Aerospace companies preparing for layoffs, says AIAC

Before the devastating effects of the coronavirus, most defence and aerospace executives listed the development and retention of skilled workers as one of their most pressing concerns. When the economy eventually returns to some level of normalcy, many small- and medium-sized enterprises (SMEs) could be scrambling to recall workers laid off due to temporary closures or reduced operations.

“The companies I have heard from, the lion’s share of them are saying, ‘We are in a position where we are going to have to let people go,’ ” Jim Quick, president and chief executive officer of the Aerospace Industries Association of Canada (AIAC), acknowledged in a recent interview with Skies.

“We are hearing from our members that dealing with COVID-19 is having a pretty serious negative effect on their business. Many of them have laid off some employees,” he said.

Most companies have sought to make cutbacks in other areas of their business to preserve a workforce they worked hard to develop, he said. “But you can only take that so far, particularly in a small business.”

AIAC is currently surveying its membership to better understand the sector-wide impact of the virus and the economic slowdown. Quick noted that some companies have retooled to meet the government’s urgent request for manufacturing of personal protective medical equipment — AIAC has passed onto the federal government a “large number of companies” willing to produce ventilators, masks, clothing and other equipment, he said — but others have been forced to dramatically scale back operations to limit the spread of the virus among their employees.

“As an association, we are directing all of our efforts on how we help our members get through this crisis,” he said, adding that a new committee of board members has been struck to address issues arising from COVID-19.

One of AIAC’s first acts was an appeal to the Prime Minister calling for aerospace and defence to be designated an essential service. Though provinces that have released lists of what they deem essential businesses have included most aspects of the aerospace sector, some have not. Quick has sought to remind provincial premiers that aerospace includes space – and that includes many of the satellite and telecommunications services on which their populations now rely to work remotely.

“When our members see some jurisdictions saying we are not including aerospace as an essential service, that creates a huge issue for them,” he said. “Those space assets allow us to do our banking, our commerce. They are highly interfaced with the daily lives of Canadians.

“And on the aviation side, we still need to move people. We are going to have emergencies where we are going to have to [transport] people and products, so maintaining an aerospace industry is absolutely critical.”

He observed that jurisdictions with which Canada competes in Europe and Asia have designated aerospace an essential service. “We are trying to make sure that as the federal government provides guidance and premiers and provinces make decisions, they understand the importance of aerospace and that it needs to be included.”

Among other things, AIAC has worked with Transport Canada to include maintenance and repair as an essential service, something that was not included in initial guidelines to industry.

Preparing for recovery

In a webinar made available to AIAC members on Mar. 24, the Business Development Bank of Canada forecast a global recession for 2020. Plummeting oil prices and the sudden contracting of the U.S. economy all point to negative growth through the first two quarters, said Pierre Cleroux, vice-president of Research and the chief economist. Though he expected some recovery by the fourth quarter, as of Apr. 2 more than 6.6 million Americans had filed for unemployment benefits.

“We believe the Canadian economy will have a severe contraction in the second quarter. Recovery is going to start in the third quarter and it is going to take until the end of the year before we see a significant recovery,” he said.

He noted that 73 per cent of Canadian SMEs were already reporting a negative impact from the coronavirus by mid-March, less than seven days after the World Health Organization deemed COVID-19 a pandemic, and federal and provincial governments began implementing measures to contain the spread. “This is major after only one week.”

Cleroux laid out two potential scenarios: A short-term shock followed by recovery starting in the fourth quarter of 2020; and a long-term recession. He suggested the former could be more likely, based in part on what economists are seeing in China – “after a few months of fighting this virus, the Chinese economy is rebounding” – and in the “massive amounts of money” North America governments are investing in recovery.

Quick welcomed the recent announcements by the federal government to expand available credit for industry and the promise of an emergency wage subsidy for qualifying businesses of 75 per cent of salaries for up to three months. But he cautioned the success of those efforts to stave off layoffs would depend on the details.

“It all depends on what the terms and conditions of the programs are,” he said. “We are trying to make sure we are providing our members with the best information that we can so that they can sort that out.”

For defence companies, there might be some shelter offered by long-term government procurement and sustainment contracts. But since many of the sector’s SMEs supply original equipment manufacturers, rather than the military directly, any slowdown will limit their options.

“As it relates to procurement, things have definitely slowed down,” said Quick. “Members are telling me it is hard to get information. That said, we are working with [government departments] on a daily basis to make sure we are putting forward suggestions on how things could be improved … To this point they are definitely listening and they appreciate the help.

“What we have said to government is, make sure there are people on the other end of the phone who can actually answer the questions. Don’t refer people to a website or Q&As. It’s important they are able to talk to people who know the file and know the procurement so companies can make decisions going forward. We are all in this together and we have to figure it out together.”

Whether expanded government procurement could be a part of an eventual recovery, “and what it would look like, are discussions we continue to have,” he added.

AIAC intendeds to use its new board committee and sub-committees on civil aviation, public and defence procurement, small business, market access, space, and technology innovation to lead the charge on recovery and will employ the survey of members to gather feedback and advice “on what elements should be in a recovery [program],” said Quick.

“That is work in progress. We want to be ready when the government says to us, ‘How do we recover from this?’ ”