- 1. The Aerospace Industry in Canada Salah Elatash Tanya DAmico
Melissa McCartney Nicolas Murcia Stefan Pentchev
2. Tonights Agenda
- Overview:Facts and Figures
- Profitability of Industry
- Embraer/Bombardier Trade Dispute
- SWOT Analysis and Porters Diamond
3. OVERVIEW FACTS & FIGURES 4. Canadas Aerospace
Industry
- What does the Aerospace industry engage in?
- 1- Manufacturing and services of aircrafts, aircraft systems
and components.
- 2- Spacecraft, avionics, and other related electronics.
- 3- Ground-based infrastructures to support the operations of
aircrafts and spacecrafts.
- Canada has a limited Defense Industry which includes a range of
products and services from armored personnel carriers to
command-and-control communication systems.
5. Canadas Aerospace Industry 6. Size of the Aerospace
Industry
- Canadian Industry ranked 5 thin the world
- 3 rdlargest manufacturer of civil aircraft
- Employs approximately 80 000 people
- Generates revenues of about 21 billion
- Occupies 6% of global market
7. Concentration of Aerospace Companies in Canada
- Bombardier Aerospace the worlds third-largest aircraft
manufacturer, controlling 47 per cent of world market share in
20-90 seat turboprop and regional jets
- Pratt & Whitney Canada accounts for 34 per cent of world
market share in small gas-turbine engines and dominates the global
turboprop market
- CAE the worlds largest supplier of commercial flight
simulators, with more than 80 per cent of the global market
share
- Bell Helicopter Canada one of the worlds leading commercial
helicopter manufacturer, accounting for 14 per cent of the world
market
8. Industry Subsectors
- Avionics & Mission Systems
- Earth Observation systems
9. Geographical Distribution www.aviation-news.co.uk 10.
Ownership structure Source : Statistics Canada 2002, Industrial
Organization and Finance Division, Special Tabulation Assets Total
Operating Revenues Canadian-Controlled 52 % 44.6%
Foreign-Controlled 48% 55.4% U.S -Controlled 34.5% 42.1% Other
Foreign-Controlled 13.5% 13.2% 11. Input-Output Analysis
- In1990 for every additional $100 million of output from the
aircraft and aircraft parts industry, output in the rest of the
Canadian economy increased by an estimated $46.7 million
- $100 million increase in aircraft industry output generates
approximately 1,185 new jobs throughout the Canadian economy
12. Input-Output Analysis
- Industry generated revenues of $21.7billion in 2004, of which
84percent came from exports
- Contributed $9.2billion toward Canada's gross domestic product
(GDP)(accounting for more than 5percent of Canada's total
manufacturing GDP)
- The industry invested more than $1.2billion on research and
development (R&D) in 2004
13. 14. 15. Cost-Advantage Competitive Alternatives: KPMGs Guide
to international business costs, 2006 Edition 16. Is the Canadian
Aerospace industry profitable?
- Top 30 firms representing 95% of production
- Bombardier represents about 45% of the industry's sales
- Government is the main contractor for Space and Defence
industries
- Canada's defence-related research and development (R&D) is
about $225million
Source: www.strategis.ic.gc.ca (Government of Canada) 17.
- Compared to the manufacturing sector average,
- Aerospace product and parts manufacturing value-added per
employee was 24% higher
- Average of 45000 Canadians at wage levels that were 35%
higher
Aerospace product and parts manufacturing: Employment Source:
www.strategis.ic.gc.ca (Government of Canada) 18. Employment
projections 19.
- The aerospace industry invested an average of $873million
annually in R&D between 1994 and 2003, representing an average
of 8% of industry sales
Aerospace product and parts manufacturing: R & D Source:
www.strategis.ic.gc.ca (Government of Canada) 20. Capital
investment inResearch and Development 21.
- 70percent of Canada's aerospace exports have gone to the
US
- annual exports averaged $8.9billion
- Positive average annual trade balance of $1.7billion per
year.
Trade and Competitiveness 22.
- Embraer (Brazil) vs. Bombardier (Canada):
- Compete for niche markets (ex: Business jet)and rely on
taxpayer subsidies such as government loan guarantees by using
dual-use regulations.
- Canadawas granted authority to impose up to C$2.1 billion
(U.S.$1.4 billion) in retaliation on Brazilian imports as a result
of Brazils failure to comply with theAugust 1999 WTO ruling(
www.csis.org )
- The WTO has also found Canada guilty of providing illegal
subsidies to buyers of Bombardier jets ( www.csis.org )
- Unfair competitionfor the regional jet market?
- Embraer has taken advantage of low labor costs and cheap
currency
- Bombardier has easier access to First World financing and
technology
- -Maurcio Botelho,Embraers CEO:
- "The aerospace market right now is very sensitive to
change."
- -An industry advocacy group in Washington:
- "Embraer is the risk-taking company that Bombardier used to
be."
Trade dispute and Competitiveness 23. Canadas Aerospace
Industry
- The industry is currently facing numerous challenges, business
focuses are changing
- Now these demands have forced companies to focus more on
process and product technologies, in order to come up with savings
in product development, manufacturing and after-sales support
.
- It used to be driven by technological innovation, but now
customers are demanding high reductions in costs, while also
demanding greater technological and operational
sophistication.
24. Canadian Strengths and Weaknesses
-
- World leadership in key segments
-
- Globally connected firms with world product mandates
-
- Range of capabilities from OEM in-service support
providers
25. Canadian Strengths and Weaknesses
-
- Few proprietary capabilities at lower end of the supply
chain
-
- R&D concentrated in a few firms
-
- Minimal domestic defense procurement and defense R&D
leverage and spending
-
- Government support programs are limited and inconsistent
26. Opportunities and Challenges
-
- Strong after sales capabilities
-
- Supply chain productivity
-
- Sales financing policies and instruments
-
- Defense procurement policies are changing
-
- Investment & risk-sharing tools
-
- Public and political support
27. Opportunities and Challenges
-
- Value of $CDN relative to other currencies, esp. USD
-
- Productivity and competitiveness shortcomings
-
- Market access (US; procurement preference/influence)
-
- Access to civil programs driven by investment capacity;
risk-share options
-
- New sources of competition (e.g. China, Japan)
28. Porters Diamond
-
- Industry is becoming more and more dominated by big
players.
-
- As costs increases SMEs are less able to compete.
-
- Brain Drain. Shortage of skilled workers, especially educated
ones.
-
- Good technological infrastructure.
29. Porters Diamond
-
- Defense industry demand is low.
-
- Demand is more external than internal.
- Related and Supporting Industries.
-
- Large number of SMEs surrounding large companies provide
support to them.
-
- Government plays role in providing environment for supporting
industries.
30. Case in point - Bombardier
-
- Original Entry 2010 Cancelled
-
-
-
- 1/3 paid by CA, QC and UK governments
-
-
-
- Break-even point - 500 aircraft
-
- New Entry 2013 not launched yet
31. Case in point - Bombardier
-
-
- 15% Operational Cost Savings
-
-
- Engine & Key Parts suppliers
-
- Manufacturing Location CA, US, MX, UK
32. Case in point - Bombardier
-
-
- Japan MRJ Mitsubishi Heavy Industries
-
-
-
- COMPETITION ON TECHNOLOGY
-
-
-
- $1Billion R&D 1/2 of C-series
-
-
-
- 20% increased fuel efficiency
-
-
-
- Composite materials supplier for Boeing 787
33. Case in point - Bombardier
-
-
- 90-seat ARJ21-700 March 2008
-
- Cooperation with the Competition
-
-
- Bombardier Invests $100M in R&D of AVIC I
-
-
- AVIC I Invests $400M in R&D of Cseries and construction of
new facilities in China
-
- Good Importer - Good Exporter
34. Case In Point Boeing C17
- 100% of the Purchase Price
- Distribution of Benefits by Provinces
35. Going Forward
- Short-term emerging trends:
- Differences among product market segments
- Pacific market will exceed the U.S. and European markets,
account for 1/3 of total value of aircraft deliveries
- Strategies to reduce the risk through cost reduction efforts
and to share that risk with suppliers and with former
competitors.
- The international aircraft manufacturing industry faces
stagnant or uncertain markets over the next decade with more
restructuring
- aircraft and aeroengine development costs have climbed beyond
the financial capacity of individual firms
36. Is the Canadian Aerospace industry attractive?
- Suppliers and buyers have weak positions
- Few threats from foreign firms
- Moderate to strong rivalry among competitors
- Strong bargaining power of government
Source: McGillMGCR 423 37. Conclusion
- High profit potential: Attractive industry
- Aircraft industry is not particularly capital intensive; less
than 20% of GDP
- Consolidation complicated by the high degree of offshore
ownership
- Demand for significant reductions in the cost, while at the
same time demanding greater technological and operational
sophistication
- focus increasingly on process, as well as product technologies,
in order to come up with savings in product development,
manufacturing and after-sales support
- For Canadian industry, one that is focused on niche and foreign
markets and dependent on a weak Canadian dollar for a competitive
advantage, the only demonstrably effective industry-specific
government policy lever has been R&D assistance; R&D is the
lifeblood of this industry.