Industry Update:  Aviation and Aerospace Manufacturing

July 2006

By AngelouEconomics

Industry Overview
Aviation and aerospace manufacturing is a broad industry that consists of civilian and military aircraft, space vehicles, and missiles. Additionally, aircraft suppliers provide parts and machinery for aircraft assembly and maintenance. These parts include engines, interior components, avionics, and aircraft structural components such as landing gear. Suppliers are important for both the assembly and maintenance of aircraft. The industry’s customers include the military, commercial airlines, and general aviation.

Communities looking to attract or grow an aviation and aerospace manufacturing cluster would choose to do so for several reasons. First, the industry can bring several hundred new jobs to a region with the recruitment of just one new company. Second, the jobs that are created by companies in this industry are high-wage jobs that can have an immediate positive impact on the local economy. The positive externalities generated by the addition of several hundred high-wage jobs include a boost in local housing construction, an increase in demand for better entertainment options, an increase in educational attainment within the local workforce, an increase in ethnic diversity for the community, a net increase in jobs within supporting industry clusters, and a higher overall quality of life.

Historical Growth Trends
The industry has suffered in recent years due to falling orders for new aircraft, but growth returned in 2005 and is expected to continue through 2006. Employment in the aviation and aerospace industry fell every year from 1998 to 2003. Employment in the industry saw a sizable gain in 2005 with 19,000 jobs added for a
total of 606,000 workers.

Despite the fluctuations in employment over the past decade, average wages for the industry maintained a steady positive growth trend. Average wages have increased approximately 50% from about $50,000 per year in 1995 to just over $75,000 per year in 2005. Likewise, sales experienced a healthy rebound in 2005, increasing 9% to close the year at $170 billion, according to the Aerospace Industries Association (AIA). The government is the largest customer segment of the aviation and aerospace industry (about 60% of all sales), and increased sales to the Pentagon are offsetting declines in the commercial aircraft market.

Civilian aircraft sales fell sharply following September 11, 2001. However, pent up demand and a growing economy will lift civil aircraft sales over the next several years. From 2003 to 2005 the military aircraft market was the fastest growing segment in terms of sales, adding 24%.

The leading geographic centers of the aircraft and parts manufacturing sector in the U.S. are Washington, California, Kansas, Texas, and Connecticut.

Output in the industry is extremely erratic, as commercial and military orders occur in bulk. Historical output data shows production with a negative growth rate in 2003, the latest year available, but sales data indicates that output will be positive for the next several years.

Recent National Investments
Vought Aircraft Industries and Alenia Aeronautica recently expanded into Charleston, South Carolina. The combined expansion is focused on producing fuselage sections for Boeing’s brand-new, state-of-the-art 787 Dreamliner aircraft. The expansion is expected to bring approximately 650 jobs to the Charleston region. The completed project will require two separate 300,000 square foot facilities. Additionally, 380 acres at Charleston International Airport will be needed. The combined company investment for the project will total $510 million. Overall, $116 million in incentives have been promised to the companies. The incentive package includes conditional incentive allocations that include $29 million if total employment reaches 1,400, and $15 million if Boeing’s new 7E7 cockpit assembly project is awarded.

In recent industry news, Boeing and Airbus are competing head-to-head with new aircraft models for the commercial aircraft market. Boeing is accelerating its production schedule for the new 787 Dreamliner mid-sized aircraft. Boeing is planning to deliver approximately ten 787’s per month during the first few years of production. Many industry analysts feel that this delivery schedule is too aggressive given the fact that Boeing has never produced more than 80 to 85 commercial aircraft in any given year. Airbus’ answer to the 787 is its new A350 model. However, Airbus has not been able to keep pace with Boeing’s aggressive production schedule in the mid-size aircraft market.

Additionally, Airbus’ A380 is the largest passenger aircraft ever developed for the commercial aircraft industry. The “super-jumbo” jet, as it is called, is capable of accommodating between 555 to 840 passengers depending on interior layout configurations. Remarkably, the A380 will only require two pilots to operate, and will be one of the most fuel-efficient aircrafts in the world when comparing total passenger miles per liter of fuel consumed. However, production schedule for the A380 has been delayed on several occasions due to design changes, and air-worthiness testing and certification requirements. Heathrow Airport in London has already committed to modifying jet-ways and reconfiguring passenger screening procedures and logistics for terminals that will service the new aircraft.

Gulfstream Aerospace Corporation has made plans to expand its existing facility in Savannah, Georgia. The company is expected to invest $300 million over the next 7 years in order to expand its manufacturing and service operations at its Savannah headquarters. The expansion is expected to create 1,100 jobs for the region. The bulk of the investment dollars will go into the new 570,000 square foot Gulfstream Savannah Service Center at the Savannah/Hilton Head International Airport.

Also, JetBlue has recently expanded into Orlando, Florida. The company has invested $160 million into a brand-new 150,000 square foot multi-facility project. The expansion is responsible for 154 jobs created for the region, which brings an average annual wage of $60,000 per job. JetBlue’s Orlando expansion is primarily focused on aircraft maintenance. However, JetBlue is also conducting flight training through an innovative in-flight satellite television system. Additionally, the new facilities will be able to accommodate three Airbus A320 aircraft all at once for service, maintenance, and overhaul procedures.

Schweizer Aircraft Corporation has made plans to expand into the Elmira-Corning Regional Airport in Big Flats, New York. The company will primarily focus on assembly completion work on Black Hawk Helicopters at the new facility. The project is expected to create 100 jobs new jobs for the region. Total investment from the company will be $5 million. An additional $1 million in funding will be provided to Schweizer by the state. A $500,000 state economic development grant will also be available to the company for the construction of the new Black Hawk facility.

Summary

Despite a drop in industry employment during the recent economic downturn, the aviation and aerospace manufacturing industry has begun to recover and will continue on a steady growth path into the foreseeable future. With new innovative aircraft designs, new lower-cost advanced construction materials such as carbon-fiber, implementation of more efficient and cheaper production processes, and the ongoing development of the newly established civilian space flight market, the aviation and aerospace manufacturing industry is beginning to see great promise for future growth, innovation, and development.