Arizona drops in aircraft industry study
Arizona’s appeal as a place to make and test aircraft has run into turbulence in recent years.
While the state remains above-average overall in most key measures for the industry, Arizona has slid in the rankings for three straight years, according to an updated study.
Most recently, Arizona dropped from fourth place in 2018 to ninth in 2019 in the annual aerospace “manufacturing attractiveness” study. The report was released by PwC, the accounting, consulting and research firm more formally known as PricewaterhouseCoopers.
States were ranked on more than 30 variables spread across six categories — costs, strength of their economies, infrastructure such as roads and internet usage, labor, industry scope and tax policies. Among the categories, Arizona was ranked fifth for industry scope, ninth for tax burden, 14th for costs and 17th for infrastructure. Arizona’s lowest grades came in state economy (21st) and labor (25th).
“It’s not anything Arizona is doing wrong, but some other states have been improving faster,” said Scott Thompson, co-author of the report and a PwC partner in Washington, D.C. “Relatively small changes in these metrics can change your rankings.” That said, Arizona has been on a three-year slide, he noted in an interview. Arizona had placed third in the 2017 report and was No. 1 one year earlier, in 2016.
In the latest report, Thompson noted year-over-year weakness for Arizona in two categories. One was costs, which largely reflects manufacturing wages and other expenses such as energy. The other was labor, which includes factors ranging from the number of aerospace workers to the educational attainment of the overall population.
High-flying profits
Aerospace is an important sector for economic development. Globally, aerospace and defense companies reported a record operating profit of $81 billion in 2018, up 9% from the prior year. PwC expects the industry will show further expansion this year, driven by more defense spending in the U.S. and Europe, plus increased aircraft deliveries.
The U.S. airline industry in 2018 was profitable for the ninth consecutive year. Airline revenue passenger miles grew 6.5% in 2018, the fifth straight year above 6%, and net aircraft deliveries jumped 8% to a record of more than 1,600 large aircraft. American Airlines and Southwest Airlines both have large employment bases in Arizona.
Washington state was atop the 2019 list, followed by Georgia, California, Michigan and Illinois. The other states ahead of Arizona in the latest rankings were Indiana, North Carolina and Ohio.
Last year, only Washington, Texas and Georgia were ranked ahead of Arizona. Texas tumbled from second place in 2018 to 12th this year.
Sandra Watson, president and CEO of the Arizona Commerce Authority, said the report used different data sources and criteria than in past years and thus isn’t an apples-to-apples comparison. “The aerospace and defense industry in our state remains one of the strongest in the country,” with many large employers continuing to invest here, she said.
Also, Arizona and the Phoenix metro area lately have been leaders for job growth, personal-income gains, population increases and more, she noted.
Scope of aerospace industry
Missile manufacturer Raytheon is the largest aerospace company in Arizona, with about 12,000 jobs, according to this year’s Arizona Republic 100 report on largest employers. Other aerospace companies with a sizable Arizona presence include Honeywell International, Boeing, General Dynamics and Northrup Grumman. Washington state, the operational home of Boeing’s commercial-aircraft division, topped the rankings both years.
As in last year’s report, the U.S. was deemed the top nation for aerospace manufacturing at a time when the industry has been performing well. Canada placed second, followed by Singapore, the United Kingdom and Australia.