AEROSPACE COMPETITIVE ECONOMICS STUDY 2019 RANKINGS SUMMARY
Prepared for:
International Association of Machinists (IAM) Society of Professional Engineering Employees in Aerospace (SPEEA)
Prepared by:
Teal Group Corporation
Contacts:
Richard Aboulafia, Teal Group Corp. (202.352.6294) Tom Zoretich, Teal Group Corp. (571.201.4943) Evan Woods, Olympic Analytics (206.707.5980)
Date:
June 2019
TEAL GROUP
Table of Contents INTRODUCTION .................................................................................................................................. 2 OVERALL RANKINGS ........................................................................................................................ 3 CATEGORY RANKINGS ..................................................................................................................... 7 METHODOLOGY ................................................................................................................................. 8
ACES 2019
Rankings Summary
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INTRODUCTION The findings of the 2nd Annual Aerospace Competitive Economics Study (ACES) are presented in this summary report. ACES utilizes a quantitative ranking methodology that includes a broad array of statistical measures that characterize individual state economies, and associated factors contributing to the ability of commercial enterprises to efficiently and profitably produce aerospace-related products. The methodology addresses the competitive business environment that aerospace manufacturing and final assembly companies face when they consider locating in any of the 50 U.S. states or the District of Columbia. The results offer a comparative tool to help public and private interests evaluate the strengths and weaknesses of individual states. The results of this report aid in understanding important underlying capabilities that can best support the aerospace sector. ACES relies on forty-one metrics. Each is assigned to one of eight categories. Individual metrics were chosen based on relevance, availability, consistency across states and potential impact to production and profitability. Wherever possible, metrics were selected based on their ability to characterize the aerospace sector. The eight categories included in ACES are presented in the table to the right. The assigned weights are based on an assessment of how impactful the category might be to the overall productivity and profitability of an aerospace company. The higher the likely impact to the income statement and profits, the higher the weight assigned. The metrics and categories chosen include elements that are directly or indirectly impactful. Direct impacts score a higher weight than indirect impacts. Some states are highly competitive across a number of categories and individual metrics, while other states are strong in a category or two, or not competitive in the least. The ACES analysis and findings focus on the aerospace sector, but some of the results for non-aerospace specific categories could apply to other sectors.
Category
Weight
Costs
20.0%
Labor & Education
17.5%
Taxes & Incentives
17.5%
Industry
15.0%
Infrastructure
15.0%
Economy
5.0%
Research & Innovation
5.0%
Risk to Operations
5.0%
State category rankings change from year-to-year. Tax metrics, for instance, are influenced by government policy which can change quickly within a legislative session, with rates adjusted and incentives increased, reduced or repealed. This year’s ACES Rankings represent a quantitative snapshot of the current competitive landscape rather than an analysis of long-term trends. Aerospace manufacturing encompasses a broad array of processes and products, and these various inputs depend on many different attributes in a production site. For example, manufacturing avionics or satellites involves a greater emphasis on a skilled engineering workforce, and relatively little emphasis on infrastructure. On the other hand, heavy manufacturing of large metal aerostructures involves greater emphasis on a skilled manufacturing workforce and physical infrastructure; composite structures would involve a greater emphasis on energy costs. Given these requirements, ACES criteria weightings reflect a balanced approach. In general, we have tried to look at the qualities most desirable for the manufacture or final assembly of large aerospace structures. But a manufacturer seeking to build, for example, missile engines or flight simulators, might apply alternative weighting to the various metrics and categories. ACES 2019
Rankings Summary
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OVERALL RANKINGS State
For the second year in a row, Washington is the top ranked state and the most competitive business environment for the manufacture of major aerospace platforms. Completing the top five states were Ohio, Utah, North Carolina and Arizona.
Washington #1 The State of Washington scores high in most of the categories and many of the individual metrics. It is a solid first place finisher. Washington is at or near the top in four categories: Costs (#1), Industry (#1), Economy (#1) and Labor & Education (#2). It also scores in the top ten in Risk to Operations (#5), Taxes & Incentives (#5) and Research & Innovation (#6). While other states rank well in a handful of categories, Washington outperforms the competition by ranking extremely high in the majority of measures.
Ohio #2 Ohio once again finishes in the second highest position. Measures contributing to its position include Industry (#4), Risk to Operations (#7) and Labor & Education (#9). Ohio ranks 13th in the important Costs category and ranks 16th in both Infrastructure and Economy.
Utah #3 Jumping four places from last year’s 7th place finish, Utah lands in the top five and becomes the 3rd most competitive aerospace manufacturing state. Contributing to its rise, Utah moves up in three key categories: Costs, Labor & Education and Industry. It is a top ten finisher in three categories: Risk to Operations (#3), Research & Innovation (#3) and Taxes & Incentives (#4). Utah fell just outside the top ten in Labor & Education (#11) and Costs (#12).
North Carolina #4 North Carolina dropped one position from #3 in 2018 but maintained a very strong top five finish in 2019. It is #2 in the all-important Costs category, down slightly from its #1 ranking in the 2018 results. It also dropped one position in the Industry category to #7. Top twenty rankings in Taxes & Incentives (#12) and Risk to Operations (#13) were key contributors to its overall strength.
Arizona #5 Another state that improves its ranking from last year is Arizona, which climbs from #9 overall in 2018 to #5 in 2019. Strong category rankings include Risk to Operations (#1), Industry (#6), Labor & Education (#8) and Research & Innovation (#10). Improvements in Industry and Infrastructure were important drivers of Arizona’s overall rise. ACES 2019
Rankings Summary
Washington Ohio Utah North Carolina Arizona Colorado Georgia Texas Kansas Alabama Indiana Missouri California Connecticut Florida Michigan Virginia Kentucky Oklahoma Massachusetts Pennsylvania Maryland Iowa North Dakota Wisconsin Arkansas South Carolina New Hampshire Vermont Minnesota Wyoming South Dakota Delaware Oregon West Virginia New York New Mexico Nevada Illinois Idaho Alaska Tennessee Nebraska Maine District of Columbia Hawaii New Jersey Mississippi Louisiana Montana Rhode Island
Overall Overall 2019 2018 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51
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1 2 7 3 9 5 6 8 4 10 16 11 14 24 18 13 12 21 15 23 25 33 28 20 19 29 22 31 41 30 26 17 36 27 32 40 39 35 37 34 44 43 42 46 48 38 50 47 45 49 51
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Colorado #6 Coming in at #6 and down one position from a year ago, Colorado remains a solid top ten performer. Helping it maintain a leading position are #5 rankings in two categories: Labor & Education and Research & Innovation. An Industry rank of #12 and Taxes & Incentives rank of #13 are two other factors contributing to its overall strong performance. Colorado also jumps eight places in the Costs category.
Georgia #7 Also dropping one spot is Georgia at #7. It has several top twenty category finishes: Labor & Education (#10), Industry (#14), Economy (#14) and Taxes & Incentives (#18). Georgia rises nine positions in the Economy category while dropping 8 positions in the Taxes & Incentives category.
Texas #8 Texas remains in the top ten and stays at #8 in the overall rankings. Categories that contribute to its finish include Taxes & Incentives (#3), Industry (#10) and Economy (#18). While Texas saw year-over-year gains in Industry and Infrastructure; it dropped in Costs, Economy and Risk to Operations.
Kansas #9 Kansas at #9 drops five spots in this year’s rankings. The state is particularly strong in two categories, Industry (#3) and Labor & Education (#4); and achieves two other top twenty finishes in Economy (#15) and Infrastructure (#18). Kansas experienced a sharp drop in the Costs and Research & Innovation categories rankings, while its position in the Economy category rose.
Alabama #10 Completing the top ten is Alabama. Key contributing categories include Taxes & Incentives (#8), Industry (#9) and Labor & Education (#12). Alabama retained the #10 overall ranking from 2018 to 2019. Its year-over-year performance saw a strong improvement in the Costs category. However, this was offset by drops in Economy, Taxes & Incentives and Infrastructure.
State
Overall Rank
Costs
Labor & Education
Industry
Infrastructure
Risk to Operations
Economy
Research & Innovation
Taxes & Incentives
Washington Ohio Utah North Carolina Arizona Colorado Georgia Texas Kansas Alabama
1 2 3 4 5 6 7 8 9 10
1 13 12 2 14 24 21 30 26 25
2 9 11 40 8 5 10 22 4 12
1 4 16 7 6 12 14 10 3 9
14 16 51 28 50 45 24 33 18 40
5 7 3 13 1 30 21 32 49 24
1 16 8 27 40 22 14 18 15 23
6 23 3 19 10 5 26 22 32 33
5 17 4 12 16 13 18 3 31 8
ACES 2019
Rankings Summary
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Other Results As seen in the table below, many states score well in individual categories. In order to rank high in the overall results, a state must score fairly high in a number of categories and not rank near the bottom in multiple categories. The Infrastructure category is interesting in that not one of the overall top ten aerospace manufacturing competitiveness states appears in the top ten for Infrastructure. Of the overall top ten states only Washington, Ohio and Kansas rank in the top twenty in the Infrastructure category.
Category Rank #1 #2 #3 #4 #5 #6 #7 #8 #9 #10
Labor & Education
Costs Washington North Carolina Missouri Iowa South Dakota Arkansas West Virginia Kentucky Wyoming Indiana
Connecticut Washington Vermont Kansas Colorado Maryland California Arizona Ohio Georgia
Industry Washington California Kansas Ohio Connecticut Arizona North Carolina Florida Alabama Texas
Risk to Operations
Infrastructure Massachusetts Illinois Vermont District of Columbia New York Pennsylvania Maryland Connecticut North Dakota Florida
Arizona Michigan Utah Oregon Washington Maine Ohio New Mexico Nevada Wisconsin
Economy
Research & Innovation
Taxes & Incentives
Washington New Hampshire Massachusetts Wisconsin Oregon Iowa Minnesota Utah Indiana Michigan
Massachusetts California Utah Connecticut Colorado Washington New Hampshire Maryland New Jersey Arizona
South Dakota Indiana Texas Utah Washington North Dakota Nevada Alabama Oklahoma
Note: states that are in the overall top ten are bolded.
Another category of note is Industry. Seven overall top ten performing states appear in the category. The three other Industry top ten states (California, Connecticut and Florida) are clearly top aerospace producing states (but, not necessarily for large aircraft structures), yet they do not have sufficient strength across enough other categories to propel them into the overall top ten. A number of states moved up or down by a significant amount.
WINNERS State Vermont Maryland Connecticut Indiana Iowa Utah Arizona Pennsylvania New York
ACES 2019
LOSERS Overall Rank (2019)
Overall Rank (2018)
Gain
29 22 14 11 23 3 5 21 36
41 33 24 16 28 7 9 25 40
+12 +11 +10 +5 +5 +4 +4 +4 +4
State South Dakota Hawaii Oregon Wisconsin Idaho Kansas Virginia South Carolina Wyoming
Rankings Summary
Overall Rank (2019)
Overall Rank (2018)
Loss
32 46 34 25 40 9 17 27 31
17 38 27 19 34 4 12 22 26
-15 -8 -7 -6 -6 -5 -5 -5 -5
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TEAL GROUP Indiana almost moved into the top ten. Finishing at #11 overall, Indiana is strong in Taxes & Incentives (#2), Economy (#9) and Costs (#10). Contributing to its rise were solid improvements in Labor & Education, Costs, Taxes & Incentives and Risks to Operations. Connecticut finished at #14, moving up ten positions from its 2018 finish at #24. It is very strong in Labor & Education (#1), Research & Innovation (#4), Industry (#5) and Infrastructure (#8). However, Connecticut also performs poorly in two key categories: Costs (#48) and Taxes & Incentives (#43).
ACES 2019
Rankings Summary
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CATEGORY RANKINGS
ACES 2019
Rankings Summary
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METHODOLOGY ACES draws on many data sources and incorporates various measures. Each of the 41 metrics was chosen for inclusion because it meets all or most of the following criteria: 1. 2. 3. 4. 5. 6.
Important to manufacturing costs and profitability Readily available for all 50 states and the District of Columbia Uniformity of calculation and reporting, so that the variable can be fairly compared across all states Publicly available data Available for a recent year Aerospace industry specific
Each metric is ranked by state based on the absolute variable value. The result is a matrix of rankings by metric by state: 41 metrics by 51 states. The weights are based on a review of potential impact to a typical aerospace company’s income statement and profitability. The more directly impactful a category (or individual metric) is believed to be, the higher the weight assigned. For example, Costs are more directly linked and impactful to an individual corporation’s overall cost structure and ability to generate profit than are indirect impacts from the state’s Economy. Therefore, Costs receive a weight of 20%, while Economy receives a weight of only 5%. Likewise, the specific metrics within a category received a higher weight depending on their perceived income statement impact within that category. Where individual metrics were perceived to be somewhat equal in importance, or their impact was understood to be less direct to the income statement, then similar weights were assigned, or the weighting was clustered in a narrow range. A state’s ranking for each category (i.e. Infrastructure or Risk to Operations) is calculated by multiplying each metric rank in the category by its metric weight, summing all of the resulting weighted metrics, and then ranking each state from smallest to largest weighted metric sum for that category. Each state’s overall ranking is calculated by multiplying all 41 metrics by their metric and category weights, summing the resulting weighted metrics, and then ranking states by the final sum of these 41 weighted metrics. The ACES rankings include data that are as aerospace specific as possible while also remaining publicly available for all 50 states and the District of Columbia; and for the large majority of metrics, data were available for every state. However, for a handful of metrics, data were missing for one or more states. In these cases, econometric and analytical techniques were used to come to a reasonable estimation of the state’s missing data for that metric. These techniques used data from previous years, related available aerospace data, and data from a broader NAICS category to develop an accurate estimate.
ACES 2019
Rankings Summary
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WEIGHTS FOR CATEGORIES AND INDIVIDUAL METRICS Below are the 41 metrics used in the ACES model, the category to which it is assigned and the associated weights. Category
ACES 2019
Weight
Costs
20.0%
Labor & Education
17.5%
Industry
15.0%
Infrastructure
15.0%
Risk to Operations
5.0%
Economy
5.0%
Research & Innovation
5.0%
Taxes & Incentives
17.5%
Metric
Weight
Unit Labor Cost Unit Material Cost Energy Cost Construction Cost Aerospace Engineers Aerospace Production Workers Engineering BAs Graduate Degrees High School Degree or More Education Spending Aerospace Sales Aerospace Value Added Aerospace Exports Workforce Growth Supplier Density Crowding Out Airports Freight Railroad Port Volume Road Condition Transportation Funding Insurance Losses Insurance Premiums Earthquake Premiums Extreme Weather GDP Per Capita GDP Per Capita Growth Manufacturing Global Manufacturing Connectivity Unemployment Rate Patents per Capita Public R&D Private R&D High Tech Establishments Total Taxes/GDP Workers' Compensation Corporate Income Tax Individual Income Tax Manufacturing Tax Property Tax Sales Tax
30% 30% 20% 20% 30% 30% 10% 10% 10% 10% 20% 15% 15% 20% 20% 10% 18% 18% 18% 18% 30% 30% 30% 20% 20% 20% 20% 20% 20% 20% 25% 25% 25% 25% 20% 10% 18% 15% 18% 10% 10%
Rankings Summary
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CONTRIBUTION OF EACH INDIVIDUAL METRIC TO THE OVERALL RANKINGS Each individual metric weight within its category is multiplied by the category weight. The result is the individual metric’s share in the overall ranking calculation.
ACES 2019
Rankings Summary
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Contact Information
Teal Group Corporation 3900 University Drive Suite 220 Fairfax, VA 22030 Phone: (703) 385-1992 Richard Aboulafia Vice President Analysis Tel: (703) 385-1992 ext. 103 raboulafia@tealgroup.com Tom Zoretich Sr. Economist and Director Strategic Studies Tel: (571) 201-4943 tzoretich@tealgroup.com
Olympic Analytics 3903 S Ferdinand St, Unit B Seattle, WA 98118 Tel: (206) 707-5980 Evan Woods Chief Consultant ewoods@olympicanalytics.org
©2019 Teal Group Corporation ACES 2019
Rankings Summary
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