Record Demand Causes a Shift in Aerospace Investment Locations

Monday, August 08, 2016

By Site Selection Magazine

Commercial aircraft manufacturers can’t make passenger jets fast enough to meet global demand. But that doesn’t mean that areas home to their production facilities will enjoy the privilege of hosting them indefinitely. They’ll need to compete even more aggressively for investment in the aerospace and defense sector, especially now that it’s back in growth mode.

Deloitte Touche Tohmatsu Ltd.’s 2016 Global Aerospace & Defense Outlook predicts revenue growth of 3 percent for the year, following three consecutive years of revenue declines. Trimmed defense budgets, particularly in the US, were behind those declines. But booming demand for passenger travel and air carriers’ fleet growth strategies are more than making up for that in the broader aerospace industry, resulting in revenue growth.

What are the location implications, particularly for those areas with established aerospace manufacturing clusters and new clusters? There are two implications, according to Tom Captain, Deloitte’s Global Leader, Aerospace & Defense Sector, who spearheaded his firm’s 2016 Outlook.

“The aerospace and defense industry has resumed its above-average growth trend, which portends good news for regions intent on attracting the industry to their locations,” Captain tells Site Selection. “For companies, it is a buyers’ market, with deals being offered by governments that are seemingly uneconomic. For governments, it is a tough, highly competitive market which will require outsized economic incentives, investments in infrastructure and job-training programs to be on par with what others are offering.”

Companies in revenue growth mode, like aerospace companies in 2016, can bring more leverage to location negotiations, notes Captain. “Aerospace companies continue to seek out locations that offer low cost labor, availability of a skilled workforce, low cost of living and economic development incentives from government authorities. Increasingly,” he adds, “OEMs are creating incentives for suppliers to co-locate in areas they choose for final assembly plants. The increased volume of companies locating manufacturing and distribution operations in Mobile, Alabama, and North Charleston, South Carolina, are good examples of this.”

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Category: Site Selection Magazine, News

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