Canadian aerospace to get boost from higher airline profits

Montreal — Canada’s aerospace sector stands to get a boost from an international airlines group’s improving industry outlook, with profits expected to reach US$4.1 billion this year and US$7.5 billion in 2013. On Monday, the International Air Transport Association raised its forecast for 2012 from US$3 billion, saying passenger numbers so far this year were robust.

“Airlines are keeping their heads above water better than we expected,” IATA Chief Executive Tony Tyler told reporters in Berlin. But he noted that profits this year will still be less than half the US$8.4 billion that the industry earned in 2011.

Tyler blamed Europe’s economic crisis, oil prices averaging US$110 a barrel, weak cargo demand and low business confidence for the slowdown.

A profit of US$4.1 billion on industry revenues of US$636 billion equates to a margin of just 0.6 per cent, up from 0.5 per cent in the prior forecast, Tyler noted.

Benoit Poirier of Desjardins Capital Markets said the improved profit forecast next year is positive for Canadian-based aerospace companies such as Bombardier, CAE Inc., Transat A.T. and Heroux-Devtek since profitability is typically linked to aircraft orders.

“We believe the street will see the upward revision to IATA’s 2012 outlook and the solid improvement expected for 2013 as a positive surprise,” he wrote in a report.

Poirier said the slightly higher forecasted profit margins demonstrate the considerable improvement in the performance of airlines in a challenging environment.

In the past, slowing demand and increasing aircraft deliveries resulted in falling passenger load factors and aircraft utilization. This time, however, airlines have kept those numbers high.

Europe’s airlines are expected to record a loss of US$1.2 billion this year due to the eurozone financial crisis and high taxation, IATA said. However, tt projected a US$2.3 billion profit for companies in the Asia-Pacific region, despite a modest slowdown in the Chinese economy.

“Chinese domestic demand is still growing at nearly 10 per cent and the demand for regional and long-haul travel, including in the premium classes, has held up better than expected in the face of economic uncertainty,” said Tyler.

The greatest improvement is seen for North American carriers, where IATA raised its profit forecast by US$500 million to US$1.9 billion, thanks to cost savings. Middle East and Latin American airlines are also expected to post a profit, while African carriers will break even, said IATA.

Tyler said the situation was likely to improve in 2013 as average oil prices ease to US$105 per barrel, and government and central bank measures push global GDP growth to 2.5 per cent from 2.1 per cent this year.

The projected profits of $7.5 billion next year equate to a margin of 1.1 per cent on revenues of US$660 billion, IATA said. The group represents some 240 of the biggest international airlines worldwide.

— With files from The Associated Press.

© 2012 The Canadian Press