Kenneth about this industry in the United States.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Kenneth VandenBout III

 

Davenport University

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Managerial Economics 625

 

Dr. Anne Cramer

 

December 20, 2017

 

Abstract

Throughout researching this semester, I have found that one recurring trait has repopulated, and that is the need for further exploration into the sectors of Aviation and Aerospace. Having toured the West Michigan Aviation Academy, flying in numerous small engine aircrafts, and even contemplating getting my pilot’s license, the air has always fascinated me. With my passion for the air and hunger for academia, I endeavored on researching and writing about this industry in the United States. This paper examines the industry in Michigan from the perspective of industry reports, local organizations and agencies, and looks to solve the question. Could a new business venture into this “space” and be successful?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Final Paper: Aerospace & Aviation Industry—Grand Rapids, Michigan

            The city I have decided to focus on is the Greater Grand Rapids, Michigan area. This area has seen one of the quickest rebounds since the Great Recession, and is climbing in a number of sectors and industries, one of which is the Aerospace and Aviation Industry. Dictionary.com (n.d.) defines Aerospace as, “The industry concerned with the design and manufacture of aircraft, rockets, missiles, spacecraft, etc., that operate in aerospace.”  In continuation, Dictionary.com (n.d.) defines Aviation as, “The design, development, production, operation, and use of aircraft, especially heavier-than-air aircraft.” In addition to big name companies like GE Aviation, L-3, Woodward, Precision Aerospace, Eaton Corp., Boeing, and Jedco Inc., Grand Rapids is home to the Gerald R. Ford International Airport, which houses the West Michigan Aviation Academy. At the Academy, students are taught normal course topics that other school children are taught, with a large side of aeronautical engineering know how. In a news release published on January 12, 2015 by the National Association of Counties, they note specifically that, “A county with larger than 500,000 residents had not reached its pre-down turn employment numbers, until Kent County, Michigan became the first in the nation.” The Grand Rapids, and Kent County economy has been on a strong incline over the past few years, since the housing crisis. Headlight Data (2017) notes that, “…in 2016, the United States employment rate grew by 1.7%. Among large metropolitan cities, the highest growth rate was found in Grand Rapids at 4.4%.” Throughout the remainder this paper, local insights partnered with national reports and studies will prove that the Aerospace/Aviation Sector in the Greater Grand Rapids area is on the rise from what we have seen over the past few years, with no indication of slowing down now. It is for these reasons, coupled with further research and data, that I strongly believe a new business can break into the industry with tremendous success.

Between the supply for new talent, available area to lease space, and close proximity of the city to numerous other businesses, this new business will break through. According to the Right Place (2017), they note that, “Grand Rapids is number 2 in Aerospace Manufacturing Attractiveness Rankings.” There are similar companies who are making products here currently for personal, commercial, and defense use. Projects of these are extremely hard to determine, depending on which company and product you are looking at. If you are looking at an instrument cluster for a single prop airplane, you could be looking at a few hundred/thousand dollars. If you are talking about a defense contract, that could be A.) classified, but B.) rated at millions/billions of dollars. The United States of America has the number one spot for defense spending (DOD) in the world, more so than the next 25 on the top list, and that is when you combine all those values, we still spend more. There are some related complements or products that may affect demand for this product. It will severely depend on if it is for personal, commercial, or defense use. Again, comparing a single prop plane to a Boeing 747 is a bit different as far as overall configuration, layout, and pricing. There are competing companies who make different products, offer different services, and compete for different industries and contracts in the Grand Rapids, Michigan area, which open the doors for competitors like us to sneak in on different products, services, and contract levels. This industry is definitely a necessity, businesses need to have their people on the ground as quickly as possible (i.e.: personal or commercial) and the country needs to be protected (i.e.: Stealth bombers or fighter jets). Larger aviation companies are willing to listen to competing bids as they run on slimmer margins than smaller organizations, as they have more direct overhead, manpower, and government involvement. The demanders specifically would be the individuals, but definitely the businesses and federal government. The demanders categorical classification for how many are there is hard to answer, depending on what aspect of the industry you are looking at, i.e: personal, commercial, defense. And for OEM parts, flight services, labor services, etc. it depends too. Incomes and lifestyles don’t really have too much of an impact on conglomerates that run multi-billion multi-national organizations. The business environment in the city suggests that business will grow from a business perspective and consumer perspective. The international airport in Grand Rapids, Michigan sees year of year smashing attendance numbers, and it was ranked #2 by Right Place for manufacturing, which says something for the area as far as opportunity, potential labor talent, abilities to produce the OEM parts, flight services, etc. The social environment seems to support a strong consumer base. Grand Rapids is a hot housing market right now, it has some areas seen as hipster, and offers great restaurants, and shopping. We also have the “Medical Mile” which is great for medical care and hospitals. Customers or businesses would depend on what section of the industry we are looking to target. We could fly, rail, truck, or ocean freight our parts to anywhere in the world if need be, the area has that kind of capability. Social media would not have much of a role in a predominantly B2B set up. Infrastructure in this area is great, good opportunity for the future. Because we would be sending the products/services out to the suppliers, there wouldn’t need to be a direct need for close proximity. Tax breaks are possible in the area for large sized businesses. There is the Grand Rapids Chamber of Commerce, and other local groups and business associations that could support the business.

            The current unemployment rate in the State of Michigan and the overall economy of West Michigan makes it an attractive place for companies to move to. The Right Place (2017) notes that, “While the aerospace industry grew at 7% nationwide, it grew at 51% in Michigan – significantly outpacing both the national combined jobs growth rate and the national industry growth rate.” In an annual report put out this year, PwC (2017) notes that, “Michigan moved into second place in the rankings.” There were several categories they looked at when assessing how to rank the fifty states in order. The report notes that the State of Michigan, “…ranked third in the Consumer Price Index (CPI), second in Labor Productivity, & sixth in the Cost of Materials. The Michigan Aerospace Manufacturing Association’s efforts have helped attract investment in Michigan’s aerospace industry.” The demographics that would buy from a manufacturer around here would be federal governments, including the United States, European Union, China, Russia, and Brazil. The Right Place (2017) notes that, “The Federal Government gives out contracts to companies’ worth over $500 billion each year, with a large percentage going to defense and aerospace. There are regional associations like the Michigan Defense Center that grow and foster partnerships with the national government on behalf of Michigan manufacturers.” Having organizations partner with local, state, and national associations allows for a networking between potential contract sources and manufactures.

            While doing research, I found that the Bureau of Labor and Statistics reported on two specific careers related to this industry, those being Aerospace Engineering and Operations Technicians, and Aerospace Engineers. The BLS (2017) notes that, “Aerospace engineering and operations technicians operate and maintain equipment used in developing, testing, producing, and sustaining new aircraft and spacecraft.” Furthermore, they stated that, “Many employers prefer to hire those who have earned a degree in engineering technology or have received a specialty in computer programming with an emphasis in robotics and machining.” Many of the employees who work in the field have to go through rigorous background checks through local, state, and federal government agencies if they wish to work in this industry and focus specifically on the defense side of business operations. In the Greater Grand Rapids, Michigan and West Michigan area, there is enough resources and support from local organizations, such as The Right Place, and leading national regional agencies and associations to continue raising Michigan through the ranks of the industry and especially our local area to host this type of business and industry.

            According to some sources, between Aerospace and the Aviation Industry, there is a possible monopoly marketing occurring. In an article written by Gareth Evans in the Army Technology Monthly on April 4, 2016, he notes that the Pentagon has been heeding warnings of a possibly monopoly occurring within a few organizations, “…recent warnings against further consolidation amongst large US weapons companies, was issued within days of the approval of Lockheed Martin’s planned $9bn acquisition of Sikorsky Aircraft.” Over the past several decades in the United States, there has been a number of mergers and acquisitions that have happened, particularly within the space and defense industries. Evans continues on in his report by stating that, “Since the Cold War, there have been a number of notable firms in the sector who have merged or been bought out. In fact, the sector effectively saw a cut from over 20 to now just a select few. And since there are just a few, those teams typically join forces to bid on contracts together when it involves Federal Government Contracts. It allows both or all parties involved on the transactions to pool together their talent and resources to beat others out on the bids. If you can’t beat them, might as well join them.” When an industry is cut to just a few giant companies, monopolies can occur. These types of companies can start lobbying and create their own agenda in what they want to happen and can effectively change the face of the entire industry as a whole. Throughout the rest of the report, Evans (2016) takes note that, “Some individuals within the government, especially those at the Pentagon fear that any more consolidation between the largest of firms within the industry can further cut back competition for those who aren’t as big, slow the growth of recent innovation and technologies, and as an end result increase overall costs.” At the end of September 2015, Frank Kendall who was the undersecretary for acquisition, technology and logistics with the Department of Defense warned that, “with companies merging together, such size can create large bodies of power, and that the department’s experience dealing with giant defense firms is that they won’t hold back their ability to use their power to their corporate advantage to create change.” When regulation issues can come into question about further business acquisitions and mergers, they decided to create strategic partnerships instead. The way upper-level management has thought of it is that they would rather see some of the profit, than none at all. Evans (2016) ends is report stating that, “The most recent memorable example of this type of power shift was in 2008 with the Lockheed Martin/Boeing coordination on the United States Air Force’s Next-Gen Bombers, originally slated for unveiling in 2018. Even though this program itself didn’t go into full affect because of the Long-Range Strike Bombers, the sort of strategic partnership they made, with Boeing acting as the prime contractor & Lockheed Martin as the primary partner, can be seen by many as the next step, just short of a merger. Creating a strategic alliance with one of your biggest rivals means that you don’t get the entire pie, but it does mean that at least you get a slice of it. And in Boeing’s case, the prospect of 60% of something is definitely a lot better than 100% of nothing.”

            Between the resources that are in place within the region, the methods of transportation for moving goods across the country and the world, it is evident that there is unwavering support for the Aviation and Aerospace Industry in the Greater Grand Rapids, Michigan and West Michigan area. The regional partnerships and associations that are vying for local manufacturers on the national level and the international stage are setting precedent for companies ranging in millions of dollars to companies who earn more in revenue per year than some small countries. Although, there are some corporations trying to take over the industry, with the current stances and practices utilized by the DoD and Pentagon, everyone who applies for a bid will at least be heard. It just depends on how are hard the big six are lobbying for those specific bids. In the end, the choice to move a business in the industry to a place like Michigan seems like the right move to me.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

References

Bureau of Labor Statistics. (2017). U.S. Department of Labor, Occupational Outlook Handbook,

Aerospace Engineering and Operations Technicians. Retrieved from https://www.bls.gov/ ooh/architecture-and-engineering/aerospace-engineering-and-operations-technicians.htm

This article refers to two different careers related to the Aerospace Industry, and what those roles are of those careers and why they are important.

Dictionary.com. (n.d.). Definition of Aerospace. Retrieved from

http://www.dictionary.com/browse/aerospace?s=t

This article helps define what aerospace is so the audience has a conceptual understanding and are all on the same page.

Dictionary.com. (n.d.). Definition of Aviation. Retrieved from

http://www.dictionary.com/browse/aviation?s=t

This article helps define what aviation is so the audience has a conceptual understanding and are all on the same page.

Evans, G. (2016). Defence mergers: could growing monopolies signal the end of innovation?

Retrieved from http://www.army-technology.com/features/featuredefence-mergers-could-

growing-monopolies-signal-the-end-of-innovation-4809434/

This article summarizes how the aero space industry has gone from 20 companies down to 6 and the Department of Defense/Pentagon will be monitoring and trying to cut down on monopolistic practices that some companies might try and use.

Headlight Data. (2017). Fastest growing large metro economies. Retrieved from

Fastest Growing Large Metro Economies Of 2016 Are Grand Rapids, Orlando, Nashville; Slowest Are Oklahoma, Houston, New Orleans

This article summarizes how Grand Rapids led the nation in 2016 with employment rate gains across all other metro areas of comparable sizes.

Namey, B. (2015). Economic recovery remains sluggish across counties despite signs of national

boom. Retrieved from http://www.naco.org/sites/default/files/documents/

CountyEconTracker011215RELEASE.pdf

This article summarizes how Kent County, Michigan has regained financial footholds since the last great recession. Shows how Kent County is a good choice for the industry.

PwC. (2017). Aerospace manufacturing attractiveness rankings. Retrieved from

https://www.pwc.com/us/en/industrial-products/publications/assets/pwc-aerospace-

manufacturing-attractiveness-rankings-2017.pdf.

This article summarizes an industry report mentioning how Michigan moved into the second place out of all 50 states last year for Aerospace Manufacturing and explains why.

Right Place. (2017). Grand Rapids Rankings. Retrieved from https://www.rightplace.org/why-

west-michigan/rankings

This article summarizes support directly for Aerospace Manufacturing within the Grand Rapids area.  

Right Place. (2017). Grand Rapids Rankings. Retrieved from Defending a Country, Growing a

Regional Economy. https://www.rightplace.org/industry-sectors/aerospace-and-defense.

This article summarizes how Michigan has an outstanding talent pool and that it is only growing for R and that it is outpacing the national level by four fold.