By Frank Spano, Managing Director and Susan Riffle, Communications Specialist, The Austin Company
The aerospace industry is nationally dispersed, with numerous manufacturers and suppliers all contributing to the trends that impact the industry. This article focuses on the broad range of companies that fall within NAICS 3364 – Aerospace Product and Part Manufacturing, including aviation and aircraft manufacturing.
According to Airbus’ Global Market Forecast for 2014 to 2033, air traffic is expected to “grow at 4.7 percent annually, requiring over 31,350 new passenger aircraft and freighters at a value of nearly $4.6 trillion (US).” Of these aircraft, 12,355 will replace in-service aircraft and approximately 19,000 are anticipated growth in fleet size. North America is forecast to take an 18 percent share (5,533 aircraft) of the new 2014 to 2033 deliveries. Boeing’s Current Market Outlook for 2014 to 2033 paints an even stronger picture, projecting growth of $5.2 trillion, or 36,770 aircraft – 7,550 of which to be delivered in North America.
New aircraft are being designed and built for higher seating capacity, lower fuel consumption and reduced CO2 emissions.
Manufacturing in the U.S.
Combine high aerospace demand with Boston Consulting Group's (BCG) recent study, and you have a solid case for promoting aircraft manufacturing in the United States and North America. The Boston Consulting Group study found multiple factors affecting manufacturing costs and competitiveness that lead the researchers to state that “the rising stars of the global economy are Mexico and the U.S.” This is attributed to improved productivity and moderate wage growth, along with positive labor and utility rates.
If the U.S. is a “rising star” in the global manufacturing economy, is it safe to assume then, that aircraft manufacturing has a bright future in the United States? It appears so, however, many factors must be considered.
Take, for example, that in spite of these promising forecasts, national employment in aerospace manufacturing, according to U.S. Economic Census data, is expected to decrease between 2012 and 2022 by an annual rate of change of -0.6 percent. Data from 2007 through 2011 already shows declining employment numbers in aerospace manufacturing across the U.S.; it appears this trend will continue.
We must look beyond employment data, however, because the forecasted demand for aircraft cannot be ignored. It appears that manufacturers are already increasing production capacity, as total value of shipments and total capital expenditures during 2007 through 2011 have increased.
Emergence of the Southeast
The southeast region has made headlines in recent years for landing projects such as Airbus in Mobile, Alabama; Boeing in Charleston, South Carolina; and Northrop Grumman’s Centers of Excellence in Florida; and is inching upward in employment numbers. Airbus committed to 1,000 jobs in Mobile, Alabama, by 2015; Boeing is adding 3,800 jobs by 2016 in Charleston, South Carolina, with 2,000 more by 2021; and Northrop Grumman is adding 1,800 jobs along Florida’s Space Coast.
Not surprisingly, the southeast region is showing increased value of shipments and increased capital expenditures. This region is appealing to these manufacturers and their suppliers for proximity to ports and highways, less expensive labor, relatable automotive industry experience and opportunities for expansion.
Airbus’ selection of Mobile, Alabama, was the result of a long-term relationship with a shared vision for long-term prosperity. Mobile met “technical requirements” and showed great support from city, state and federal representatives. Logistically, the site in Mobile provided the desired infrastructure, access to airport and ocean port, adequate land with room for future potential expansion and a suitable workforce. Airbus was encouraged by the auto industry's success in Alabama due to its manufacturing aspect as a trained skill similar to that of aircraft assembly. In addition, Airbus established a partnership with Alabama Industrial Development Training to create a tailored curriculum.
In Boeing’s move to South Carolina, the company needed a location with existing, quality infrastructure, a business-friendly climate, and a skilled workforce. The workforce is supported by readySC™, South Carolina’s workforce training program. In addition, the new location provides diversification in Boeing’s operations and lower operating costs.
Southern Business & Development has reported that the average hourly wage for line workers at Boeing’s North Charleston plant is $14. This is reportedly half of comparable wage rates at other existing Boeing locations.
Northrop Grumman had an existing presence in Florida. Their establishment of two Centers of Excellence in St. Augustine and Melbourne will provide for more than 1,800 new jobs. In addition to having highly-skilled, technically-trained workers in the area, Florida provides a supportive business climate.
The investments by Airbus, Boeing and Northrop Grumman have been, and continue to be, significant in the Southeast, and this corridor of opportunity extends to their network of suppliers and other manufacturers of aircraft components.
Beyond the Southeast
The growing southeast aerospace corridor is exciting, but the northeast region and other “traditional” aerospace industry states must not be overlooked. In the northeast region, employment remained relatively steady from 2007 through 2012, while total value of shipments has steadily increased and total capital expenditures are increasing following reduced expenditures in 2009 and 2010.
While southeastern states as a whole, are gaining in employment, “traditional” aerospace manufacturing states, such as California, are seeing declining employment. It should be noted, however, that California alone still has higher employment numbers than all southeast region states combined.
Perhaps this is nothing more than a strategic shifting of resources.
Nationally, while employment is down, total value of shipments and total capital expenditures are up. This diversification of locations for industry leaders and their suppliers alike, is simply good for the industry as a whole. Creating efficiencies, strengthening supply chains and tapping into new resources, allows individual companies to maximize productivity, while providing protections against future risks.
Optimal Location Considerations
Given these trends, what factors create an optimal location for aerospace manufacturers and suppliers?
The Austin Company’s extensive and current experience in the aerospace industry finds the following considerations to be key for large and small operations:
Regional Synergy. Including similar operations within the area, particularly aerospace and aircraft component manufacturing. Industries using similar types of skilled and professional talent tends to spur additional growth.
Workforce. Skilled workforce availability is as important for an aircraft component manufacturer employing 50 workers, as it is for an operation employing 500 workers. Workforce needs can be more challenging for a smaller operation, especially if prevailing area wage levels are not met, or if name recognition of the smaller operation hinder securing the necessary workforce.
Technical Schools and Universities. The importance of area two and four-year technical colleges, universities and graduate schools cannot be underestimated. Companies looking to secure a new location must be satisfied that the area educational system can satisfy recruitment and conduct the desired skill training. Quality four-year and graduate degree programs with a proven curriculum in engineering is of major importance.
Area Military Bases. Existing military bases are often cited in this industry as an important source for skilled and available workers, including retired military with several years of experience who plan to reside in the area and bring their expertise to private industry.
Property Availability. Quality “ready-to-go” Greenfield sites and existing buildings make a difference during site evaluation. Most companies desire a quality industrial setting, surrounded by other quality manufacturing and business operations. Site-size varies based on building size, but most operations will consider sites that accommodate existing site needs, with additional acreage for future growth and expansion. In some instances, an existing building or partially finished spec building is a viable alternative, most often for smaller component operations.
Transportation. Access to a quality road network for product movement must be evaluated during site investigation. The company also needs to evaluate the importance of rail, if necessary, at the site for product movement, along with ground transportation service providers, commercial airport and water port availability.
Utilities. Adequate utility reliability, availability and cost, including annual and one-time or start-up costs must be considered. Typically, electric power and natural gas or other heating fuels are most important. For electric power, location from the main and backup substations, as well as the site’s location along the power providers’ existing power grid and outage history, must be investigated.
Pro-Business Community. Including potential incentives and assistance programs available within the community, along with understanding the permitting process at the state and local levels. The goal is to work with communities that understand the importance of offering meaningful incentive programs, with experience working with companies to expedite the permitting process without unnecessary bureaucracy.
Community Amenities. Including quality-of-life considerations, especially for those operations that will be transferring key individuals and their families to a new location. These can include local schools, housing and recreational amenities, and sustainability practices.
The aerospace manufacturing industry looks to have a bright future within the U.S. and beyond. The resources available create a variety of ideal location opportunities. Working with an experienced location consultant can greatly minimize risk when matching organizational needs and goals with available location offerings.