Deloitte: The Aerospace and Defense Industry in the U.S.

The Aerospace and Defense Industry in the U.S.: A financial and economic impact study

This report was commissioned by AIA to assess the contribution and financial impact the U.S. aerospace and defense industry has had on the American economy, in terms of employment, cash taxes paid, impact on gross domestic product and other financial, economic and qualitative factors. Although typically focused on military and commercial aircraft, space systems and related supply chain portions of “aerospace and defense,” we broadened the definition for this study to include land vehicles and systems, naval vehicles and systems, security and defense contracting software and services. The scope does not cover the users of these products and services, thereby excluding the air transportation industry (cargo and passenger airlines) as well as government employees.

We estimate that the U.S. aerospace and defense industry directly employed 1.05 million workers in 2010. These workers received $84.2 billion in wages and paid $15.4 billion in U.S. Federal individual income
taxes, and $1.9 billion in state individual income taxes. Although not directly in the scope of this study, in addition we found that the Federal government employs an estimated 845,198 aerospace and defense skilled workers at armed forces maintenance and repair depots, National Aeronautics and Space Administration (NASA), Federal Aviation Administration (FAA), other defense agencies including Defense Advanced Research Projects Agency (DARPA) and civilians working at the Department of Defense.

We found the industry has an estimated indirect and induced employment of 2.36 jobs for every 1 directly employed. This employment multiplier is a “direct effect” multiplier, which accounts for primary and secondary effect employment associated with the aerospace and defense industry. It does not contemplate “final demand,” or employment associated with tertiary effect employment well beyond the direct effect of this industry’s employment base. Thus, we believe that indirect and induced employment totals 2.48 million workers, in addition to those cited above who are directly employed. Together with these indirect employees, we estimate the grand total direct, indirect and induced employment associated with the U.S. aerospace and defense industry is 3.53 million jobs, not including industry skilled workers employed by the Federal government or airlines. 

We estimate that these U.S. aerospace and defense companies generated $324.0 billion in sales revenue in 2010, with $15.6 billion in net income after tax at an average pre-tax reported operating profit margin of 10.5%. This margin percent metric was below average, when compared to other industries in America. These companies paid $5.5 billion in corporate income taxes on their earnings, as well as $1.7 billion in state income and similar business taxes. Thus together with individual direct employee taxes, the total industry generated an estimated $37.8 billion in wage and income based taxes to state and Federal government treasuries, not including the taxes paid by indirect and induced industry employment. 

The industry is the largest net exporter, and one of the largest contributors to our nation’s gross exports at $89.6 billion, with a larger portion made up of commercial aircraft bound for foreign carriers. The industry’s
contribution to the nation’s GDP is 2.23%, and as described below, we conclude the industry “punches above its weight,” when considering other beneficial and qualitative impacts to our economy beyond these metrics.

Indeed the industry contributes in ways not directly included in GDP, employment, and taxes paid. Although it has only been 108 years since the Wright Brothers’ first flight, the industry has contributed fundamentally to the way we live, work, travel and communicate with the technology created and continued innovations in jet aircraft, communications satellites, the internet and Global Positioning Systems (GPS), for example. Also, the industry is primarily
responsible for the reduction of casualties in armed conflict due to the technology innovations that keep our warfighters out of harm’s way with unmanned aircraft, sophisticated surveillance sensors and over the horizon strike capability.

Current economic challenges resulting in defense budget declines may impact direct and indirect employment, ability to conduct research and development, and taxes paid. On the other hand, the current up-cycle in commercial aircraft production, thus employment, portends years of future growth potential. However, due to its weighting, the uptick in commercial aircraft production is not expected to make up for the shortfall in overall industry revenues and
employment due to the size of the pending defense downturn.

This study demonstrates the significant economic and financial contributions made by the aerospace and defense industry, and its broader impact on our society. These will be important considerations as constituents assess the impact of changes to investments in research and development and the industrial base, and the continued ability of the industry to create the next generation of game changing products and services.

Competing for Space: Satellite Export Policy and U.S. National Security

Competing for Space: Satellite Export Policy and U.S. National Security

As we enter a new era of budget austerity and the threat of draconian sequestration loom, failure to revise export controls could result in an ongoing loss of critical industrial base suppliers and pose an increasing risk to national security.