Reporting

February 28, 2014 by John Guenther

Report: California’s aerospace industry bigger than Hollywood


Boeing's C-17 Globemaster plant in Long Beach, CA will shut down production in 2015. (Photo credit: Greg Bishop)

UPDATED: March 19, 2014 - The final version of the California Aerospace Industry Economic Impact Study was released today

What's nearly invisible but bigger than California's agriculture and entertainment industries combined? It's the state's aerospace industry. That's the story coming from a new economic impact report trying to show how aerospace is a massive but endangered species here, generating $62 billion a year in revenue.

"Hollywood has the movies, celebrities and the Hollywood sign. They're famous all over world," said Ivan Rosenberg, executive director of the Aerospace and Defense Forum, which co-sponsored and participated in the study. "And agriculture is very visible because we eat every day, you can see vast fields in the Central Valley, and the water problem is prominent in the news. But aerospace is mostly invisible because it's not clear which buildings contain aerospace and which do not."

While story for the past 20 years has usually been about the industry's rapid decline here, California's aerospace companies still represent about 9 percent of the global market share.

The California Aerospace Industry Economic Impact Study, being released in early March by consultant firm A.T. Kearney, is intended to raise awareness about importance of the industry to the state economy and the middle class jobs it sustains here.

"Every single event I went to--a coffee event or forum--there was at least one current or retired aerospace industry engineer," said Assembly member Al Muratsuchi (D-Torrance), who spoke at a recent Aerospace and Defense Forum presentation of the study. "It showed just how aerospace built the middle class in not only the South Bay but Los Angeles."

Since 1990, aerospace jobs in California have declined about 60 percent, according to the study. But the sector still is responsible for around 203,000 direct employees and also supports 511,000 total jobs across multiple industries, directly and indirectly.

One of California's strengths in the aerospace realm has for a long time been the large skilled workforce located here. But, the skills sets in other states are only growing stronger. In addition, California's workforce--and the country's, for that matter--has a population problem.

"Even though we have a very strong workforce from very good universities and research and development facilities, a lot of good innovation happening here, we are seeing a baby boomer retirement that's impacting us," said Arash Ateshkadi, manager at A.T. Kearney Public Sector & Defense Services. "And if we're not investing enough in STEM--the science, technology, engineering and math education base--it's going to really diminish our competitiveness in having a labor force that's needed to sustain and grow the aerospace field."

Because of that, one of the key recommendations in the report involves boosting STEM education in schools. This effort, combined with making sure California funds properly career technical education (CTE) in in-demand job fields, represents something the California Economic Summit is already committed to through its Workforce Action Team. One of the main goals of the Team is to prioritize workforce development funding to get people ready for high-growth jobs and in the big sectors of California's regional economies.

But, as most people can perceive, California has its disadvantages that hamper the cost competitiveness of doing business here, also highlighted by the report. One example given by Ateshkadi are the state's leading edge environmental impact requirements, which have Pacific Rim countries looking at California to reduce their pollution, but also can be a double-edged sword, making it more difficult to operate an aerospace company here.

Just like the discussion about the film jobs leaving California, the discussion turns to incentives, like a use tax reduction and tax credit programs, designed to help keep aerospace from fleeing. Muratsuchi said there is concern by some in the state capital that these programs merely represent a form of corporate welfare.

But advocates want legislators to keep in mind the size of the industry and the related jobs, which are high-wage and can average in the $90,000 range. The industry also generates $2.9 billion income tax revenue, according to the report.

Other recommendations by the authors included:

  • Creating economic policies that are more innovative than other states
  • Implementing more regulatory streamlining and tax incentives at the state level
  • Promoting more competitive lobbying for federal funds
  • Investing in STEM education to fill need for a younger workforce that is interested in STEM in order to grow and sustain the industry

Through surveys of aerospace companies, Ateshkadi noted there's definitely some frustration about perceived indifference in government. And many in the industry are left wondering why California isn't being as aggressive as or more aggressive than other states in coming up with policies to keep businesses here, especially when places like Texas have low or no income and corporate taxes.

However, there's still hope that raising awareness and creating more dialogue between public and private sectors will result in more innovative economic policies in California that can change the course of aerospace here.

"I think it's easier to keep a company in California as it is to pull them away because it takes a lot of investment for companies to move from one location to the other," said Ateshkadi. "So, it doesn't take that much effort in California to retain some of the businesses here."

The California Economic Summit is not only working on helping build up those STEM and CTE careers but working on helping advance manufacturing in the state. One of the goals of its Advancing Manufacturing Action Team is to help build up strong regional manufacturing partnerships working with federal and state governments and educational institutions.

And that partnership aspect is important because, as Rosenberg relates, government is often perceived as an adversary, yet people in aerospace generally want to stay in California.

"It's the same reason Silicon Valley high tech people want to hang around with other high tech people," said Rosenberg. "It's the same thing with aerospace, because there are a lot of aerospace companies in California. But if you come back 50 years, there may not be."

Categories: Economics 101, Innovation, Regulations, Workforce

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