Aerospace Focuses on Maintenance and Niche Business For Growth
Economic growth in the aerospace industry has been lukewarm, but companies large and small are taking advantage of middling advances to propel expansion.
Craig Guillot (June/July 10)

While the aerospace sector has taken a hit in the last couple of years, experts say the industry has a fair outlook for the future. More access to financing and signs of a slow, global economic recovery could spell good news for aerospace. And while new aircraft orders may be down, the demand for third party maintenance and niche services is growing.

Weak Recovery
Aerospace is a $150 billion industry in the United States and generates more than 1.3 million jobs, according to the Aerospace Industries Association. The AIA estimated in 2008 that sales last year would rise more than 4 percent to $214.1 billion, and it expects new business aviation orders to recover in 2010.

Some still anticipate turbulent times ahead, but there are bright spots. Bill Chadwick, director of the Aerospace Research Center at the AIA, says there's a favorable outlook for aerospace in the coming years. With financing opening up in the past year and the global economy showing potential for an upswing, there may be growth ahead. Chadwick notes that the last quarter of 2009 saw an uptick in sales.

"The end of last year was a lot better than we were expecting," he says. "The large civil aircraft, shipments, and net orders were a bit stronger. It shows that financing is firming up."

But the government could be planning to cut back its orders. In early May 2010, U. S. Air Force Secretary Michael Donley warned suppliers to expect a Pentagon focus on affordability. This comes from mounting competition as overseas firms, such as EADS in Europe, compete with Boeing to build a 179 refueling aircraft for the Air Force. And when President Obama called to dissolve the Constellation Program, it left two of NASA's largest contractors, Lockheed Martin and Alliant Tech Systems, potentially on the hook for hundreds of millions of dollars.

Forecasts for air traffic - a critical driver of the aerospace industry - have grown over the first months of 2010. Aerospace News reported that by the end of the year, traffic growth could reach 6 percent, compared to 4 percent in February and 4.2 percent in March. Nevertheless, orders for commercial aircraft have sharply declined at Boeing, dropping 16 percent from April to May. The company is still planning to ramp up production and Randy Tinseth, vice president of marketing for Boeing Commercial Airplanes, told The Wall Street Journal that demand for airplanes will start to grow again in 2012 after airlines become profitable again in 2011.

"We were hoping that all these airlines with older fleets would just start buying massive numbers of planes," Chadwick says. "We're still hoping for that but we haven't seen it happen."

Hubs Hold Steady
The aerospace sector has traditionally been rooted in markets that are home to Air Force bases. In San Antonio, aerospace is a $4 billion industry, according to Mario Hernandez, president of the San Antonio Economic Development Foundation. The sector has been the backbone of the local economy for decades and employs more than 10,000 people. Following the closure of two Air Force bases, San Antonio transferred its infrastructure and work force to the aerospace industry through the Base Closure and Realignment Commission. Kelly and Brooks Air Force bases are now home to thriving aerospace companies that employ thousands of workers.

Dubbed the Port of San Antonio, Kelly Air Force Base was transformed into an aerospace complex that features a 1,900-acre site with integrated air, rail, and highway. It has experienced great success in the past year, and aerospace leaders Lockheed Martin, Boeing, StandardAero, and Pratt & Whitney occupy more than nine million square feet of industrial space there. The Air Force selected the site as the home of its 24th Air Force cyber command in 2009. It is slated to have a $1 billion budget, create up to 400 military and civilian jobs, and have a payroll of more than $40 million.

"The tremendous investments that the Air Force has put in San Antonio over the years has made us [well suited] for aerospace. We were able to use that infrastructure and work force to attract the private sector," Hernandez says. While San Antonio has faced hurdles over the years, Hernandez describes the aerospace industry as "consistent," even in today's economic climate. The increased workload at Boeing's aviation center, the lengthening of a highway to the area, and wins such as a $36 million StandardAero contract have all been positive signs.

"Aerospace has held pretty steady here since 2000 and it really hasn't grown that much. Simply holding your own is not a bad thing these days," Hernandez says.

On the West Coast, Spokane, Washington has experienced tremendous growth in the aerospace sector. More than 60 aerospace manufacturers, distributors, and suppliers employ more than 8,100 workers in Spokane and the Inland Northwest. The companies have a combined payroll of $324 million.

Construction has begun at the Spokane International Airport on a new 41,000-square-foot consolidated aircraft maintenance and painting hangar. Associated Painters, Inc. signed a 20-year lease on the facility that can accommodate two Boeing 737-900 aircrafts. The project will attract approximately 266 jobs.

In the past two years, the area has worked to attract private aerospace companies with incentives, says Todd Woodard, director of marketing and public relations for the Spokane International Airport. Funding for the Associated Painters facility included $4 million from the Community Economic Revitalization Board (CERB), $2 million from the airport, and $300,000 from the state's Economic Development Strategic Reserve Account. And this project is only one sign of what could come for a location with the right infrastructure, work force, and communication.

"When we opened up another hangar and maintenance company here about three years ago, we asked everyone what they wanted and they said it was a paint facility," Woodard says.

Maintenance and Niche Businesses Blossom
While the construction of new aircrafts might be slowing, Woodard says maintenance is up. As airlines hold on to their planes, demand for maintenance and upgrades increases. More airlines are handing maintenance contracts over to third party companies.

Since airlines lose money for each hour a plane remains out of circulation, maintenance timing is critical. Spokane's combination and addition of painting contractors along with other maintenance functions makes the city a one-stop-shop for aerospace services.

"Being online is strategically important to these companies. It is about $6,000 to ferry an aircraft and flight crew. Having the ability [to get all the work done in one place] can bring significant cost savings," Woodard says.

Growth exists for these third party contractors because so many of them support the industry. In New Orleans, the Michoud Assembly Facility is one of the largest manufacturing plants in the world. It features 43 acres under one roof along with 22 million square feet of manufacturing space, 400,000 square feet of office space, and more than 40,000 square feet of machine and shop equipment. Mike Dawson, general manager of the Michoud facility manager Jacobs Technology, says that as NASA opens the facility to non-NASA businesses, the sector will have great potential.

"We've been working for the past nine months to develop models to attract more [aerospace companies]. There has been a lot of interest and a lot of entrepreneurial efforts where companies want to turn their ideas into a production line," Dawson says.

Smaller companies and entrepreneurs may hold the key to industry growth in the coming years, Hernandez says. Gore Design Completions, a San Antonio outfit that designs, engineers, and builds custom interiors for Boeing's Airbus, counts heads of state as its core clients. The firm has produced planes for the president of China and other Central Asian and Far East leaders. Gore director of business development Rob Tomenendal says that although the aerospace industry has had its declines, specialty and niche companies can weather the storm.

"Because we are such a narrow market, the clientele that we deal with aren't really affected by the economic downturns," Tomenendal says. "Our business is doing very well and we have business booked in the hangar until about mid-2012."

In Spokane, Absolute Aviation Services is thriving in a cost-savings climate. The company serves Delta, American Airlines, and British Airways and focuses strictly on electrical component repair and overhaul services for Airbus, Boeing, and regional aircrafts. Instead of buying a brand new wingtip light for $8,000, the client can refurbish an existing light for less than half the price.

"That is the big trend," Woodward says. "You're seeing airlines holding onto these planes and extending the useful life as long as they can. That just causes a need for more maintenance and there's a lot of growth in that."

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