AIAC survey finds aerospace sector anticipates 40% decrease in revenue due to COVID-19

Canadian aerospace companies are anticipating a 40 per cent decrease in revenue this year as a result of the coronavirus pandemic. The startling projection is among the preliminary finds of a membership survey recently conducted by the Aerospace Industries Association of Canada (AIAC).

AIAC says more than 50 per cent of members responding to a recent aerospace industry survey have laid off employees. On May 5, landing gear manufacturer Héroux-Devtek confirmed a 10 per cent reduction of its workforce, including 125 employees in Quebec. Héroux-Devtek Photo
AIAC says more than half of members responding to a recent aerospace industry survey have laid off employees. On May 5, landing gear manufacturer Héroux-Devtek confirmed a 10 per cent reduction of its workforce, including 125 employees in Quebec. Héroux-Devtek Photo
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The association is still crunching the numbers, but interim results show 95 per cent of companies are operating at partial capacity and almost all expect to be at less than full capacity for more than two months, said Mike Mueller, the association’s senior vice-president.

Not surprising, more than 50 per cent have already laid off employees and about three quarters expect further layoffs over the next six months. On May 5, landing gear manufacturer Héroux-Devtek confirmed a 10 per cent reduction of its workforce, including 125 employees in Quebec.

Though the federal government’s emergency response benefit, wage subsidies, credit programs and commercial rent assistance could provide some short-term cash flow relief, “we know aerospace will take longer to recover,” said Mueller, as the full repercussions of a near standstill of airlines takes effect across the production supply chain.

“We see some companies that are fine right now. But even if things go back to normal next month, there will be a bit of a lag, and they will experience some challenges in the summer.”

The aerospace sector was in good health before the virus spread, and most companies had a sizeable backorder, said Moira Harvey, executive director of the Ontario Aerospace Council (OAC), which represents over 200 small- and medium-sized enterprises (SMEs) and several Tier 1 manufacturers.

“Production numbers are way down from what we were enjoying prior to COVID,” she said, noting that even with the trials of the Boeing 737 Max, monthly single aisle production was strong.

“If we are fortunate, we’re looking at half those numbers moving forward, and that’s not going to be immediate. It’s going to work its way back up to that. Obviously, that has a domino effect within the supply chain,” she said. “[We] are looking at reduced production requirements and therefore having to adjust capacity.”

As part of the larger manufacturing and transportation sectors, aerospace companies were deemed an essential service in Ontario. However, most significantly scaled back production to meet health and safety guidelines and a number were forced to lay off employees, a remarkable turn given that before COVID-19, most aerospace companies were suffering skilled labour shortages and expanding the talent pool was a top priority for AIAC.

Before COVID-19, the aerospace industry was largely healthy and most companies had a sizeable backorder. Now, many are concerned about what will happen as emergency measures wind down and a return to full operations remains sluggish. Boeing Photo
Before COVID-19, the aerospace industry was largely healthy and most companies had a sizeable backorder. Now, many are concerned about what will happen as emergency measures wind down and a return to full operations remains sluggish. Boeing Photo

The concern for many is what happens as emergency measures wind down and a return to full operations remains sluggish.

“The government has been very good at responding to challenges as far as what certain companies are facing, and has tried to make it as inclusive as possible,” said Harvey. But, “I think we are going to see more pain [by] end of summer into the fall, and that is when those programs may not be there anymore, which is really going to put pressure, particularly on our SMEs.”

Both AIAC and the OAC have been guiding members through government responses, revamping websites to serve as concierge services for information on various programs. AIAC has also worked through provincial associations to ensure consistency as governments have rolled out policies on essential services, health guidelines and re-opening.

It has hosted webinars with federal ministers of innovation and economic development, procurement, small business, and transportation, with consultancies such as Roland Berger and Ernst and Young, and with economists such as Peter Hall of Export Development Canada, whose initial analysis has identified aerospace as a sector that will be harder hit than most by the COVID-19 crisis.

The associations are now looking at how best to support members and their workforces as governments begin opening up their economies. Harvey said many Ontario companies had taken precautions, reducing the number of work shifts, cleaning more thoroughly between shifts, expanding break areas, and adding more hand washing stations.

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But access to personal protective equipment (PPE) such as face masks and gloves could be a concern as larger operations resume. Most sectors, she noted, have been operating at less than full capacity, but “as more retail looks for that kind of safety or precaution, the demand will be higher. There is always a concern as to when does the PPE run out.”

To help kick-start the sector, AIAC is encouraging the federal government to expedite public procurement of defence and space projects and to partner further in advancing green technologies such as carbon neutral flight. It would also like the government to collaborate in developing a longer-term industrial strategy for the sector.

All the suggestions are part of the association’s recent Vision 2025 initiative, a report prepared by former Quebec premier and deputy prime minister of Canada Jean Charest to help Canada retain and grow its position as an aerospace leader.

“There are a lot of immediate term things we need to figure out – wage subsidies and challenges around personal protective equipment and making sure the safety of employees is first and foremost. But on the long-term piece, the Vision 2025 is a road map we hope the government will partner with us on,” said Mueller.

He stressed the need to ensure “government is aware that aerospace has different needs and different realities and timeframes than a lot of other sectors” in any recovery process, and was “encouraged” by Prime Minister Justin Trudeau’s commitment to sector-specific packages.

But both Mueller and Harvey acknowledged that sector recovery will hinge on how quickly public confidence in airline travel returns, even if it is with additional safety measures.

“What the flying public chooses to do or not do has a significant impact,” said Harvey. “If airlines are not looking for aircraft, then those who manufacturer aircraft are in a tight spot.”

That will have a ripple effect on MRO (maintenance, repair and overhaul) and after-market revenue if airlines can pull from large, parked fleets for parts, she noted.

“A lot of our folks think the worst could be yet to come for our sector because [the effects of the pandemic] could go longer than [the government’s support programs].”

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