Report captures GDP, revenue and R&D impacts of Canadian aerospace industry

Government-industry collaboration

The aerospace industry experienced decreases in gross domestic product (GDP), R&D and employment in 2015 but those outputs remained positive between 2010 and 2015, according to new sectoral data generated by the Department of Innovation, Science and Economic Development (ISED). The data, aggregated above the company-specific level, show that industry revenue and exports continued to grow in 2015, despite difficulties experienced by the sector's largest player, Bombardier Inc (R$, February 18/16).

The document — State of Canada's Aerospace Industry: 2016 Report — is the first in a planned series of annual reports to be published in a collaboration between ISED and the Aerospace Industries Association of Canada (AIAC). The latter has agreed to consult and validate with its network on business drivers, issues and trends.

R&D showing moderate decline

Aerospace R&D spending has slipped in the past two years and stands at $1.9 billion as of 2015, due to falling R&D outlays by Bombardier and stagnant expenditures at Pratt & Whitney Canada (P&WC) — by far the two largest aerospace R&D spenders in the country.

Aerospace remains the single largest R&D investor among Canada's manufacturing sectors even though only four firms — Bombardier, P&WC, CAE Inc and Lockheed Martin Canada — rank in the Top 100 corporate R&D spenders ranking, according to the latest data from Research Infosource (www.researchinfosource.com).

Internationally, Canadian aerospace ranks third globally in terms of intensity. When measured by GDP, Canada's global ranking is fifth behind the US, Germany, France and the UK and first in terms of "strategic importance over total manufacturing". Aerospace GDP grew 11% between 2010 and 2015 and MRO (maintenance, repair and overhaul) activity grew by 25% over the same period.

While direct employment in the aerospace sector dipped 1.6% to 88,961 in 2015, it remains a formidable source of high-paying jobs — aerospace manufacturing jobs pay 60% above the manufacturing sector average. Its employment impact is even more impressive when indirect (71,903) and induced employment (50,950) are included for a total of 211,814.

A similar picture is provided by the aerospace sector's impact on GDP. While direct impact in 2015 was $9.5 billion, the total impact is $19.4 billion when indirect ($5.5 billion) and induced employment ($4.4 billion) are included.

Export oriented

The aerospace sector is highly expert oriented with 80% of manufacturing sold abroad, bolstered by a 54% increase in exports between 2010 and 2015. Half of aerospace supply chain related exports were engines — likely due to P&WC which sells its Canadian-made turbine engines globally on behalf of its parent, United Technologies Corp. Aerospace manufacturing is heavily concentrated in Quebec (55%) and Ontario (24%) while the MRO activity is strong in western Canada (44%) followed by Ontario (24%), Quebec (18%) and Atlantic Canada (14%).

Civil and commercial aerospace — bolstered by Bombardier and P&WC — account for 80% of total sales, followed by defence (17%) and space (3%).

Aerospace defence has a larger impact on overall Canadian defence industry sales, accounting for nearly half. On a sub-component level, 75% of defence sales were made by MRO activities, sensors, airborne electronics and simulation systems. The most defence-concentrated market was unmanned aerial systems/vehicles and components at 68%.

The report found that aerospace firms with a Canadian parent sourced 55% of their materials and supplies from Canadian companies while US-based firms sourced just 22% and non-US foreign-based firms sourced 39%.

The Canadian operations of foreign-owned companies accounted for over 40% of the industry's R&D investments.

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