Montreal and the Aerospace Industry

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Like most sectors in today’s economy, the aerospace industry has suffered enormous losses over the past 18 months. Unlike its competitors, Montreal’s aerospace industry is heavily focussed on the production and distribution of regional jets. However, in the current economic climate, Canada’s primary aerospace hub will need to switch gears to a more environmentally friendly, more interconnected, and most of all, more innovative market.

THE BOMBARDIER LEGACY
Montreal has had a prominent aerospace cluster since the early 20th century, but only during World War II did agglomeration really occur. Planes being shipped to Europe would converge in Montreal before flying to Newfoundland and then across the Atlantic. Montreal’s aerospace industry soon began expanding rapidly, and ultimately became one of the world’s largest.

“What you started to see was the emergence of various supporting services, and maintenance companies fine-tuning these planes before embarking on journeys during WWII,” says Sebastien Breau, a McGill geography professor. But it would take a boost from a larger manufacturer to really put the industry on the world stage.

“It’s really only recently with … the advent of Bombardier that the aerospace scene in Montreal has really consolidated as the number one cluster in terms of aerospace in Canada,” says Breau.

Quebec hosts four major aerospace manufacturers: Bombardier, Bell Helicopter Textron in Mirabel, QC, US-based Pratt & Whitney, and the flight simulator manufacturer CAE Inc. In addition, over 200 other small and medium enterprises (SMEs) are located in the province, employing close to 70,000 Quebeckers.

The cluster employs more than half of Canadian aerospace engineers and accounts for nearly 15 per cent of Quebec’s exports. Unlike Seattle or Toulouse, the two other major aerospace centres, Montreal’s aerospace cluster specializes primarily in the regional and private jet market, which experienced rapid growth over the last two decades.

“Montreal won the aerospace lottery,” says Richard Aboulafia, vice president of analysis at Teal Group, which conducts financial research in aerospace and defence. “It was heavily exposed to the two fastest growth markets the industry has ever seen: business jets and regional jets.” However, that success soon waned with the recent economic crisis, hitting regional jets the hardest.

Anyone who has travelled in the past year has witnessed the impact of the economy on airlines. Not only have ticket prices skyrocketed, but many airlines now charge for bags and have stopped providing meal service. The economic downturn has also extended to the manufacturing sector, with airlines having to pick and choose their aircrafts more frugally. While companies focussing primarily on military aircraft or jetliners haven’t seen a rapid decline, Montreal’s previously booming industry hasn’t been so lucky.

“What haven’t held up well are regional jets and business jets, which are a minority in the aerospace business but a heavy majority of the Montreal aerospace business,” says Aboulafia.

According to the Aerospace Industries Association of Canada, Bombadier’s CRJ aircraft is the most successful regional aircraft in history. While Bombardier may have revolutionized the industry, it has had to lay off an estimated 5,000 workers since early 2009. Unfortunately, the regional jet market may be in trouble for the long haul.

“We are about one third of the way through this process. It’s going to be a three-year downturn, and obviously the first year was nasty and upfront – 2009 was terrible,” says Aboulafia. He predicts that significant improvement won’t take place until 2012 or even as late as 2013.

The regional aircraft industry grew rapidly because it was a cheap form of transportation, so it may come as a surprise that they’ve been hit so hard by this crisis. According to Aboulafia, the problem stems from the airlines who buy regional aircraft.

“[Regional jets] never should have been big to start with. It was a market that catered to the strangest group of all, the soon-to-be-bankrupt American major legacy carriers,” says Aboulafia. According to the AIAC, Bombardier caters to 35 airlines worldwide, and many of them have cut or reduced their orders for regional jets.

It’s not just Bombardier employees who are afraid of the downturn. Many small parts manufacturers are experiencing similar layoff patterns. “This pattern is almost unavoidable because what happens when a large original equipment manufacturer (OEM) reduces its deliveries to airliners, obviously they require less planes so there is less work for SMEs,” says the Honourable Jacques Saada, president and CEO of the Quebec Aerospace Association. “This will go on for a little while longer. I think the recovery should not take place before the beginning of 2011.”

Despite negative predictions, there is some hope for Bombardier, provided they expand their market.

“[The regional jet market] is going to prove more challenging to Bombardier in the years to come, but it could be offset by relative success in the civil aerospace with the CSeries,” says Breau.

EXPANDING SIZE AND PARTNERSHIPS
While still not confirmed by the company, there’s been talk about Bombardier manufacturing a CSeries jet that will seat 150 people, a capacity more than twice as large as some of its CRJ family aircraft. The CSeries aircraft are designed to be more fuel efficient, as well as to cover more distance than previous regional aircraft. This may seem like a gamble, but the Canadian government has invested heavily in previous smaller CSeries models, and would most likely continue to do so should the aircraft increase in size.

“Bombardier now wants to enter with this new CSeries – the regional jet market which is the medium length trip, continental. This is where there are, at the global scale, markets that are growing, such as China and India,” says Breau. There’s great potential in those markets, but Bombardier will once again have to compete internationally.

“Right now the number-one manufacturer for the 100- to 150-seat jet is Embraer. But Bombardier wants to jump into that market too,” he says.

While changing gears to an entirely new production process may be a major change, Montreal’s history as a cluster might allow for a smooth transition.

“They do have the knowledge, the know-how,” says Breau. “They have the workforce, they have the expertise here in Montreal.” Additionally, Montreal is host to several institutions that offer advanced degrees in aerospace, whether in engineering, business, or law. McGill’s aerospace program is internationally reknowned, although a majority of McGill aerospace students stay in the Montreal area after graduation to work in the field.

While the industry may be suffering, organizations like the AQA are looking to future partnerships to get the industry out of the rut. Saada hopes that the AQA’s efforts will broaden partnerships for smaller aerospace companies both domestically and abroad.

The AQA organizes think tanks and international missions in countries like Mexico and the U.S., and invites competitors like Embraer to Montreal. “We are trying to develop the potential partnerships with our SMEs and SMEs throughout the world,” says Saada. These efforts are likely to be rewarded, especially if some companies continue to use composite materials, which are lighter, more environmentally friendly, and ultimately more cost efficient than their aluminum predecessors.

THE FUTURE OF COMPOSITE MATERIALS
Boeing recently unveiled the Dreamliner, constructed of 50 per cent composite materials. In order to recover economically, Montreal’s aerospace manufacturers may have to follow suit.

“The generation of Airbuses that are out there are using or seen as using older technologies,” says Breau. In order to overcome the slump of their regional aircraft, Bombardier will have to take advantage o
f a combination of composite materials and expansion to the Asian markets.

“Composite materials is a key sector not only in terms of SMEs but also throughout the chain of production for airplanes,” says Saada.

The AQA recently recognized Avior as 2009’s SME of the year, in part because it is so involved in the research and development of composite materials. Ultimately, aerospace in Montreal will depend on the combination of partnerships and environmental innovation.

“We cannot continue to address the issue of the future on our own,” says Saada. “We need to develop a grouping of companies which have agreed to be more solid financially, to conduct research for the long term, and to develop products which are environmentally sustainable for the long term.”