CIBC sees good long term trends at CDN aerospace firms

While the news out of the Paris airshow (see prior post “Paris Air Show highlights“, June 19-07) might have looked skinny for Canadian-based manufacturing interests, CIBC’s equity research team saw many positives for the sector, which will be good for both the Montreal region and shareholders:

“Canadian Aerospace Update

There were several developments during the bi-annual Paris Air Show that are expected to have a positive impact on the long-term fundamentals of several of the companies on our Canadian aerospace coverage list. Direct contract announcements were less prevalent than past years.

On July 3, Bombardier (BBD.B:TSX) announced that it had received an order for 10 CRJ-700 NextGen from Mesa Air Group. This represents the launch customer for the CRJ-700 NextGen and brings total CRJ orders to date in F2008 to 91. We forecast an increase in CRJ deliveries in F2009.

Héroux-Devtek (HRX:TSX) was awarded a contract for the CH-53K helicopter. The company will design, develop and manufacture the
helicopter’s landing gears and tail bumper (total potential value of $95 million). Revenues should help counter the inevitable slowdown in commercial aircraft demand.

On June 25, Boeing increased list prices for all commercial aircraft by an average of 5.5% to 6%. While list prices represent starting points for negotiations with customers and rarely represent the final sale price, the increase is likely representative of the direction of final contract prices.”

All of this is in keeping with what we are seeing of late, as well, with Discovery Air’s proposed $70 million acquisition of Fund II portfolio company Top Aces Inc. (see prior post “Top Aces agrees to be acquired by TSX-listed Discovery Air“, June 20-07).

Discovery’s shareholders – and the market – seem to like the idea, with the stock rallying ~20% on the announcement. Things appear to look rosy for our aerospace sector.

MRM
(disclosure – I am a director of Top Aces)