Aeronautics must invest more in R&D.

They may not be able to board on the CSeries or new versions of the Boeing 737 and Airbus A320 aircraft that are more sophisticated than those that currently fly in the sky.

That's what the latest report from the Conference Board of Canada warns the Canadian aviation industry against.

"These new generation aircraft will require significant improvements, especially in materials, avionics and engines, Michael Burt wrote in the report. If Canadian suppliers under-invest in R&D, they may be unable to benefit from the development of these platforms, thus limiting the growth perspectives of the industry for a long period of time. "                

Since the early 2000s, the Canadian aeronautics industry invests about 6% of its revenues on research and development.    

"This is much lower than what the industry had experienced in the 1990s," writes Mr. Burt.

In 1997 and 1998, for example, industry had invested the equivalent of 12% of its revenues on research and development.

The Conference Board report attributes the decline to weaker margins in the industry, due mainly to the rise of the loon.

"Low margins have forced the industry to keep an eye on costs, and limiting spending on R&D was a way to do it, Mr. Burt wrote. Although this has helped the industry in regard to profits, it has also created potential problems on the long run. "

The major aeronautics companies, however, are among the largest investors in research and development in Canada. According to a list established by Research InfoSource, Pratt & Whitney Canada was the fourth company in 2008 in terms of investments with 442 million, behind Nortel Networks, BCE and Magna International. Bombardier has finished 12th and CAE, 16th.

"The fleet of business jets is expected to have a double digit growth in several markets," wrote Mr. Burt. 

The Conference Board expects that revenues and profits of the Canadian aeronautics industry will continue to decline in 2010 and that recovery will only begin in 2011. The industry might regain in 2013 the income level reached in 2008. The long term perspectives are interesting. Corporate profits have started to grow in the United States, which suggests a resumption of deliveries of business jets in 2011. In addition, Europe, China, India and the Middle East should be of great potential for growth once the recession is over. Gas price should remain high, which will lead carriers to order-efficient appliances to take advantage of the recovery. The industrial workers, who faced successive waves of layoffs in recent months, should not despair. 

Source: La Presse