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The Canadian aerospace industry is facing both challenges and opportunities as it attempts to return to normal following the pandemic fallout.
The labor shortage in the aerospace sector is more acute than most other sectors, according to a recent survey by accounting firm KPMG, while payments to parts suppliers have increased from 30 days to 120 days in recent years, hampering their borrowing capacity and planned production quotas, noted Mélanie Lussier, president of Aero Montreal.
On the plus side, some 1,500 aircraft are expected to be delivered this year — roughly double the figure in 2020 — according to Benoit Poirier, VP and industrials, transportation and aerospace analyst at financial service company Desjardins Group.
The remarks were made April 4 at Aero Montreal’s 7th Global Supply Chain Summit under the theme, “Is a more connected supply chain a dream come true?”
On the business jet side, Poirier noted a reduction in the level of service at smaller airports with their utility rate up 20 to 30 percent from pre-pandemic levels, while the demand for increased military hardware — mainly due to the war in Ukraine — is putting added pressure on supply chains.
If suppliers deliver a high-quality product on time, they should be paid on time, suggested Guy Boutin, director of investments and aerospace at labor investment group Fonds de solidarité FTQ.
“The only way to have a strong supply chain is to have a reliable supply chain, so we must make things right by making them financially sound.”
It doesn’t make sense for OEMs to ask their suppliers to reduce prices and increase their inventories while only paying them in 120 days, added Xavier Kato, senior director of aerospace and transportation at Quebec government investment agency Investissement Québec. Consolidation is the only solution for Quebec companies to become more international, he added.
The recent collapse of Signature Bank and Silicon Valley Bank in the U.S. has diminished consumer confidence in the financial system and will increase borrowing costs, said Poirier. As banks become more cautious, private equity firms will become more active in the aerospace sector, he added.
But with strong financial partners like Desjardins and Investissement Québec, Quebec-based companies are in a strong position to grow, said Kato.
Because of the importance of a reliable supply chain, the relationship between a company’s CEO and its chief supply chain officer is relatively strong, noted David Reese, director/partner at aerospace and defense global business unit, IBM.
“We can help identify what suppliers are at risk of failing, especially if your major suppliers are in a vulnerable area like Ukraine.”
In terms of startups, there’s a perception in Canada that they’re risky to deal with, whereas other countries see outsourcing to startups as positive, said Clément Bourgogne, VP of strategic program systems at Scale AI. He predicted 50 percent of new technologies will come from startups.
Moreover, sustainability is becoming more important for institutional investors in the aerospace industry, particularly when it comes to environmental, social and governance (ESG) investing, noted Poirier. But most smaller companies don’t have the same resources as OEMs dedicated to ESG.
Sustainability brings in a new set of skills to the workplace, commented Sylvain Larochelle, technology collaboration office manager at Pratt & Whitney Canada. One example is the use of digital transformation whereby airframe customers send Pratt their designs by digital models.
According to Reese, “Companies that embrace sustainability are seeing growth in profitability and outsized benefits.”
However, companies that claim to be carbon neutral when they don’t know the actions of the entire supply chain are engaging in greenwashing, stated Florent Bouguin, VP and chief technology officer at Optel Group, a leading global provider of traceability, track-and-trace services.
“You’re buying not just a product, but a process which can often be a competitive advantage.”
CAE is a leader in carbon reduction and can help suppliers achieve their sustainability goals, offered Hélène Gagnon, chief sustainability officer and senior VP of stakeholder engagement at CAE.
“We support suppliers to help achieve their expectations and explain the opportunities available to them and help with their carbon reduction plans. We also have a recognition program to identify the best ESG suppliers.”
As well, Investissement Québec has a four-step process to evaluate the costs to reduce emissions, and many companies who have opted to participate are in the aerospace sector, said Stéphane Drouin, VP of Quebec purchasing and economic development at Investissement Québec.
During the summit, Lussier of Aero Montreal was asked to comment on the creation of a supply chain office with a $27.2 million budget over five years that was contained in the recent federal budget. The office will report to Transport Canada to better coordinate and strengthen the reliability of Canada’s transportation supply chain.
“It’s a step in the right direction to make sure all the Canadian players have the same opportunity to bid on government contracts, but I’m curious to see what the mandate will be for the office.
“We have the same thing here in Quebec, and we saw great results of companies getting help in the bidding process and the office’s ability of attracting new players and making sure they fill an existing gap; I’m confident the Canadian government will do exactly the same thing.”