For A&D, the time is right for expansion

30 July, 2019

Scott Thompson
Aerospace and Defense Leader, PwC US

The global Aerospace and Defense (A&D) industry reported record operating revenue and operating profit in 2018, both increased 9% over the prior year. Commercial aerospace is forecasted to continue to grow at roughly twice the rate of global GDP for foreseeable future. The US Defense budget is increasing to $740 billion by 2021, with strong growth occurring throughout the world. The A&D industry continues to expand capacity to keep up with demand.

So where are the best places to consider investment in expansion? The answer depends on each company’s facts and circumstances. Our annual report, Aerospace manufacturing attractiveness rankings, delves into some of the macro considerations around A&D experience, talent, cost, tax policy, infrastructure and economy. These rankings could be helpful in making investment decisions about where to build and expand operations.

Below are a few ranking highlights from the report:

Top five global countries/regions

  1. US—The US remains the global industry leader and the global A&D export leader. The country scored highly in all categories except tax policy, which data did not yet reflect the impact tax reform in 2018.
  2. Canada— Canada has an educated labor force, low level of geopolitical risk, and industry scale. In 2018, industry revenue increased 7% to reach $18.1 billion. Canada’s government is actively encouraging R&D efforts to facilitate the growth of A&D firms.
  3. Singapore—Singapore is Asia’s leading solutions provider of aircraft maintenance, repair and overhaul (MRO). Singapore has a stable government, strong manufacturing base, and favorable tax policy. This year, local aerospace companies and the government agreed to collaborate on 3D technology projects.
  4. United Kingdom— The UK has a strong aerospace industry. The UK government announced it is investing in a next a generation fighter jet, Tempest, as well as in new aerospace technologies. The details of BREXIT could impact the country’s high level of aerospace exports.
  5. Australia— Australia has relatively low production costs and low levels of geopolitical risk. In 2018, the country released a long-term vision to increase the competitiveness of its defense industry, earmarking more than $200 billion in new investment. In April, Australia unveiled a full-size model of a new unmanned jet fighter.

Top five states in the US

  1. Washington— Washington ranks highly in the categories of industry, infrastructure, and economy. The state is home to major players such as Boeing Commercial Airplanes (BCA) and Blue Origin. Boeing is the largest private employer in the state.
  2. Georgia— Georgia has one of the world’s most traveled airports, eight regional airports, expanding military bases, and accessibility to the country’s fastest growing major port. It has more than 800 aerospace companies including Gulfstream and Lockheed Martin. Companies are attracted to the state’s relatively low wages and low corporate tax rate.
  3. California— California has a strong economy, good infrastructure, and a strong industry presence (second only to Washington State). California is home to three NASA research centers and the Mojave Air and Space Port and is growing as a hub for space-related ventures, including Space X and Rocket Lab.
  4. Michigan— The state has a flat corporate tax rate of 6% and a healthy economy. Michigan has over 18 educational institutions with aviation-related degrees as well as a skilled automotive workforce which can crossover to aerospace. In the past 18 months, the state has attracted nearly $750 million in aerospace capital investment.
  5. Illinois— The state is home to prime contractors and subcontractors that supply systems and components to the US military, NASA, and aerospace manufacturers. Collins Aerospace is expanding production in the state with a facility to design and test systems for next generation electric aircraft. Last year, the Army established a center to focus on unmanned aircraft systems technologies.

We welcome the opportunity to discuss the findings from our report. Contact us to discuss your companies specific objectives and how we can work with clients to customize our model for your individual needs.