Thériault said.

Others faring well in Canada include well-known names such as Boeing Co. -- which has plants in Toronto, Winnipeg and Arnprior, Ont. -- and firms such as Magellan Aerospace Corp. of Mississauga, and Montreal-based CMC Electronics Inc.

Chicago-based Boeing's Winnipeg plant will be supplying parts -- wing-to-body connections and main landing gear doors -- for the new 7E7 Dreamliner commercial aircraft, which will have between 200 and 300 seats.

The long-range 7E7 is scheduled to begin production next year, with deliveries starting in 2008.

Although Bombardier has dominated headlines in recent months, "there are a whole bunch of suppliers that are in the aerospace chain," said Karl Moore, a business professor at McGill University.

Prof. Moore acknowledged that the airline industry remains vulnerable to high jet fuel costs and intense competition, and US Airways Group Inc. and United Airlines Inc. are both under Chapter 11 bankruptcy protection in the United States.

However, he said low-cost carriers such as JetBlue Airways Corp., America West Airlines Inc. and AirTran Airways would be key sources of contracts for Canadian suppliers.

"Putting aside the threat of another 9/11, it looks like air travel will be up again," Prof. Moore said. "The airline industry has its problems, but there has been enormous growth on the low-cost carrier side."

Canada's aircraft and aircraft parts makers had banner years in 2000 and 2001, with $1.9-billion (Canadian) and $2.5-billion in operating profit, respectively. But the impact of the Sept. 11, 2001, terrorist attacks in the United States reduced the sector's operating profit to $1.4-billion in 2002 and $1-billion in 2003, according to the conference board.

The country's aerospace sector has gone through a tough round of cost cutting, Mr. Thériault said, pointing out that the number of industry jobs fell to about 50,500 last year from 60,700 in 2002.

"The news is not all bleak," he said, noting that Bombardier is positioned to bounce back, assuming it forges ahead with its C-Series of long-range regional aircraft that each seat 110 to 135 passengers.

"Even if Bombardier successfully enters this market, there will continue to be fierce competition" from Brazil's Embraer SA, which already builds larger regional jets, the conference board's new study cautioned. Boeing and European consortium Airbus SAS also would battle the C-Series with their own versions of regional aircraft.

As well, the report said demand for the regional jets seating at least 110 people could falter if China's economy deteriorates.

Although Bombardier's CRJ aircraft seating 50 to 70 people have fallen out of favour, the company could still benefit from orders for its CRJs with 70 to 86 seats, custom-made business jets and regional turboprops, the study said.

The board is conducting a separate study on tourism and transportation, including a look at Canada's airlines.