The Aerospace Special Thanks: Benefactor Cessna Aircraft Company - San Antonio Citation Service Center St. Philip s College Industry in San Antonio Economic Impact In 27 Patron Gore Design Completions Ltd. Corporate Bracewell & Giuliani LLP Kelly Aviation Center Wright Flyers Aviation, Inc. Friends Embry- Riddle Aeronautical University Standard Aero Economic Development Council Rand Goldstein, Chairman 28 Aerospace Committee David Gay, Chairman Economic Impact Study Subcommittee Joe Wilson, Chairman Dale Cope Bobby Jones Jim Perschbach Staff Marcel Johnson Vice President, Economic Development The Greater San Antonio Chamber of Commerce 62 E. Commerce San Antonio, Texas 7825 (21) 229 21 www.sachamber.org Providing Greater Advocacy for the Aerospace Industry
This study was conducted by Richard V. Butler, Ph.D. and Mary E. Stefl, Ph.D., both professors at Trinity University The Aerospace Industry in San Antonio Economic Impact in 27 Highlights In 27, the economic impact of the aerospace industry in San Antonio was 3.8 billion. The aerospace industry paid 479 million in wages to 9,438 employees. Salaries in the aerospace industry exceed the San Antonio average wage by a substantial margin. FYI San Antonio is home to one of the few companies in the world capable of designing and installing interiors of wide-body jetliners that meet Head-of-State standards. 2 3
4 Introduction The local aerospace industry includes a range of businesses that manufacture aircraft equipment and parts, service and repair aircraft and engines, produce and distribute transportation equipment and supplies, provide both scheduled and unscheduled air transportation, and operate flight schools. These activities can be classified in two major sectors: Services/ Manufacturing and. The Aerospace Committee of the Greater San Antonio Chamber of Commerce represents all aspects of this vital segment of the San Antonio economy. It has commissioned this study in an effort to broaden community understanding of the industry s contribution to the local economy. This study is based on information obtained from the Texas Workforce Commission s (TWC) Covered Employment and Wages database. Following the same methodology used in The Chamber s previous Economic Impact Studies, the Aerospace study is based on TWC s quarterly wage and employment data aggregated along the lines of business defined by the North American Industrial Classification System (NAICS). Details of the methodology are provided in the Technical Notes section of this report. For reasons described in the Technical Notes section of this report, the Committee believes that the TWC data significantly understate the true size of the aerospace industry in San Antonio. The Aerospace Industry In 27 The aerospace industry is a vital part of the San Antonio economy. San Antonio was the birthplace of military aviation, and for many decades Kelly Air Force Base was one of the largest military repair and maintenance facilities in the world. The conversion of Kelly AFB into Port San Antonio has brought some of the world s largest aerospace corporations to the area as major employers of highly-skilled workers. The civilian aviation industry has also grown in recent years, with significant maintenance and manufacturing activities at San Antonio International Airport and a steady expansion of air transportation services. The aerospace industry is featured as one of the region s driver industries in the City of San Antonio s economic development strategic plan and in Workforce Solutions Alamo s long-term workforce development strategy. FYI Military flight began in San Antonio on March 2, 191 when Lt. Benjamin Foulois piloted a Wright Brothers airplane from Ft. Sam Houston. Throughout 21, San Antonio, the U.S. Army, and the U.S. Air Force will celebrate 1 years of military aviation. 5
Overall Economic Impact 3.8 Billion The aerospace industry s economic impact in 27 was just under 3.8 billion. The impact of the Services/Manufacturing sector was somewhat greater than that of the sector (approximately 53% versus 47%). As noted above, the Aerospace Committee believes that this number significantly underestimates the true impact of business activities related to aerospace on the local economy. Economic Impact of the Aerospace Industry by Sector 1.8 Billion Services/ Manufacturing 1.99 Billion FYI Most of the nation s major aerospace corporations maintain significant operations at Port San Antonio. The Port boasts a 2-mile runway, full-service rail yard, and widebody cargo handling capabilities within a designated foreign-trade zone. 6 7
Employment 9,438 jobs The Texas Workforce Commission (TWC) data shows that the aerospace industry provided an average of 9,438 jobs over the four quarters of 27. Approximately 43% of these jobs (4,87) were in the Services/Manufacturing sector; 57% of the jobs (5,351) were involved in activities of some kind. Employees in the Aerospace Industry by Sector Services/ Manufacturing 4,87 5,351 Annual Payroll 479 million In 27, employees in the aerospace industry earned total wages of 479 million. Just under 219 million of these wages went to employees in the Services/ Manufacturing sector; the remaining 26 million went to sector employees. The payroll in aerospace has more than doubled since 1997. Average Annual Wage Well above the San Antonio Average Based on the TWC data, the 27 average annual wage of employees in the aerospace industry was 5,735. This is a third more than the San Antonio average. Wages in the Services/ Manufacturing sector are higher than those in the side of the industry. 27 Average Wages 6, 5, 53,486 48,634 5,735 4, 38,251 FYI 3, The San Antonio Aerospace community was responsible for creating Wings Over the Alamo, a PBS documentary showcasing San Antonio s rich aviation heritage and promising future. 2, 1, Services/ Manufacturing All Aerospace SA Average 8 9
The Aerospace Industry In Perspective Growth Over Time: Dramatic and Resilient The growth of the aerospace industry s impact over the past decade has been substantial and dramatic. Its economic impact in 27 was more than twice what it was in 1997. Aerospace Industry Economic Impact (billions) 4. 3.5 3.79 3. 3.45 3.13 3.37 3.34 2.5 2. 1.5 1.74 1..5 1997 21 23 25 27 1 11
and the recent recapitalization of business jet manufacturer Emivest Aerospace, San Antonio is well-positioned for future growth. Looking at the Services/Manufacturing and separately, it is apparent that since 1997 s economic impact has increased by 56% but that of Services/Manufacturing has more than tripled. The stronger growth in Services/Manufacturing is not surprising given the transition of the maintenance facilities at Kelly to the private sector starting in 1998. Economic Impact of the Aerospace Industry (billions) It is no surprise that the most dramatic growth occurred between 1997 and 21. For reasons explained in the Technical Notes, employment at Kelly Air Force Base in 1997 is not included in the TWC database. Since the maintenance depot operations at Kelly were phased out, the private sector especially at Port San Antonio has expanded tremendously. The industry s economic impact remained essentially the same from 21 to 27, but even that can be viewed as encouraging. The events of September 21 had a profound impact on the aviation industry nationwide, and San Antonio was not immune to these challenging economic conditions. The closure of Dee Howard Aircraft Maintenance and Fairchild Dornier in the Services/ Manufacturing sector, and of the former American Airlines reservation center on the side, meant the combined loss of more than 2, jobs in just these three locations. And the transition of airport security to the Safety Administration (TSA) in 22 meant the disappearance of many more jobs from the private sector. However, the Aerospace Committee believes that the period immediately following 21 represents the bottom of the trough. With San Antonio Aerospace and M7 Aerospace taking over the Dee Howard and Fairchild Dornier facilities, 2. 1.5 1..5.59 1.15 2.11 1.34 1997 21 23 25 Services/ Manufacturing 1.92 FYI 1.21 1.85 1.52 1.99 27 The New Horizons and IBEX robotic spacecraft are currently exploring the boundaries of our solar system. Both were primarily designed and built by San Antonio s Southwest Research Institute. 1.8 12 continued on next page 13
Employment Trends From 1997 to 21, the number of aerospace employees increased by 36%, or by some 2,867 employees. However, since 21, the number of employees has gradually decreased. Given the already identified major job losses over this period, it is evident that the rest of the local aerospace industry grew in spite of the challenging national economic conditions facing the industry since 21. When these trends are examined by sector, it is clear that the majority of the jobs lost between 21 and 27 were in the sector. As already noted, these job reductions reflect the closure of the American Airlines reservation center and, to a lesser degree, the transfer of airport security to the TSA. Number of Employees By Sector 12, 11, 1, 9, 8, 7, 6, 5, 4, 3, 2, 1, Number of Employees in the Aerospace Industry 8,2 1,887 9,724 9,544 1997 21 23 25 9,438 27 6, 5, 4, 3, 2, 1, 2,681 5,339 4,352 6,235 1997 21 23 25 Services/ Manufacturing 5,5 4,719 4,312 5,232 4,87 5,351 27 continued on next page 14 15
It is not surprising that Services/Manufacturing wages are higher than those in the sector. The Services/Manufacturing businesses in San Antonio employ large numbers of highly skilled workers (e.g., aircraft mechanics) while a higher proportion of the local employees in the sector work in jobs that do not demand high skill levels (e.g. ramp workers, call center staff). Some of the highest paid employees (pilots) are paid through airline headquarters and are consequently not reflected in the San Antonio data. Aerospace Wages by Sector Wages 6, Wages in the aerospace industry have consistently been well above the San Antonio average. These figures include only direct wage payments. Total compensation, including benefits, would be considerably higher. Aerospace Industry Average Wage vs. San Antonio Average 5, 4, 3, 2, 1, 4,79 22,272 44,375 28,65 45,914 34,62 48,533 4,968 1997 21 23 25 53,486 48,634 27 6, Services/ Manufacturing 5, 4, 3, 2, 1, 28,224 24,33 35,368 3,652 4,434 32,288 44,386 35,62 1997 21 23 25 5,735 38,251 27 FYI The San Antonio aerospace industry created the Alamo Area Aerospace Academy, a nationally-recognized community partnership that trains high school students for aerospace careers. This program is being used as a model in other communities looking to advance their aerospace industies. Aerospace San Antonio 16 17
Technical Notes Information Sources As noted in the introduction, the information for The Chamber s Economic Impact Studies is derived from Texas Workforce Commission data aggregated into the lines of business defined by the North American Industrial Classification System (NAICS) coding framework. This data is assembled from unemployment insurance reports to the state; it represents essentially a 1% sample of all the businesses in each NAICS subcode that report to the TWC from San Antonio. The TWC database s advantages of near-1% coverage of employers, consistent collection procedures and ready availability are considerable. The specific subcodes included in this study are listed at the end of the Technical Notes section. They cover both the Services/ Manufacturing and segments in as much detail as the coding system permits. It is important to note that the 1997 data do not include the U. S. Air Force maintenance depot at Kelly Air Force Base (AFB), which was then by far the largest single employer in San Antonio s aerospace industry. The reason is that all of Kelly, including many other Air Force missions not related to the aerospace industry, reported its civilian employment to the TWC as a single entity in the national security facilities category. Since that category includes all other military activity in San Antonio, it would not be reasonable to count it as part of the aerospace industry. But since Kelly AFB could not be singled out from that category, it could not be included separately either. Thus, the figures reported here for Services/Manufacturing represent almost exclusively the private sector activity in those industries. Similarly, none of the current military aviation activities in San Antonio are included in the 27 estimates. continued on next page 18 19
Information Sources The TWC provides quarterly employment and payroll information for each NAICS code. The employment figures for the four quarters in each year were averaged to obtain a representative employment level, and annual payroll was calculated by summing the wages reported for each of the four quarters. Average salaries were calculated by dividing total payroll by the number of employees. Translating payroll information to economic impact involves a two-step conversion process. First, sales for each category are estimated from payroll using the ratio of sales to payroll for the corresponding industry category in the San Antonio MSA as reported in the most relevant Economic Census. Thus, conversion factors based on the 22 Economic Census were applied to the data for 21, 23, 25 and 27, while conversion factors based on the 1997 Economic Census were applied to the 1997 data. These figures are specific to each NAICS code, and ranged (in 1997) from a low of 2.78 for airport operations to a high of 8.148 for air transportation. [The range in the 22 Economic Census was somewhat wider.] These conversion factors simply translate payroll figures into the estimated amount of final sales for each industry category. The second step is necessary because the aerospace industry sells a large share of its output outside San Antonio. In doing so, it brings new spending into the San Antonio economy. This spending generates a multiplier effect as it circulates in the local economy, magnifying its original impact. To estimate the total economic impact of an export industry, it is customary to use an economic impact multiplier. This study employs the widely used industryspecific multipliers from the U.S. Department of Commerce s RIMS II model for San Antonio; these range from 1.91 to 2.42 for the aerospace industry sectors present in our region. Information Sources Note that the multiplier can properly be applied only to export sales. Since the vast majority of the maintenance and manufacturing activity here is for external customers, this raises no concerns in that sector. However, it is obvious that a large share of air transportation services is consumed by local residents and business. The San Antonio International Airport reports that approximately 6% of the passengers using the airport are visitors, while 4% are local. Accordingly, the multiplier for air transportation was applied only to the 6% visitor share of that business. Similarly, based upon reports from local flight schools that 7% of their students come from outside the metropolitan area, the multiplier for that industry was applied only to this 7% export share. Once economic impact was estimated for each NAICS code, the estimates were summed to obtain the overall impact for the industry. Why do we believe that the TWC data significantly underestimate the size of the industry? When preliminary estimates based on the TWC data were shared with the Aerospace Committee, it was generally agreed that these estimates understated the size of the aerospace industry in San Antonio. In particular, the TWC s estimate of employment, which averaged 9,438 over the four quarters of 27, appears to under-represent the true scope of the industry, especially in the services/manufacturing sector. Several possible explanations emerged: Many of the aerospace companies utilize a significant amount of contract labor; the information for these employees would be reported to TWC under the NAICS coding of the subcontractor, and not continued on next page continued on next page 2 21
that of the aerospace employer. If the subcontractor s primary business is staffing, its employees will not appear under the aerospace NAICS code even though they are working in an aerospace facility. Some local aerospace companies with operations elsewhere in Texas may be reporting all of their data to the TWC from another city without identifying San Antonio employment separately. Finally, there was concern that some companies might be classified under the wrong NAICS code in the TWC database. Since confidentiality restrictions prohibit the TWC from releasing this information there was no easy way to estimate the resulting shortfall in wages, employment and economic activity. While all the industries for which The Chamber prepares Economic Impact Studies suffer from some degree of omitted activity, the Aerospace Committee believes that this problem is especially great in the Aerospace industry. NAICS Codes for the Aerospace Industry Services and Manufacturing 33641 Aerospace Products and Parts Manufacturing 42386 Equipment and Supplies Wholesaling 48111 Scheduled Air 48121 Nonscheduled Air 48811 Airport Operations 48819 Other Support Activities for Air 611512 Flight schools Providing Greater Advocacy for the Aerospace Industry 22 23