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Inward Investment Guides

The Perfect Storm in Aerospace Manufacturing

Increasing global demand, constrained capacity, and labor scarcity are changing the geography of high-tech manufacturing.

Dave Russell, Aerospace Industry Consultant, Advanced Technology Services (2013 Auto/Aero Site Guide)
The American aerospace industry is running out of skilled labor, and companies are running out of time. The venerable tradesmen of the baby-boomer generation are preparing to retire, and few millennials have the interest or technical aptitudes to fill their shoes. Amidst growing global demand for aerospace products and constrained capacity, the labor crunch will gradually shift the geography of manufacturing as companies decide to outsource skilled labor, train new workers, or move their facilities.

The Pressure of Demand and Scarcity of Labor

The aerospace industry’s dilemma has deep roots in demography. The baby-boomers, the foundation of aerospace manufacturing, are retiring in droves with dramatic effect. According to a private survey conducted by Advanced Technology Services (ATS) and ACNielsen, 41 percent of skilled tradesmen will retire by 2017. Correspondingly, an Industry Week survey commissioned by ATS found that 39 percent of aerospace companies report that the labor shortage is having an “extreme” effect on their ability to grow business, while another 24 percent of firms report a “slight” or “moderate” effect.

Simultaneously, commercial aircraft manufactures like Boeing and Airbus expect demand for aircraft and related components to double over the next 15 years. The Federal Aviation Administration predicts that the industry will climb from 731 million passengers in 2011 to 1.2 billion in 2032. However, the consulting firm AlixPartners reasons that the greater complexity of new aircraft models may spike production by as much as 70 percent by 2015.

This perfect storm of increasing global demand, constrained capacity, and labor scarcity cannot be fixed by moving aerospace manufacturing offshore. Production is either too technical or, from a national security standpoint, too risky to perform in China, India, Brazil, and Mexico. A full 74 percent of the Industry Week survey’s respondents believe that foreign manufacturers do not have the technical skills and quality systems in place for aerospace manufacturing.

The potential costs of this situation are startling. Of the 138 companies surveyed by Industry Week, a full 61 percent expect the retirement of the baby-boomers to incur multimillion-dollar costs, with 14 percent of firms predicting more than $100 million in losses over five years.

The Post-Industrial Dilemma

Companies reacting to this trend find themselves in conflict with deep sociopolitical trends. What demography has wrought, patterns in education have intensified. Aviation Week’s 2012 work force study found that the average age of aerospace employees is 45, and only 4.19 percent of employees are between 22 and 25 years old. In other words, no one is being trained to replace the baby-boomers.

This reflects changes in the national education system tied to the priorities and values of an allegedly post-industrial economy. Over the years, students have been conditioned to believe that the American Dream is only obtainable in white-collar occupations. For younger generations, an education in the trades and an industrial career have become an unwarranted mark of failure.

Students are not learning skills suited to high-tech manufacturing. Completion of Associate’s, Bachelor’s, and higher degrees has surged in the past 10 years. The National Center for Education Statistics found that 33.5 percent of Americans age 25 to 29 had a Bachelor’s degree in 2012, compared to only 24.7 percent in 1995 and 21.9 percent in 1975. One common belief is that the digital age creates jobs that require abstract thinking rather than the hands-on skill of craftsmen.

Unfortunately, employers specifically prefer graduates with degrees in engineering, mathematics, and the hard sciences. Students who studied the wrong subject, dropped out, or achieved unsatisfactory grades are now reeling in student loan debt, which has exceeded $1 trillion nationally according to the Consumer Financial Protection Bureau. Their desk jobs cannot drain the swamp of debt.

Facing America’s myth about the “right” education, disenchanted college graduates are loath to believe that a transition to the trades is a viable or preferable option, and millennials are not replacing the skilled baby-boomers.

Rust Belt Versus Sunbelt Inertia
The skilled labor crunch is more pronounced in the Northeast than in the South. As longstanding aerospace plants in the Rust Belt bleed talent, executives eye new locations. For example, one location growing on aerospace radars is South Carolina. The South Carolina Manufactures Alliance, a powerful and well-organized advocacy group, recognizes the national labor shortage and supports pro-manufacturing policies in the state legislature. It is working to establish a $6.5 budget to provide the Manufacturing Skills Standard Council (MSSC) certification through the South Carolina Technical College System, along with $7.54 million for the technical school system’s readySC™ program, which provides free or low-cost customized training for new and expanding manufacturers. These government-sponsored training programs are especially appealing to aerospace manufacturers because most have abandoned their in-house educational programs.

Generally, new aerospace operations will arise in states with right-to-work laws. Of those states, those that invest most heavily in technical training will attract the lion’s share of new production facilities. That does not mean that aerospace will necessarily abandon its “crown jewel” facilities in the Northeast. The highest tech processes will remain at these facilities despite downsizing, outsourcing, and a general departure from the Rust Belt.

Addressing the Labor Crunch

Given the waves of retirement, booming production demands, and a dearth of millennials entering industrial careers — combined with the opportunities and costs of migrating facilities — aerospace manufacturers face three critical choices:

  • 1. Should skilled trades be outsourced?

  • 2.Should training programs be reinstated?

  • 3.Should facilities be moved to more hospitable environments?

The presented data should make clear that companies do not have any time buffer. New training programs are heavy investments that do not promise a quick return. Companies that are considering this approach should expect five years to pass before the program produces a skilled worker. It will take between one and two years to establish the program, and a minimum of three years for a student to complete an electrical apprenticeship or comparable program.

A training program assumes there is an untapped work force near the facility that sees technical training as career advancement. Technicians may use iPads now, but great programs might not overcome the sociological forces keeping millennials in white-collar occupations.

Some firms may outsource technical jobs to other companies and save their budgets for hiring top engineers and professionals. IT, production maintenance, facility maintenance, and HR may get outsourced to companies that can provide labor on a flexible basis. And companies only eyeing Sunbelt states fall into a long-term process for a short-term problem. Moving to the South may eventually address labor shortages, but in the absence of another response, a location change will cause companies to miss out on growing demand.

Therefore, most companies should employ a bucket of techniques. To protect revenue, they need to immediately outsource technical roles their current work force cannot fill. Over five to 10 years, some manufactures will reinstate apprenticeship programs. And finally, over longer time spans, firms will move as much manufacturing as possible into hospitable states. This perfect storm may shake the aerospace industry. Leaders must handle the challenges of human capital in order to capture the opportunities for growth.
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