12:37 PM EST, 02/03/2025 (MT Newswires) -- RBC believes the increased costs from tariffs are likely to disrupt the aerospace supply chain, impacting the industry across North America.

Implications for Canadian aerospace companies in RBC's coverage.

Air Canada ( ACDVF ) -- The impact of tariffs on Air Canada ( ACDVF ) is negative. In the immediate-term, weakness in the Canadian dollar is likely to negatively impact travel outside of Canada, especially transborder traffic into the U.S. Analyst James McGarragle believes the prolonged effect of tariffs would result in the further straining of the commercial aerospace supply chain, which he expects would delay deliveries for future growth plans and negatively impact the company's long-term growth strategy. "Additionally, to the extent the relative weakness in CAD persists, we see this as a driver of increased aircraft costs for AC, especially negative in our view given the company's upcoming capex plans."

Bombardier is likely to be the most impacted by tariffs, given final completion of its aircraft occurs in Canada, and the U.S. accounted for 63% of the company's revenues in 2023. "We continue to see a meaningful long-term investment opportunity in Bombardier shares, with the company being the cheapest in our coverage universe on 2025 FCF (~15% yield), while also having the best opportunity to compound that FCF longer-term (low-teen FCF CAGR out to 2030 by our estimate)." Still, the realization of this FCF inflection and this FCF growth is dependent on cross-border trade. RBC will take a more cautious stance until more visibility on tariffs is achieved.

The short-term impact of tariffs on CAE's existing contracts is neutral since the responsibility for importation and associated tariffs falls on customers, notes RBC. Additionally, with a downturn in sales of U.S. airline simulators this year, there is a reduced need to import simulators into the US, McGarragle notes. On the Defense side of the business, CAE is already required to manufacture products domestically in the U.S., which serves as a buffer against tariff impacts. Should tariffs persist, CAE would experience some negative impacts on simulator sales; however, the company maintains operational facilities in the U.S. and possesses the flexibility to adjust manufacturing locations if necessary - an important positive in the current uncertain backdrop.

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