Few direct departures connect Phoenix Sky Harbor International Airport with foreign nations. No airlines fly nonstop in and out of Tucson from the northeastern United States.
But Arizona is a top-five player in aerospace and defense manufacturing — one of America’s top industrial sectors and biggest source of export dollars.
“Arizona continues to be attractive for aerospace manufacturing, with an ideal climate for aircraft testing and space observation, good transportation infrastructure and business-friendly tax policy,” said researcher PwC in a report released Wednesday.
Arizona placed fourth among the states, trailing only Washington, the operational home of Boeing’s commercial aircraft division, along with Texas and Georgia. The rankings looked at labor, infrastructure, industry, economy, cost and tax policy,
The United States ranked as the top aerospace/defense manufacturing nation. Canada, Singapore, Switzerland and the United Kingdom rounded out the top five.
As an example of Arizona’s appeal, the report cited the decision by AQST Space Systems to relocate its headquarters and operations hub to Mesa from Puerto Rico. The company, which makes rockets for small satellites, plans to hire up to 125 employees over the next three years.
Arizona received top-10 grades for industry size (including maturity and number of companies) and modest costs (for labor, transportation, energy and more).
Arizona got top-25 grades in the four other categories. They reflect the overall health of the state economy, infrastructure (roads, airports, electricity generation and more), labor (including number and educational attainment of workers) and tax policy (reflecting state income taxes and local/state tax policies).
Arizona ranked third in last year’s PwC report. Georgia was first, followed by Michigan, Arizona, North Carolina and Virginia.
Leading Arizona employers
Major aerospace/defense manufacturers in Arizona include Raytheon, Honeywell International, General Dynamics, Boeing and Northrup Grumman, after its purchase this year of Orbital ATK, with operations in Chandler. All ranked in this year’s Arizona Republic 100 list of largest nongovernment employers in the state, led by Raytheon, which has been expanding in the Tucson area.
Including cybersecurity, maintenance, repair and overhaul, more than 1,200 aerospace and defense supply-chain enterprises operate in the state, according to a tally by the Arizona Commerce Authority. The industry employs more than 55,000 people here, with an annual payroll of $4.92 billion. In addition, aerospace/defense exports made up 13 percent of the state’s export total in 2017.
Arizona has an especially high profile in the manufacture of guided missiles/space missiles, in aviation maintenance and other areas. The Commerce Authority also singled out the aerospace/astronautical engineering programs at Embry-Riddle Aeronautical University in Prescott as especially notable.
The U.S. generated $240 billion in aerospace/defense sales last year, including $143 billion in exports, the PwC report said.
“The sheer size of the industry, coupled with a healthy (gross domestic product), strong transportation infrastructure and educated workforce make it a hard country to beat,” the report said.
Airline expansion last year was buoyed by passenger growth, low fuel costs and strong momentum in world trade.
In the latest report, for 2017, the U.S. ranked poorly for tax policy, reflecting a relatively high corporate tax rate that was subsequently reduced.
“Given U.S. tax reform, which took effect in 2018, we expect to see a significant improvement in the (nation’s) tax-policy rank in next year’s report,” PwC said.
The report noted strong demand for commercial aircraft, especially from Asian nations with rapidly expanding middle classes.
As a concern, the report cited the potential for trade wars to disrupt the industry.
“Recent trade disputes have caused some uncertainty about future tariffs,” the report said. “So far, the aerospace industry has not been directly targeted, although the industry is indirectly impacted by certain tariffs on metals.”
Canada, with which trade tensions have been especially acute of late, ranked No. 2 for aerospace/defense manufacturing by PwC. Mexico, the third member of NAFTA or the North American Free Trade Agreement, ranked 38th.
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