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Area Development - Site Selection, Facility Planning and Workforce Development

Reviewing the Turbulent Ride, as Aerospace Looks Optimistically Ahead

As aerospace companies continue to rebound and evolve, they need to establish their unique goals in order to make an informed and data-driven location decision.

2023 Auto/Aero Site Guide
The aerospace industry, like most, has experienced volatility within the past few years due to the COVID-19 pandemic, Russia’s invasion of Ukraine, supply chain tensions, and labor shortages, just to name a few. Some of these challenges are still present, while others have dissipated but left long-lasting effects. These continue to be a central obstacle in company operations — all while feeling market pressures to evolve in the digital world. Ultimately, the industry appears to be experiencing a rebound with heightened demand but struggling to keep up — moving from a demand-constrained to a supply-constrained environment.

Perhaps the most familiar variability of the aerospace industry for consumers is air travel during the COVID-19 pandemic. For U.S. airlines, April 2020 saw a 96 percent decrease in air passengers from April of the previous year. In April 2023, U.S. airline passenger volume surpassed April 2019 by 3 percent, likely impacted by easing travel restrictions. Globally, May 2023 saw traffic rise to 96.1 percent of pre-pandemic numbers. Ultimately, U.S. airlines have hit recovery with consumer air travel, while global levels are not far behind.

The aerospace industry appears to be experiencing a rebound with heightened demand but struggling to keep up — moving from a demand-constrained to a supply-constrained environment. In addition to the consumer sector, the aerospace industry is feeling demand from defense, particularly following Russia’s invasion of Ukraine. In 2022, global military spending hit an all-time high of $2.2 trillion, with Europe reflecting the most dramatic increase at 13 percent — driven largely by Russian and Ukrainian expenditures. Russia’s spending grew 9.2 percent to $86.4 billion, with Ukraine growing 640 percent to $44 billion. In Central and Western Europe, 2022 was the first time that military spending ($345 billion) reached Cold War levels. Finally, NATO has seen an overall 8 percent real uptick in defense expenditure in 2023, versus 2 percent in 2022.

Heightened geopolitical challenges have also led to sanctions of products exported from Russia, ultimately disrupting the supply chain. Per a 2022 Deloitte survey, 80 percent of manufacturing executives indicated that they have experienced a heavy or very heavy impact on their supply chain by at least one disruption over the last 12 to 18 months. Specific to aerospace, this has affected the industry’s access to titanium, a critical component to the market. Russia ranks third globally behind China and Japan for the production of titanium sponge, which is produced from two ores that serve as the main sources of titanium. Moreover, the world’s largest titanium producer is located in Russia.

In addition to supply chain constraints, the aerospace and defense industry is facing challenges to meet demand due to ongoing labor shortages. Major commercial aircraft makers have relied heavily on Russia for one third to one half of their titanium supply. However, in 2022, two of the largest commercial aircraft manufacturers made the move to cut ties to all Russian-sourced titanium. As a result of these industry adjustments, both suppliers and OEMs have searched for creative alternatives to meet demand. These include opportunities with small and medium suppliers and strategic acquisitions — all while satisfying recent massive orders. Just last month, two of the largest Indian airlines agreed to purchase 1,000 commercial aircraft from manufacturers, the largest single aircraft purchase agreement in commercial aviation history by over 500 planes.

In addition to supply chain constraints, the aerospace and defense industry is facing challenges to meet demand due to ongoing labor shortages. The industry alone saw attrition rise to 7.1 percent — 2 percent higher than 2020 — with 70 percent of companies experiencing increased turnover. For positions requiring security clearance, which further limits the applicant pool, 70,000 cleared roles sit available. Finally, the aerospace and defense industry is seeking workers with digital skills, including data, analytics, and automation in order to meet its evolving landscape. Challenges like this present additional complexity to A&D companies looking to stand up new office or manufacturing facilities in the U.S. or globally.

Markets that do not have an established aerospace industry may present initial hiring challenges, but the opportunity exists for a firm to create its own hub of relevant talent. Weighing Project Goals
The following is an example of how a namesake in the A&D industry stood up a thriving aerospace hub across a variety of job types in a relatively immature market and how other firms should weigh their project goals into their next site selection.

Nestled on the Georgia coast is the historic city of Savannah. In 1967, Savannah had a population of approximately 150,000 people, and was the 83rd largest city in the U.S. according to the latest census at the time. It was a town known more for its rich Revolutionary War history and ghost tours than being a hub for manufacturing. However, a global leader in the private jet industry made the bold move to move its headquarters to Savannah in 1967, despite there being significantly larger and faster growing metros in the U.S.

The company’s initial employee count of 100 grew to 1,700 within just a few years, and as of 2023 this company employs 10,000 in the Savannah area. Savannah is actually less populated today than when the firm established its first facility in 1967; but even in the wake of this stagnant population growth, in April of 2023, the company announced a 1,600-employee expansion. From initial market entry, the company and suppliers that followed transformed Savannah into a market of aerospace talent, including a density of aerospace technicians 5.4x denser than the national average. Furthermore, the company has created its own educational pipeline through partnerships with the Georgia Institute of Technology, Savannah College of Art and Design, and Savannah Technical College, to name a few.

A deep understanding of an aerospace firm’s unique goals, employee growth, and wage competitiveness is crucial for an informed and data-driven site search for its next manufacturing, engineering, or office facility. This case study poses an interesting question for aerospace and defense clients looking to stand up new manufacturing operations. Established aerospace markets can offer immediate access to relevant talent, but with increased competition. Comparatively, markets that do not have an established aerospace industry may present initial hiring challenges, but the opportunity exists for a firm to create its own hub of relevant talent. If a market has the volume of production workers (not necessarily in aerospace) that a company is looking for, many of these skills could be stood up by localized on-the-job training grants, coupled with local trade school and community college partnerships. This is particularly relevant if the firm has slow and steady headcount growth projections, creates a positive employee culture, and a commitment to be community partner rather than just an employer.

If a firm needs multiple hundreds of aerospace production workers within just a few years ramp-up, it would be better-suited to a market that has an established aerospace ecosystem. Naturally, an established market will have stiff competition for technician and mechanic type roles not just within the aerospace industry, but all manufacturing. From Deloitte’s due diligence for past clients, interviews have shown that these employees can quickly be $100,000+ annual earners after competitive benefits packages at top aerospace employers.

Similarly, competition for engineering interns and other salaried talent from top universities has become increasingly stiff in established aerospace markets, offering wages and benefits previously reserved for full-time staff.

The point is not to say that an entrant into an established aerospace cluster would be so stifled with competition that it could not hit its growth goals. However, such a firm needs to have a deep understanding of the labor market it is considering, with an honest comparison of how its compensation and brand image will compete, flavored by data-driven analysis and on-the-ground interviews with top employers. A firm that makes an uninformed jump into an oversaturated market may find itself unable to compete for top talent while forced to fork over wages it had not budgeted for. This is why a deep understanding of an aerospace firm’s unique goals, employee growth, and wage competitiveness is crucial for an informed and data-driven site search for its next manufacturing, engineering, or office facility.

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