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

Mark Henderson
August 18, 2016

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.

R$

Canadian Aerospace Industry Economic Activities - 2010-2015

2010   2011   2012   2013   2014   2015   
GDP ($ millions)
Aerospace Manufacturing8,493   8,610   8,974   9,485   9,976   9,461   
Aerospace MRO *3,048   3,266   3,348   3,322   3,520   3,800   
Aerospace Total11,541   11,876   12,322   12,807   13,496   13,261   
Employment (Persons)
Aerospace Manufacturing52,801   54,067   56,648   58,079   60,139   57,663   
Aerospace MRO24,837   27,050   28,542   28,695   30,242   31,298   
Aerospace Total77,638   81,117   85,190   86,774   90,381   88,961   
Revenues ($ millions)
Aerospace Manufacturing13,953   16,147   15,860   17,926   20,310   22,179   
Aerospace MRO6,078   6,620   6,985   7,022   7,401   7,659   
Aerospace Total20,031   22,767   22,845   24,948   27,711   29,838   
R&D ($ millions)1,552   1,662   1,837   1,988   1,936   1,914   
Source: Innovation, Science and Economic Development Canada economic model estimates based on data from Statistics Canada Business Registry and CANSIM, National Input-Output Multipliers (2011 adjusted to 2015 GDP and employment), Canada Revenue Agency, OECD and firm-level observations, 2016.

* MRO: Maintenance, repair and overhaul

Share and Growth of Aerospace Exports by Product Category

 Export Share
2015
Export Growth
2010-2015
Export Growth
2014-2015
Airplanes & Rotorcraft 43%       58%       17%       
Engines* 27%       47%       11%       
Other Parts 11%       64%       2%       
Avionics 9%       24%       19%       
Landing Gear* 7%       85%       17%       
Simulators 3%       43%       9%       
Source: Innovation, Science and Economic Development Canada



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