US remains most attractive country for aerospace manufacturing

The US maintained its top spot on PwC’s aerospace manufacturing attractiveness index, while Washington remained the most attractive US state for aerospace manufacturing. The consulting firm’s annual index ranks countries and states based on cost, economy, infrastructure, labor, industry, tax policy, and geopolitical risk.

2018 was a banner year for the global aerospace industry, with the top 100 A&D firms (by revenue) recording $760 in revenue, increasing 9% from 2017. The industry’s operating margin increased by 10 basis points to 10.7%.

The global A&D industry is expected to book continued to growth in 2019, driven by higher defense spending and increases in aircraft deliveries – with the current backlog in orders sitting at 6-8 years. Commercial revenue passenger miles grew 6.5% in 2018, while new aircraft deliveries increased by 8% to a record 1,606 large aircraft.

The top country in PwC’s attractiveness index was the US, with a dominant industry size supported by massive national GDP ($19.5 trillion) and strong domestic transportation infrastructure. The US was the A&D industry leader with $244 billion of sales in 2018. The country was also the leader in A&D exports, increasing 5.8% to $132 billion in revenue in 2018, and accounting for 9% of overall US exports.

Canada ranked second, driven by an educated labor force, low geopolitical risk, and industry size. A&D revenue increased 7% to reach $18.1 billion 2018. The Strategic Innovation Fund, which was launched in 2017, is expected to further boost the industry. The fund has a budget of $1.26 billion over five years, and is aimed at encouraging R&D efforts and attracting large investment in the A&D industry.

Singapore was ranked third, buoyed by favorable tax policy and strong manufacturing base. The country also ranked first for quality of electricity supply, and remains Asia’s top provider of aircraft maintenance, repair, and overhaul (MRO) – accounting for 10% of MRO output.

The UK came in fourth, with strong A&D revenue of $46 billion in 2018. Despite a looming Brexit, the country’s defense minister announced in July 2019 that the government would invest £2 billion through to 2025 into the development of the new Tempest fighter jet.

However, most of the UK’s aerospace production is exported, and could be negatively impacted by a hard Brexit. Supply chain disruptions could also stall global investment, jeopardizing production timetables for industry players.

Australia ranked fifth, supported by low costs and low geopolitical risk. In the 2018, the Australian government released a long-term plan that would increase defense spending in the next decade, earmarking more than $200 billion into new defense investments. In April 2019, Australia unveiled a full-size model of a new unmanned fighter jet – its first fighter plane since World War II.

The top US state for A&D manufacturing was, unsurprisingly, Washington. The state is buoyed by Boeing, which is the world’s largest aircraft manufacturer and the largest private employer in the state. The company delivered 806 commercial airplanes in 2018 and had revenues of $101 billion.

Washington State produced 1,400 aircraft and unmanned aerial systems in 2018, with an industry workforce of 136,000. The state produced 90% of commercial aircraft in the US (741) in 2018.

The state is home to favorable tax credits, while also providing support for numerous public-private partnerships.

The second ranked state in the PwC index was Georgia, which is home to 800 major aerospace companies, including Lockheed Martin and Gulfstream Aerospace. The state is also home to one of the world’s busiest airports, eight regional airports, expanding military bases, and the country’s fastest growing major port.

Georgia attracts A&D companies with relatively low costs (electricity, hourly wages) and a corporate tax rate of 5.7%. The state’s universities also spend more than $2 billion annually on R&D.

California grabbed the third spot due to its strong economy, good infrastructure, and strong A&D industry presence. Its aerospace industry, with 850 companies, is second only to Washington.

California is also home to three NASA research centers and the Mojave Air and Space Port. The state is also growing hub for other space-related ventures, included SpaceX and Rocket Lab.