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Volume 1: Beyond the Horizon: Canada's Interests and Future in Aerospace – November 2012
Part 2
Context (continued)
Chapter 2.2
Global Trends
The Canadian aerospace industry is subject to rapidly evolving global conditions that will affect market and production realities for the next 20 to 30 years. To ignore these factors, or to respond to them inadequately or belatedly, is to place our industry and its contributions to Canada's wealth and security at risk.
The most important trends include:
- Global rebalancing. We are witnessing a rapid rise in the economic and geopolitical power of regions and countries other than those that dominated during the second half of the 20th century. North America, Europe, and Japan are being joined by China, Russia, Brazil, India, and other rising powers across Asia, the Middle East, Latin America, and Africa. Many of these countries are populous, geographically large, geopolitically ambitious, and willing to use state power and resources to build sectors considered to have strategic importance.
Figure 5: Share of world GDP—2000 to 2020
Source: IHS Global Insight.GDP = gross domestic product - The hunger for natural resources and agricultural production. As hundreds of millions of people move from a rural, subsistence existence to more urban, middle class lifestyles, there are significant increases in the demand for fuel, the raw materials from which consumer goods are manufactured, water, and food.
Figure 6: World energy consumption—1990 to 2035
Source: U.S. Energy Information AdministrationOECD = Organisation for Economic Co-operation and Development - Climate change and environmental concerns. Rising concern about the effects of climate change and other environmental issues—including air quality and noise pollution—are driving changes in consumer behaviour, regulatory agendas, and corporate conduct around the world.
Decrease in Arctic sea ice, 1979 and 2011
Sea ice extent
- The decline in defence expenditures and advent of non-conventional security threats. In a climate of fiscal restraint, Western countries are reducing defence budgets while national security planners focus increasingly on managing non-conventional threats as well as the risks of traditional war.
- The digital revolution. We are in the middle of an epochal communications transformation driven by exponential increases in computing power, the advent of wireless technology, and an explosion of social media. The economic, social, and political impacts are already profound—and they are just beginning.
- An aging population. Shifting demographics are creating new challenges—and necessitating new strategies—for companies that rely on a highly educated, highly skilled workforce.
These trends have significant implications for the global and Canadian aerospace industry.
Global rebalancing has accelerated the globalization of the industry itself. Although neither an entirely new phenomenon nor one restricted to aerospace, transnational production chains—where systems and components are built on many continents and brought together for assembly at one of several sites—have gone from novelty to norm as new entrants have established increasingly advanced manufacturing bases. In part, the globalization of aircraft production reflects a simple competitive imperative, with aircraft manufacturers shopping the world for suppliers offering the most technologically advanced products at the best prices. But it also reflects market access considerations, as local production can sometimes be an advantage—if not a prerequisite—for a firm hoping to make sales in growing markets.
And markets are growing, notwithstanding global economic uncertainty. According to Boeing's forecasts, approximately 34,000 new commercial planes worth $4.5 trillion will be required by airlines over the next two decades. Half of these sales will take place in the emerging markets of Asia—particularly China and, to a lesser extent, India—the Middle East, and Latin America. In all these regions, increasing wealth will fuel strong growth in business, leisure, and cargo air traffic.
Ascendant nations are not content just to be parts suppliers for, and customers of, the global aerospace business; they are determined to become aerospace powers themselves, and have invested massively in their industries to make this happen. This means additional competition for established aerospace nations. These new players benefit from comparatively low domestic production costs and are rapidly catching up to Western companies in terms of technological sophistication. Russia, for example, is making the Superjet 100, an aircraft in the regional jet market segment that Bombardier and Embraer currently dominate, while China's similarly sized ARJ21 is expected to enter into service in late 2013. Both projects have faced technical issues and delays, but Russia and China have redoubled their efforts, and each will roll out additional models over the next two decades. Other nations, from Ukraine to Mexico, are also making concerted bids to build their own planes or secure a position at the high-value end of global aerospace supply chains.
In short, for established aerospace powers like Canada, global rebalancing means new customers, new partners, and new competitors. This has created a more complex, dynamic market and production environment with a new and different set of risks and potential rewards.
Figure 7: Projected global deliveries of commercial airplanes, by region—2012 to 2031
Projected deliveries
If global rebalancing affects how and where planes are built and sold, climate change and environmental concerns are reshaping the planes themselves. Airlines must deal with ever-tighter emissions standards, high fuel prices, and public reactions to contrails in the sky and noise in cities. In a business where margins are thin and regulations strict, the demand is for lighter, more aerodynamic aircraft designs and quieter, more fuel-efficient engines.
Emerging global conditions, climate change, and evolving government priorities are also leading to the opening of polar regions, particularly Canada's North, spurring resource extraction and other development in places that are not easily accessible by land or sea. A range of aircraft—from short-takeoff-and-landing turboprops to modern airships—may prove to be the best, or only, option for transporting personnel and equipment to these areas, particularly as the permafrost melts and surface transportation becomes increasingly difficult and costly. In addition, companies seeking to locate natural resources will require both piloted aircraft and drones to survey vast uninhabited areas. As the economy grows and communities expand in the North, there will also be an increasing need for activities related to the protection of people, property, and the environment—for which aerospace technologies, products, and services are particularly well-suited, given the geography and topography of this region.
In contrast to the positive growth projections for civil aerospace markets, the military aerospace segment faces reductions in defence expenditures. The United States and the European Union, which together account for almost two-thirds of global military spending, are paring military budgets as a result of fiscal pressures. Shrinking demand for military aerospace products could spill over to the civil sector, as companies are often active in both segments and use technologies developed for military purposes to improve their commercial offerings.
The emerging security environment also means that governments are looking for new equipment to address non-conventional security threats. These threats include the activities of small, secretive, militant groups, and require more effective surveillance of borders and oceans, and an ability to strike quickly, with precision, in far-flung locations. Aerospace technologies are vital to meeting these needs: witness, for example, the rapid expansion in the use of increasingly capable, and comparatively inexpensive, drones.
The increasing use of drones
More and more nations, including Canada, are operating unmanned aerial vehicles (UAVs), or drones, for commercial and military purposes. The U.S. Department of Defense's inventory of drones increased from 167 in 2002 to nearly 7,500 in 2010.
Canada's Department of National Defence currently operates a number of drones such as the Heron and the ScanEagle, which are being used for a wide array of applications including coastal patrol, mapping, and intelligence gathering. In addition, high-tech drones are being tested at Defence Research and Development Canada's Suffield, Alberta, facility for future use by Canada's military.
Drones are also being used in the Prairies to monitor crop health, such as nutrient and moisture levels, and by the Royal Canadian Mounted Police for crash site investigations. Future applications include enhanced monitoring of oil and gas pipelines and Canada 's borders.
These broad global developments are transformative. They mean more opportunities, but also more risks—and they establish a new global context in which the aerospace industry must meet tougher standards of performance to achieve competitive success. If Canadian companies, academic and research institutions, unions, and governments are clear-eyed and resolute in navigating these emerging conditions, the sector can emerge stronger. A weak or ambivalent response, however, could mean irreversible losses to the industry and the country.
