Aerospace & Defense

The Aerospace Industry - A Mixed Picture

31 Dec, 2002

By: John W. Douglas

The Aerospace Industries Association is a Washington, D.C.–based trade group that represents U.S. aerospace manufacturers, large and small. With 77 regular and 143 associate members, the association is industry’s voice in both domestic and foreign venues. We strive for a climate in which our members can develop, market and support their products efficiently and competitively throughout the world. We keep close track of industry trends and find today that aerospace--a diverse and broad industry sector--has powerful forces tugging it in several directions.

* In the aftermath of terrorist attacks, an economic downturn and war in Iraq, airlines are battling their worst financial crisis. As a result,the industry has seen commercial aircraft deliveries decline from 526 in 2001 to 380 last year. Estimates are the industry will deliver less than 300 aircraft this year.

* In commercial space, where companies launch communications satellites to carry information instantly around the world, the market has not materialized in line with hefty late 1990s expectations.

* In manned space, major questions remain following the Space Shuttle Columbia tragedy.

* The military sector, with the war on terrorism and political uncertainties in the Middle East and Asia, faces different pressures. The Bush administration and Congress increased 2003 defense spending 11 percent each for procurement (including new aircraft) as well as research and development.

Inshort, the current picture is decidedly mixed, as U.S. aerospace industry sales in 2002 were $148 billion, down $5 billion from 2001. AIA estimates this year’s sales will drop to $138 billion, a 6.6percent decline, nearly all from civil aviation. The picture becomes even more serious as we look at U.S. aerospace industry employment, which hit a 50 year low last December at 689,000, a drop of nearly half since the industry’s 1989 peak. Since the tragic events of September 11, job loss became even more accelerated--the aerospace industry lost 110,000 jobs.

In the course of monitoring industry trends, AIA collected information last year that reviewed operating costs in parts of the country where AIA members have facilities. The costs, based on actual information, were projectedfor a hypothetical 200,000-square-foot aerospace-manufacturing plant. The Boyd Company, Inc., a Princeton, N.J., a firm which counsels aerospace and other companies on facility location, provided thedata.

According to The Boyd Company, total operating cost for this hypothetical facility, approximately $40 million annually, was highest in California, a bit less in the Northeast and lowest in the Southeast, approximately $30 million.

One might think aerospace companies would be looking for the least expensive areas to relocate. However, The Boyd Company report indicates that when aerospace companies relocate, they tend to move to areas where there are experienced workers, usually those laid off from other aerospace companies, and those employees are in traditional centers (more expensive locations) such as California, Arizona and portions of the Midwest.

However, the practice of following experienced workers is unlikely to continue in the long term asan aging workforce nears retirement, airline traffic returns, and production requirements return to pre-9/11 levels. Boeing estimates the world’s carriers will need nearly 24,000 new commercial airplanes to handle increased passenger and freight demand in the next 20 years. Given current delivery patterns, about half would come from the U.S. In this instance, companies looking to relocate will begin searching for less expensive communities that are willing to make the commitment to train technical workers. At AIA, we foresee a period in the future when the graying of the workforce and rising demand for aircraft create a tremendous need for highly skilled aerospace workers. AIA has determined that this issue is of critical importance to the industry and has identified the crisis in aerospace workforce as one of our Top Ten issues as we talk to Congress and the administration this year.

In the future, as each company decides what it specifically needs to develop, manufactureand support its products in the coming decades, there will be several common denominators: They will all need economical facilities, and most importantly, the workforce, to ensure the U.S. aerospace industry continues its success and world leadership.