2016 aerospace manufacturing attractiveness rankings

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The US maintained its first place ranking for the third consecutive year because of the breadth of its aerospace industry.

The United States maintained its first place ranking for the third year in a row because of the breadth of its aerospace industry, which is seven times greater than the United Kingdom, which ranked second in industry size.

Other countries in the top 10 include Canada, United Kingdom, Singapore, Switzerland, Denmark, Hong Kong SAR, China, Netherlands, Ireland, and Finland.

Changes in the 2016 country rankings were primarily driven by the use of Oxford Economics data for pay and productivity rather than self-assessment data from the World Economic Forum Global Competitiveness Report. In 2015, pay and productivity, which, along with tax rates comprise the cost category, was calculated largely based on a self-assessment survey, part of the world times greater than the United Kingdom, which ranked second in industry size.

This past year, Airbus made a major commitment in the US with its jetliner assembly line in Mobile, Alabama, the company’s first production site in America. Some additional US manufacturing investments include Boeing’s new propulsion engineering and assembly facility in South Carolina and the US’ rankings in the other two categories (cost and infrastructure) were toward the bottom of the top 10 countries, but not low enough to offset its industry rank. The US also scored highly (fourth) for the quality of its scientific research institutions. The UK scored highly in that area as well, coming in second after Switzerland.

Canada moved into the second spot, from sixth place last year, with improved Economic Forum Global Competitiveness Report. This year, the methodology used productivity data from Oxford Economics, which included unit wage, manufacturing, and nominal costs. Oxford data is an independent source and will allow the rankings to be more consistent going forward.

Countries with relatively high wages and productivity levels moved up in the rankings with the change in pay and productivity data methodology. Specifically, within the top 10 rankings, the UAE, Luxembourg, and Qatar were replaced by Denmark, the Netherlands, and Finland The United States maintained its first place ranking for the third year in a row because of the breadth of its aerospace industry, which is seven construction of Northrop Grumman’s Unmanned Aerial Systems facility in North Dakota. The US also attracted the most investment in research and development (R&D), including investments made by United Technologies Corporation (UTC), Raytheon, and Lockheed Martin, among others. UTC broke ground on a new R&D facility in Connecticut to expand capabilities in intelligent systems, advanced materials and manufacturing, and revolutionary propulsion and power technologies. Raytheon is expanding its cyber security program with a new facility in Virginia, and Lockheed Martin’s new missile defence technology laboratory opened at its Silicon Valley site.

Denmark moved up seven places in the rankings to come in sixth due to improvements in costs and aerospace workforce education, research, and training. The forward movement in rankings is likely to be supported in the near term by the involvement of the Danish aerospace industry in helping to produce F-35 jets, which will be sold globally as well as in Denmark to replace the country’s aging air force fleet. Lockheed Martin estimates that the F-35 order will result in $356M in contracts to 12 Danish companies.

After falling out of the top 10 rankings last year, the Netherlands now ranks eighth as a result of an improvement in the overall cost metric. The positive adjustment in pay and productivity was enough to counter an increase in the total tax rate rankings for the country. Additionally, the improvement in manufacturing attractiveness comes at a beneficial time for Bombardier Commercial Aircraft, as it has recently renewed a strategic alliance with Dutch aircraft manufacturer Fokker Services to provide the ABACUS FLY program to operators of Dash 8/Q Series 100/200/300 aircraft. The renewal extends the alliance by three years and is aimed at improving the availability of components and reducing operator repair and overhaul costs.

Considerations for your business

Demand for aircraft is strong in most regions of the world, but especially in rapidly growing foreign markets such as China, India, and Brazil. These countries, with burgeoning middle classes and large and increasing populations, offer significant opportunities for US aircraft manufacturers and drive both international and domestic expansion. However, some global markets pose greater risk than others. To mitigate these risks, US companies have to understand each country’s specific regulations, tax policies, and intellectual property protection laws. Also, companies have to address human resource issues such as talent recruitment, training, and retention, which can be particularly difficult in some markets and require knowledge of cultural norms and sensitivities. These risks need to be measured against the soundness of offshoring to extend supply chains overseas. In recent years, some companies have moved to re-shore all or part of their supply chain as domestic business conditions have become more competitive. To support this new resurgence in American aerospace manufacturing, companies, educators, and policy makers need to promote the skills and policies that will foster investment growth in the US.

Among state rankings, Arizona jumped to first place with improvements in the state’s industry rank and operating costs, as well as high scores in property and unemployment tax. Florida dropped one rank from last year to take second place, but its Space Coast still remains a hot spot with companies developing facilities in that area. Utah, Georgia, Missouri, Texas, Michigan, and Ohio remained in the top 10, and newcomers included Indiana and Washington.

Methodology for country rankings

PwC’s analysis was based on a weighted average of three major categories: costs (taxes, manufacturing wages, and productivity), industry size ((number of existing suppliers), and infrastructure/stability/workforce (including quality of electrical and transportation infrastructure, regulatory/ legal/corruption rankings and enrollments in, and quality of, engineering programs). To increase the accuracy of the pay and productivity sub-category, this year’s analysis was based on data from Oxford Economics and included unit wage, manufacturing, and nominal costs rather than self-assessment data from the World Economic Forum Global Competitiveness Report. Oxford data will allow the rankings to be more consistent going forward. Data is only available for the largest countries so anything without a metric in Oxford Economics (eg, Nigeria) is ranked as tied for last (142).

The following chart provides a view of category breakdowns and weighting percentages: