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California Aerospace Industry Economic Impact Study

California Aerospace Industry Economic Impact Study

Aerospace is one of California’s most important sources of jobs and revenues. The state must take steps to support it into the future.

California has been at the forefront of the aerospace industry for more than a century.1 California-based aerospace businesses and government organizations play crucial roles in commercial, civil, and national security programs, and the industry is a crucial source of high-paying jobs, tax revenues, and technological innovation.

A.T. Kearney recently conducted an independent study on the aerospace industry’s impact on California’s economy. This study shows the importance of this industry’s revenue impact, employment impact, and share of the global aerospace market.

Quantifying Aerospace’s Impact

In 2012, California accounted for $62 billion in aerospace industry revenues, 9 percent of the global market and 21 percent of the U.S. market (see figure 1). Within several specific sectors, California also plays a leading role in the national and global economy, particularly in space instrumentation, satellite services, satellite manufacturing, and engineering services.

California accounts for 9 percent of the global aerospace market

At the same time, aerospace is a crucial component of California’s economy, both as a significant source of high-paying jobs and as an incubator for technological innovation. It is one of California’s largest industries, with annual revenues equal to the prominent agriculture and entertainment industries combined. Including the $38.8 billion in indirect revenues it feeds to adjacent industries, the industry’s total economic impact is more than $100 billion.

Aerospace is also an impressive source of jobs. The industry directly or indirectly accounts for 510,000 jobs in California—203,000 directly, including commercial, military, and civilian employment, and 307,000 in indirectly related industries such as finance, real estate, construction, and transportation (see figure 2). Aerospace is also a major source of tax revenue. With aerospace wages rating in the top 3 percent of all industries, California generates $2.9 billion in personal income tax revenue associated with direct and indirect employment.

Aerospace's employment and revenue contributions to California's economy

California’s Competitiveness

California enjoys several sources of competitive advantage. The state is home to companies with strong global positioning, a highly skilled workforce, leadership in major segments, and a concentrated ecosystem of companies that enable opportunities for innovative collaboration. The state’s many technical universities provide a pipeline of skilled labor.

However, aerospace in California also faces competitive challenges and weaknesses. Decreases in government spending, tax and regulatory constraints, the rising cost of living, and high real estate costs deter commercial investment. Persistently tight environmental controls and a challenging regulatory environment have left many businesses with the perception that there is political indifference toward the industry within California’s state government. Although attention by the state legislature is improving—demonstrated through proposed bills that provide tax credits for hiring aerospace workers and partial tax exemptions for aerospace companies—government support in California lags many other states.

In fact, California ranks low in terms of cost competitiveness and overall ease of doing business (see figure 3). For example, Texas and Washington offer low corporate income tax and no personal income tax, while providing a stable business climate and skilled work force. Many high-profile corporations have relocated their operations to new states. Recent examples include Northrop Grumman, which moved its headquarters to Northern Virginia; Raytheon Space and Airborne Systems, which moved its headquarters to McKinney, Texas; and Boeing, which moved two aircraft modernization programs, for the C-130 Hercules military transport aircraft and the B-1 bomber, from Long Beach to Oklahoma City.

Comparing state taxes and wages

Recommendations

California’s leaders can take steps not only to sustain the state’s aerospace industry, but also to foster growth. These actions include:

  • Develop economic, tax, and industrial policies that are competitive with other states to encourage commercial investment in California
  • Streamline regulatory constraints and provide tax incentives at the state level
  • Lobby at the federal level for more government-funded work
  • Invest in science, technology, engineering, and math (STEM) education within schools and universities
  • Help industry attract and retain talent
  • Offer guidance for managing environmental hurdles specific to California

Economic and political forces have brought dramatic changes to the aerospace industry over the past 25 years. These forces will continue to shape the industry’s role in California’s economy over the coming decades. Now is the time to take action.

The full California Economic Impact report provides more in-depth analysis of the space and aircraft industry trends, the supply market, customers, and economic impact. It also more closely examines California’s overall competitiveness. For the full report, please contact the authors.

March 2014
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