Manufacturers in the aerospace and automobile industries should be prepared as both sectors are anticipating strong growth over the next two years.
The aerospace industry’s profits are expected to grow nearly 13% to $787 million in 2014 as revenues are expected to grow 1.8% to $17.8 billion. While the costs are still on the rise, they are only expected to increase by 1.4% to $17 billion. Although in 2013, the aerospace industry’s profits fell to the lowest level in three years to $699 million, the Conference Board believes the period of strong growth is just beginning. The loss was due to a whopping 19.6% raise in costs as a result of a falling Canadian dollar and heavy capital investments. Optimism for growth is boosted by the airline industry posting an operating margin of 3% in 2013, which is the strongest it’s been in three years. The International Air Transportation Association (IATA) expects profits will rise for a fourth consecutive year.
Narrowbody commercial aircraft opportunities are expected to be the fastest growing segment over the next twenty years. Canadian companies like Bombardier hope to capture most of the opportunities in the growing market, while competing against re-engined planes from Boeing, Airbus, Embraer and Comac. The business aircraft segment, alternatively, has been slow to recover from the 2008 financial recession. “Strong corporate profitability in the U.S., a recovery in business activity, strong equity markets, and a renewed acceptance of corporate jets will help demand for business jets to recover, but the slack in the used jet market will continue to act as a headwind,” said the board.
For those who may be a little more “grounded”, the auto sector for both vehicles and parts are expected to see a 3.1% and 5.2% growth, respectively. For 2014, the Conference Board expects Canadian automakers to post a pre-tax profit level of $1.3 billion which is the highest it’s been since 2002. Since the cold winter, customers have come back at record breaking levels. This is not just the Canadian side of the border, “American consumers, in particular, are replacing their older vehicles due to a steady increase in income, jobs, and credit availability,” said Jacqueline Palladini, senior economist with the Conference Board. Part producers in Canada are also expected to see great numbers. It is forecasted that they will generate a pre-tax profit of $1.5 billion this year. With the auto manufacturing sector adding approximately 2,900 jobs, the growth is anticipated to spill into 2015 as well. The only projected downfall on the horizon is that Mexico may surpass Canada in vehicle exports to the United States for the first time next year.