By Patrick Cisler

If you are interested in growing your local economy, drawing Aerospace companies into your city or region may be appealing considering the big dollar contracts firms often obtain as well as the employment opportunities that they are able to provide to your workforce. However, before considering an attraction campaign or putting together an incentives package, here are a few points you may want to consider. These points came to light after conversations with aerospace company executives over the course of a recent project.

Aerospace companies live and die by government contracts. This probably comes as a surprise to few, but nevertheless, it’s an important rule to remember. Often, these contracts go through a bidding process by multiple companies after which only one is typically awarded the contract. Many times, companies are engaging in multiple bids at once not knowing which contracts they will win and which ones they won’t. This leaves a lot of uncertainty for a business as they try to project future growth. An executive made the comment that while he doesn’t see the need for a new manufacturing plant now; this could change next week if they obtain a new contract that requires new production and more skilled labor. As an economic development group looking to attract aerospace companies to your area, consider how short-term focused these firms can be as well as how quickly their business can change. If you are serious about attraction, it is necessary to follow these companies on a frequent basis.

In addition to the challenges companies face surrounding if and when they will be awarded contracts, aerospace companies also face the unknown of the changing political landscape. One CEO I spoke with recently mentioned that they have 200 customers that are waiting to pull the trigger on new contracts, bringing in much desired revenue for him, but they are uncertain about what the government is going to do in the near future. If taxes change or defense spending is cut, these larger firms will be hesitant to start new projects. When the larger aerospace companies are nervous to start projects, the effect trickles down through the entire industry. The fear of what government will do is always present as our political landscape changes so quickly. We have the federal budget reviewed every year with the potential for defense spending to be cut, congressional seats changing party lines every few years, and potentially, new presidential agendas every four years. Perhaps no industry is as affected by changes in government as the aerospace industry.

While the U.S. government is the aerospace industry’s biggest customer, many contracts come from foreign governments and their defense departments. Here is the kicker when it comes to international sales; U.S. aerospace companies’ only work with foreign governments that are on good terms with our own government. Whether or not a U.S.-based aerospace company wants to expand into international markets depends on how nice our government plays with others. This is an obstacle that other industries rarely need to overcome when expanding into international markets. Our government has a lot to say regarding what happens within the aerospace industry; therefore, it is recommended to pay attention to how the two interact when considering opportunities for your community in the future.

Another general rule that applies to many industries, but again is magnified within aerospace, is that aerospace companies are located where their customers want them located. This is why you see aerospace industry clusters in regions like New York, California, Kansas, and Connecticut. The aerospace market is such that the 20 largest aerospace companies account for 90% of the industry revenue. Among these, the “Big 5” (Boeing, Lockheed Martin, Northrop Grumman, Raytheon, and General Dynamics) produce many of the larger contracts that provide work for the mid- and small-size companies. This creates a trickle-down effect as alluded to earlier where a large contract for a major player like Lockheed Martin becomes multiple contracts when Lockheed Martin hires suppliers to fill its order. Therefore, if you are company “X” with 100 employees, and much of your work comes from Lockheed Martin, and Lockheed wants you to be located in Maryland, you move to Maryland. Conversations with industry executives echoed this sentiment. When asked what would be their primary driver to change geographic locations, the answer was often “We go where our customers want us.” Therefore, if you are a local economic development group seeking to attract aerospace firms to your area, consider working in coordination with industry leaders to increase your chances of success for drawing in other businesses.

Does your town have unrestricted airspace? The U.S. military is moving in the direction of UAVs (Unmanned Aerial Vehicles) to meet the needs our nation’s defense. This allows our government to keep more American men and women safe by using remote controlled machines to carry out potentially dangerous missions. This is a rapidly growing area within aerospace that brings other considerations into play regarding where to locate a manufacturing plant. These UAVs need to be tested, and in order to test them, unrestricted airspace is needed. For many companies producing UAVs, it can be a deal breaker if airspace isn’t available. Be sure to research each company’s specific needs before creating an incentives package.

The potential benefits of a growing aerospace industry in your backyard are something to be desired by any economic development group. However, every industry presents its own challenges, and the aerospace industry is no different. Remember to watch the industry relationship with government, understand the role that big customers play, and be sure to know the unrestricted airspace in your area. If followed, your attraction campaign will be more successful.