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Transportation sector to benefit as U.S. economy begins slow recovery

March 25, 2009, Montreal - The battered North American transportation sector should see some relief as the U.S. economy begins a slow recovery in the second half of the year, National Bank’s chief economist said Tuesday.


March 25, 2009
By Ross Marowits

March 25, 2009, Montreal – The battered North American transportation sector should see some relief as the U.S. economy begins a slow recovery in the second half of the year, National Bank’s chief economist said Tuesday.

Aggressive government efforts to free up the credit markets and spur lending can’t be underestimated for their impact on consumer spending, Stefane Marion told a transportation conference.

Trucking companies and railroads will gain as increased lending helps improve auto sales, which are expected to increase some 25 per cent.

Marion said the second-longest recession since the 1930s will last another six or seven months before a gradual recovery begins to take shape and global trade flows normalize.
“Do not expect the same type of fireworks you normally see in terms of U.S. recovery,” he told the one-day conference held in Toronto.

The American transportation sector was hit hard with employment falling by six per cent as manufacturing capacity utilization reached its lowest level in 60 years.

Even though commercial banks continued to loan money, the credit crisis was acutely felt because non-bank lending has grown over the past decade.

Aerospace companies such as CAE Inc. (TSX:CAE) and Heroux-Devtek (TSX:HRX) expect to manoeuvre through the industry slowdown because of their strong financial positions and growing importance of stable military contracts.

“We’re all nervous what’s going to happen on the business jet side and commercial jet side,” Heroux chief executive Gilles Labbe told the conference.

He said deliveries of airplanes and helicopters will continue to fall through 2011 before recovering. Each up cycle and down cycle have been stronger than the previous ones.

“Our growth strategy is to continue to build a long-term sustainable business that will go through down cycles and up cycles and we’re really ready for the down cycle as we speak,” Labbe said.
Even if the Obama administration kills several military aircraft projects, Heroux expects to benefit from its position as key supplier of the Joint Strike Fighter, whose production is expected to ramp up to 200 planes per year.

“These programs will help us to go through this downturn and we believe it will bring more business to us,” Labbe said.

Bombardier Aerospace (TSX:BBD.B) is expected to further cut production of business jets to meet softening demand. However, its popular Q-400 turboprop will likely gain orders.

Toronto-based Porter Airlines said it is considering additional planes once its previously ordered aircraft are delivered to the regional carrier later this year.

Robert Deluce, president and CEO of the privately owned airline, said a third party has committed to finance 12 additional aircraft.

“The support of these financial institutions has given validation that our business plan is being executed in a fundamentally sound way and has a strong future,” he told analysts.

Porter currently operates eight planes and will add four 70-seat Q-400s in May as it doubles its daily service to Montreal and increases flights to Ottawa, Deluce said.

He said the additional planes could be ordered after Porter’s fleet increases to 18 planes by the end of the year. It also has options for two planes.

Porter is adding Chicago and Thunder Bay, Ont., to its growing number of destinations this year. It will also add either Boston, Washington or Philadelphia before the end of the year, Deluce said.
Expansion of the Toronto Island airport in 2010 will allow the airline to increase capacity to at least 25 aircraft, he added.

“The combination of the speed, the convenience and the service at the end of the day is what largely wins us the passengers and keeps them coming back after they have tried that airport,” Deluce said.

Meanwhile, Bombardier announced the addition of three European suppliers to its CSeries program.
Alenia Aeronautica of Italy will provide stabilizers, Fokker Elmo of the Netherlands will be responsible for wiring and interconnection systems and Goodrich Actuation Systems of Britain will design and produce the flap and slat actuation systems.

THE CANADIAN PRESS