Aerospace flying high as sector overtakes communications / telecom equipment as largest R&D performing industry

The following article was published by RE$EARCH Money and is based on a Research Infosource report.

Mark Henderson, Managing Editor, RE$EARCH Money

Canada's aerospace companies have surged to account for the largest single share of R&D spending in 2012, fuelled by a third year of explosive growth by Bombardier Inc which propelled the Montreal-based multinational to the #1 spot. Bombardier's R&D outlays increased 42.2% in 2012 to reach $1.9 billion, overtaking Blackberry Ltd which held firm with $1.5 billion for the #2 position, according to the latest ranking of Canada's corporate R&D spenders.

The other four aerospace firms also increased their R&D spending, with Pratt & Whitney Canada boosting its outlays by 11.4% to $527 million to take the #5 spot in the ranking. Overall, the sector spent $2.7 billion on R&D, for 22% of the Top 100 total. That beats the communications and telecom equipment industry which historically has been the country's largest R&D performer. In 2012, the 13 companies that made the list accounted for $2.3 billion of R&D expenditures for a 19% share of the total.

Overall, Canada's Top 100 Corporate R&D Spenders invested a total of $12.3 billion, up 12.6% from 2011. The ranking has been compiled for the past 13 years by Research Infosource, a sister company to RE$EARCH MONEY.

"Bombardier is at a peak of a wave of investment and that characterizes a lot of R&D in Canada, which is opportunity- driven," says Research Infosource CEO Ron Freedman, "Overall the corporate R&D numbers for 2012 appear to be solid. The 12.6% increase is pretty dramatic considering that the firms (in the ranking) experienced a 3% revenue decline. They're investing for the future."

Between 2010 and 2012, Bombardier spent $4.3 billion on R&D, a massive investment tied largely to the engineering and tooling costs associated with several new business jets — Global 7000 and 8000, Learjet 85 and the C Series 100 and 300.

"We're probably at the peak. The level of (R&D) spending should probably decrease down to a lower level after 2014," says Isabelle Rondeau, Bombardier's director of communications. "A good portion of the R&D is conducted in Canada as most of our planes are developed here."

$100 MILLION CLUB

Firms that spent $100 million or more — the so-called $100 Million Club — now number 27 (up from 24 in 2011) and account for 78% of the Top 100 total. That includes companies as varied as Rogers Communication Inc — which exploded from #21 to #8 with a 217.4% increase to $346 million — to Syncrude Canada, up 70.8% to $157.23 million for the #18 position.

Of the Top 100, 65 companies boosted their R&D spending, while 34 declined and one remained flat. Research intensity of the Top 100 was 3.3% (up from 2.8% in 2011).

For the 73 firms less than $100 million in R&D outlays, spending actually declined — a phenomenon Freedman says reflects the decision-making process for undertaking R&D "driven by market opportunities and fear".

The pharmaceuticals/biotechnology sector spent a total of $1.2 billion, shared among 22 firms that exceeded the Top 100 threshold of $12.1 million. Generic drug manufacturer Apotex Inc topped the sector with $207.7.7 million (+19.4%), followed by Rx&D member Sanofi, which dipped 19.3% to $122.4 million.

The energy/oil and gas sector continues to make strong gains as the scale of oil sands development spirals upward. The seven companies in the Top 100 all registered gains for a total of $1.1 billion led by Canadian Natural Resources Ltd ($270 million/+22.7) broke into the Top 10 for the first time, while Encana Corp boosted R&D spending by 207.1% to $126.8 million).

IBM Canada Ltd dominated the software sector with $540 million (+8.0%), followed by Open Text Corp with $169 million (+17.0%)

*Article courtesy of Aerospace Industries Assocation of Canada (AIAC)