Aerospace & Defense

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Getting the Best of the Aerospace Industry Site Selection Process

31 Dec, 2004

By: James H. Renzas

The site selection process for aerospace companies can prove to be a great challenge or offer great benefits, depending on how well prepared a company is when it initiates the process and exactly what expectations it has. Companies really have to look into the operation and figure out what is most important to drive the location search.

One of the major challenges faced by aerospace companies in the site selection process is the availability of precision metal-working skills among a potential labor force. A skilled labor force is paramount to the success of aerospace companies. These companies are often looking for people possessing deep skills and certifications that match those needed in the aerospace industry. Without a strong labor force that has the precision skills necessary in the industry, an aerospace company’s consideration of a particular location may be doomed before it ever really gets off the ground.

A sophisticated training and education infrastructure provide important industry support, which, of course, is beneficial to an aerospace company considering a new location. Online aerospace training is advancing, and when hosted by a top-tier data center makes systems performance a non-issue. This type of arrangement also relieves customers of having to manage the back-end hardware and infrastructure issues that often require additional resources.

A key consideration for many aerospace companies is a potential employment base that is able to meet the demands of world-class aircraft manufacturing and aerospace technology needs. Another key consideration is a location’s ability to establish a cooperative relationship with a nearby university or other institute of higher education with a strong aerospace department and research capability.

Other important considerations for aerospace companies often include a runway and tarmac with plenty of length, ample area to accommodate production, hangar and office space, and a transportation infrastructure with good access via rail, road, and sea.

Cost is less important, but still a factor in the site selection process for aerospace companies. Some of the best sites are where military bases nearby are being phased out.

Recently shut down military bases or those in the process of decommissioning are ideal sites for aerospace companies. The decommissioning of military bases and their ability to attract aerospace companies makes such areas more attractive to communities, because of the major labor force and economic impact they have, bringing in jobs and revenue.

The first place that many aerospace companies look for in the site selection process is for free or low-cost available land, as well as reuse projects, and ample-sized buildings and hangars that are readily available. Former military sites are sought after locations, as they often provide an aerospace company with everything it needs at a rock-bottom price.

It is very attractive when the infrastructure that an aerospace company would need to be successful and quickly get it operations going is already in place. Any location that already has an infrastructure in place for aerospace companies has a good advantage over other potential locations being considered.

Aircraft maintenance for the military is a skill in high demand. Fortunately there are many people coming out of the military who have these skills. This is another good reason for aerospace companies to locate near the military.

San Antonio, for example, did a study that found there are many people skilled in aircraft maintenance near Air Force bases. As a result, aerospace companies can potentially find many individuals who are available in the labor force.

Kelly Air Force Base in San Antonio turned into a logistics port for providing aircraft maintenance – it was a reuse project. The situation is similar with March Air Force Base in Southern California, which offers large sites with access to the tarmac and runways as well as surplus office buildings, hangars and a labor force geared toward aircraft maintenance.

Other types of plants, such as those dealing with electronics and parts, do not necessarily have to be on an airfield. However, they do need to be in locations where they can serve a customer base. If an aerospace company like Boeing is manufacturing wing assemblies for planes, logistics is important. Manufacturing large parts like wing assemblies sometimes requires a water transportation location near a port for easy access and transportation needs.
More and more aerospace projects are going to the government and are thus insulated against off shoring—such as homeland security and 9/11-related projects. Such a scenario makes the site selection process more stable. The process of deciding where contracts end up does become more political, as pressure builds up to place projects in communities where the company is supported.

There also has been a recent trend toward creation of military facilities and a trend toward manufacturing of unmanned vehicles. Autonomous technology is making the jobs worth more, as they are now becoming much more technical and sophisticated.

Sometimes there are federal and state tax abatements available for reuse of military facilities. An aerospace company should look for any special federal and state zone that gives hiring credits (such as a state enterprisezone or a federal empowerment zone). These are designated areas where the company can get credits for hiring people and investing in those areas. In certain areas, aerospace companies can also get accelerated depreciation on their real estate, whereby they are able to write it off at a faster rate.

Many municipalities will offer a discount on land or buildings. There are also the possibilities of local, state and federal tax incentives. In many areas, if an aerospace company were to locate into a track zone, it can pick up some impressive tax incentives. There is also what is known as Defense Economic Readjustment Zones, for example, which is offered in Texas. This program was established as a tool for business recruitment and job creation in adversely impacted defense dependent communities. It is designed to provide assistance to Texas communities, businesses and workers impacted by, or vulnerable to, the closure or realignment of military installations and the reduction in federal defense contracting expenditures.

The incentives offered through the Defense Economic Readjustment Zone are similar to the Enterprise Zone Program. An Enterprise Zone is an economic development tool that allows a community to partner with the State to offer a package of local and state tax and regulatory benefits to assist businesses seeking to locate, expand or retain jobs in economically distressed areas. Through the Enterprise Zone Program, State sales tax refunds can be offered for building materials, machinery and equipment to selected companies for up to five years.

Aerospace companies can also receive a savings on State franchise taxes, and in some states, like California, can take advantage of what are known as LAMBRAs (Local Agency Military Base Recovery Areas). The LAMBRA Act promotes economic development and employment opportunities in designated military base areas by offering bidding preferences of one to nine percent in specified state contracts.

The LAMBRA Act provides for two bidding preferences: worksite and workforce. Under the worksite preference LAMBRA provides a 5 percent bidding preference on state solicitations for goods and services valued at more than $100,000 if the worksite is located in a LAMBRA as designated by the State Trade and Commerce Agency.

LAMBRA allows state-contracting officials to award the bid worksite preference when 50 percent of the labor hours required to perform a contract for goods, or 90 percent of the labor hours required to perform a contract for services is performed at the approved worksites.

Under the workforce preference companies qualifying for the five percent worksite preference may request an additional one to four percent workforce preference by certifying to hire a specified percent of the contract workforce employees from those designated as LAMBRA qualified individuals.

To request workforce preference, the bidding aerospace company must first identify an eligible worksite.

In the site selection process, aerospace companies must find a way to balance their search to look at the perks being offered them as well as making sure the sites they are looking at offer the right conditions for their business.

Aerospace companies should solicit bids from at least one of the major hubs and at least one alternative location. It is important to pursue both types of locations to determine how to make the most financially from the new site decision.

Once an aerospace company has decided its strategic location needs, it should hire an outside negotiator who specializes in handling incentives. Because of consolidation in the aerospace industry, with companies consolidating into larger conglomerates, it is even more important to have an outside firm or individual tracking and managing incentives. This third party will work with city and state economic developers to create incentive offers. They should keep the aerospace company anonymous and keep the incentives negotiations and management process under wraps while gathering competing bids.

By hiring an expert to solicit incentive offers on a confidential basis, an aerospace company will ensure that it does not leave money on the table and that it gets into the best location possible. Through this process, the company must be insulated from publicity and protected from the risk that any competitors will learn too much.

It is paramount to have an outside firm that is able to solicit bids from different locations that fit with the aerospace company’s operating needs. They can then match up the company’s needs with the best operating conditions that will make the most money in grants, programs, incentives and credits. The local knowledge and relationships of the company’s negotiator help very much in this process.

Once the aerospace company has chosen a location and agreed upon a financial incentive offer, it must go through several steps to collect the funds. The company will want to have an incentive negotiator who also handles the collection process. Tracking and effectively managing the collection process for incentives is critical to the aerospace industry because many of these will be tax credit based.

By following these tips and exploring options, an aerospace company can save several million dollars. Site selection decisions are rare, so aerospace companies should not miss the opportunity to get all that they deserve.

 

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