By Jim Davis
(Everett) Herald Business Journal editor
LYNNWOOD — The age of chasing after cheap labor may not be over, but it’s no longer the only deciding factor in aerospace investment, an industry analyst said Tuesday at the Pacific Northwest Aerospace Alliance’s annual conference.
Instead, companies will make more nuanced decisions, putting some highly skilled work in higher-cost countries and labor-intensive work in low-cost countries, said Kevin Michaels, global managing director of aviation consulting for ICF International.
“What you’re seeing now is executives across industries are not just in this head-long rush to pursue low-cost labor,” Michaels told 450 people attending the first day of the three-day conference.
That’s a shift from just a few years ago when it looked like much of aerospace work was headed to low-cost countries like China, he said.
“Everything was headed China’s way, everything was going to low-cost regions, turn out the lights, U.S. suppliers were going to suffer, it looked challenging,” Michaels said. “But the world changed in the last four years in a very interesting way.”
A lot of factors are behind the shift, Michaels said. For one, labor costs in China and other regions have risen while productivity remains higher in the U.S. and other more developed counties.
As production becomes more automated — especially with newer aircraft lines — labor costs become less pressing.
There are supply problems sending raw materials to foreign countries, dealing with customs and making sure that parts are properly certified.
And then China’s currency has strengthened over the past few years.
“You’re going to start looking at it and you go, ‘Why did I put that factory in China?’” Michaels said.
The change can be seen where aerospace investment has been made, Michaels said.
“The U.S. has been a magnet for new aerospace investment over the last three years,” Michaels said. “It’s still going on elsewhere, it will continue to go on elsewhere, but the U.S. at this point in time has become the hot spot for new aerospace manufacturing.”
Much of that investment has been in the southeastern U.S., Michaels said.
That doesn’t mean that production will move away from the Puget Sound region. He said the area has a production backlog. And there are certain types of production that make sense to occur closer to final-assembly plants.
He suggested those are interiors, where there are frequent changes in configurations. And manufacturing of heavy parts, where it wouldn’t make sense to transport the pieces very far.
Later in the conference, aerospace analyst Scott Hamilton, of Issaquah-based Leeham Co., echoed that sentiment.
“There’s going to be so much work here with Boeing, not just with the single-aisle airplanes, but with the twin-aisle airplanes that you’re going to be plenty busy,” Hamilton said.