Investing.com -- On Wednesday, U.S. President Donald Trump announced new reciprocal tariffs that notably excluded Canada and Mexico due to USMCA-compliant trade, providing relief for Canadian companies, especially those in the field of aerospace. RBC (TSX:RY) Capital Markets has since updated its view on the sector, with significant implications for companies like Bombardier Inc (TSX:BBDb) and CAE Inc. (TSX:CAE).
RBC analyst James McGarragle pointed to Bombardier, which finalizes its aircraft in Canada and reported that 63% of its 2023 revenues came from the U.S., as being particularly vulnerable to potential tariffs. The exemption of USMCA-compliant goods has led RBC Capital Markets to express a very positive outlook for Bombardier, labeling it as their top pick.
The analyst anticipates Bombardier’s stock will rise following the announcement, noting that shares had already increased by 7% on the day of the announcement. Additionally, McGarragle stated, “We see Bombardier in a stronger relative position versus global peers, which at first glance appear to be more negatively impacted by today’s tariff announcement.”
McGarragle also assessed CAE’s position positively, as the company’s simulator sales involving U.S.- and Canadian-origin aircraft will not face new tariffs, being compliant with the USMCA. The analyst admitted, “We viewed CAE as less impacted by potential tariffs compared to Air Canada and Bombardier coming into today’s announcement.”
In contrast, Air Canada (TSX:AC) has been rated neutral by RBC. The analyst expects the airline to face challenges due to a decrease in U.S. trans-border traffic, influenced by negative sentiment among Canadians traveling to the U.S. and a weaker Canadian dollar.
This comes after Air Canada reported a 10% drop in bookings for April to September compared to the previous year. Although capacity has not been adjusted to match the lower demand—which could pressure load factors and profitability—the neutral view is explained by McGarragle, who stated, “This is somewhat reflected in recent share price weakness.”
Overall, the exemption of Canadian aerospace companies from the new U.S. tariffs is expected to have a varied impact on the sector. Bombardier is likely to experience a notable boost in its stock value, while Air Canada may continue to face headwinds despite the neutral outlook. CAE is positioned to benefit from the tariff exemptions, maintaining its strong performance in the market.
The market's reaction on Thursday has somewhat agreed, with shares of Bombardier trading up 3.6% and shares of Air Canada trading mostly flat on the S&P/TSX Composite. However, CAE has ticked down 2.6% in Toronto trading, as of 9:45 ET.
