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IHS ECONOMICS

Aerospace and Defense Economic Impact Analysis A report for the Aerospace Industries Association

April 2016 ihs.com

Economic Impact Analysis

IHS Economics | Report

Brendan O’Neil Managing Director

Shane Norton Director

Leslie Levesque Senior Consultant

Charlie Dougherty Consultant

Vardan Genanyan Consultant

IHS Economics | A&D Economic Impact Analysis

IHS

TM ECONOMICS

COPYRIGHT NOTICE AND DISCLAIMER © 2016 IHS. For internal use of IHS clients only.

No portion of this report may be reproduced, reused, or otherwise distributed in any form without prior written consent, with the exception of any internal client distribution as may be permitted in the license agreement between client and IHS. Content reproduced or redistributed with IHS permission must display IHS legal notices and attributions of authorship. The information contained herein is from sources considered reliable, but its accuracy and completeness are not warranted, nor are the opinions and analyses that are based upon it, and to the extent permitted by law, IHS shall not be liable for any errors or omissions or any loss, damage, or expense incurred by reliance on information or any statement contained herein. In particular, please note that no representation or warranty is given as to the achievement or reasonableness of, and no reliance should be placed on, any projections, forecasts, estimates, or assumptions, and, due to various risks and uncertainties, actual events and results may differ materially from forecasts and statements of belief noted herein. This report is not to be construed as legal or financial advice, and use of or reliance on any information in this publication is entirely at client’s own risk. IHS and the IHS logo are trademarks of IHS.


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About IHS (www.ihs.com)

IHS (NYSE: IHS) is the leading source of insight, analytics and expertise in critical areas that shape today’s

business landscape. Businesses and governments in more than 140 countries around the globe rely on the

comprehensive content, expert independent analysis and flexible delivery methods of IHS to make high-impact

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IHS is a registered trademark of IHS Inc. All other company and product names may be trademarks of their

respective owners. © 2016 IHS Inc. All rights reserved.

For more information, contact:

Brendan O’Neil

Managing Director, IHS

[email protected]

For press information, contact:

Katherine Smith

Manager Media Relations, IHS

[email protected]

IHS Global Insight (USA) Inc.

1150 Connecticut Avenue NW, Suite 401

Washington, DC 20036


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Contents

Executive Summary 6 Introduction 10 Approach and Methodology 12 NAICS Data Segmentation 13 Extending the segmentation 15 Measuring the Contribution of the A&D Industry 15

Economic Impact Analysis 18 Employment 20 Sales 21 Contribution to GDP 23 Labor Income 24 Taxes 25

Appendix 26 Additional Tables 27 BMI and IMPLAN 35


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Project Directors

Brendan O’Neil, Managing Director, Consulting, Economics and Country Risk

Shane Norton, Director, Consulting, Economics and Country Risk

Project Team

Leslie Levesque, Senior Consultant, Consulting, Economics and Country Risk

Charlie Dougherty, Consultant, Consulting, Economics and Country Risk

Vardan Genanyan, Consultant, Consulting, Economics and Country Risk

Acknowledgements

We would like to thank the subject matter experts, technical experts, industry experts, and analysts who contributed

either directly to this study or indirectly through the study on which the underlying Aerospace and Defense estimates

were based. Specifically, we would like to thank our IHS colleagues Inigo Guevara Moyano, Ben Moores and Mark

Bobbi of our Aerospace Defense and Security team.


© 2016 IHS 6 April 2016

1.0

Executive Summary


© 2016 IHS 7 April 2016

The U.S. Aerospace & Defense industry is a global leader in innovation and significant component

of the nation’s advanced manufacturing base of industries. IHS was commissioned to quantify the

economic contributions of the U.S. Aerospace and Defense (A&D) industry to the U.S. economy and

provide enhanced understanding of the industry’s extensive supply chain, by economic sector at the

national and state level. The key findings of this study measure the economic contribution the A&D

industry makes in terms of employment, value added (contribution to GDP), sales (output), labor

income and taxes within the broader economy.

In 2015, the U.S. economy posted $30.7 trillion in total sales activity; of that total, IHS estimates that

$786 billion was supported by the A&D industry’s economic activity. This occurred through

approximately $349 billion in direct sales activity, which initiated additional activity as dollars

flowed through the A&D supply chain. This “multiplier effect” drove an additional $256 billion in

indirect sales. Further, companies and their suppliers hired and paid employees, who, in turn,

consumed goods and services in the economy. These induced effects amounted to $181 billion in

2015. The graphic below depicts this flow of economic impacts.

Figure 1: Flow of economic impacts from direct spending through income effect


© 2016 IHS 8 April 2016

The sales activity generated by the A&D industry triggers additional economic benefits – workers

must be hired and retained in order to deliver goods and services; companies reap additional profits

and make larger contributions to GDP; and both companies and their employees must pay taxes. In

this realm, IHS estimates that in 2015 the A&D industry fueled the following contributions to the

U.S. economy:

The U.S. A&D industry directly and indirectly employed 1.7 million workers engaged in the

design and production of end-user goods and services and within the industry’s supply chain.

About two-thirds of those workers were split about evenly between the civilian aviation and

the defense/national security sector.

More specifically, within the A&D industry about 531,030 workers were employed in the

design, manufacture and supply chain of civil and general aviation aircraft, helicopters and

space systems. Since 2013, employment in the sector has decreased by a compound annual

growth rate (CAGR) of -0.38%, or by a net of 6,100 jobs.

Another 510,570 jobs were focused on the design, manufacture and supply chain of end-use

military aircraft, ground and sea systems, armaments and space systems. Since 2013, the

segment’s employment base experienced overall stability, decreasing by a CAGR of -0.03%,

or a net loss of less than 1,000 jobs.

Jobs supported by the A&D industry represent approximately two percent of the nation’s

total employment base.

Direct A&D industry jobs combined with those supported in the industry’s supply chain

represented 13 percent of the nation’s manufacturing employment base.

For every million dollars in direct sales activity, eight employees are supported throughout

the supply chain and across economic sectors.

The A&D industry generated $300 billion in economic value, which represented 1.8 percent

of total nominal GDP in the U.S.

The output supported by the A&D industry directly and through the supply chain represented

about 10 percent of manufacturing output in the U.S.

Labor income supported by the A&D industry represented about 2.3 percent of the nation’s

total labor income.

The average labor income per job within the A&D industry (both producers of end-use goods

and services as well as the supply chain) amounted to just over $93,000 – or approximately

44 percent above the national average – reflecting the highly skilled nature of the workforce.

The contribution to tax receipts from the A&D industry was $63 billion, or about 1.7 percent

of the total tax revenues received by the federal and state and local governments.

The U.S. A&D industry is a broad complex of firms performing a variety of functions including

service delivery in support of operations and the manufacturing of goods and of materials,

components, systems and platforms for civil aviation, space, and national security applications. For

the purposes of this analysis, the A&D industry is defined by a set of associated sectors categorized


© 2016 IHS 9 April 2016

under the North American Industry Classification System (NAICS) that include firms that produce

goods and services for end use by A&D industry customers, while other sub-sectors are

predominately comprised of suppliers that support production.

These two primary groupings are described as having a ‘direct’ or ‘indirect’ impact on the economy;

firms that engage in producing goods and services for end use are considered to have a ‘direct’

impact on the economy (for a list of these sectors, see Table 1 in the Approach and Methodology

section of this report), while firms in the supply chain are considered to have an ‘indirect’ impact on

the economy (for a list of these sectors, see Table 2 in the Approach and Methodology section of this

report). Further, firms supplying to ‘direct’ manufacturers are classified as ‘tier I’ and firms

supplying to the ‘tier I’ suppliers are classified as ‘tier II’. In addition to this tiered classification,

there is a portion of the supplier base that does not fall within the A&D industry. As a point of

reference, firms that supply management consulting, transportation services or office equipment to

the tier I and II A&D-supplier community do not constitute the A&D supplier base, but are included

as part of the industry’s indirect and induced impact (for a list of these sectors, see Table 3 in the

Approach and Methodology section of this report).


© 2016 IHS 10 April 2016

2.0

Introduction


© 2016 IHS 11 April 2016

The A&D industry is a vital component of the US economy, not solely for the role the industry plays

in national security, transportation and technological innovation, but also because its influence spans

many sectors and every state throughout the country. From commercial airliners to military vehicle

manufacturing, the A&D industry calls upon businesses across the nation to supply goods and

services for end-use production. From these transactions, the A&D industry supported an average of

nearly 2.8 million jobs between 2013 and 2015, representing approximately two percent of total U.S.

employment and produced an average of $301 billion in total economic value, or 1.8 percent of

nominal U.S. GDP.

For much of the previous five decades, the U.S. manufacturing base has experienced a continuous

and sometimes precipitous decline as global market forces drove firms to close, downsize, or relocate

abroad. The manufacturing segments associated with A&D have certainly not been immune to this

trend; however, over the past several years, strong growth in international markets has driven

resurgence in the sector, which has helped accelerate the country’s recent economic recovery. Over

the past five years, the U.S. manufacturing industry has enjoyed an average annual growth rate in

payrolls of 1.5 percent. Meanwhile, the transportation manufacturing sector, which includes the

manufacture of ships, aircraft, and locomotives, posted an average annual growth rate in payrolls of

3.6 percent – outpacing the 1.7 percent growth rate of total non-farm payrolls over that same period.

The economic impact of the A&D industry goes well beyond the companies directly involved in the

production of finished goods. The lengthy process of bringing these products to market supports a

variety of services that are critical to the success of the industry. The A&D value chain extends

throughout the US – from engineering and research and development efforts to the highly capital

intensive sectors that provide raw and intermediate materials and components. The result is an

extended network of companies that forge and fabricate metal, design and build complex systems,

and assemble the finished goods that are ultimately required by the industry. Furthermore, the

economic activity associated with end use and supply chain ripple out to a broader set of economic

sectors as wages earned are spent across the economy, benefitting sectors ranging from retail trade to

the leisure and hospitality sector.

The A&D industry drives economic growth at the local level as well, as many states across the

United States depend heavily on the jobs and incomes created by the aerospace and defense industry.

From the aerospace manufacturers and suppliers in Washington and Southern California to the

defense contractors in Texas and Washington DC/Northern Virginia area, the A&D industry serves

as an economic keystone that not only creates jobs and boosts wages, but also provides a reliable

stream of tax revenue for state and local governments.


© 2016 IHS 12 April 2016

3.0

Approach and Methodology


© 2016 IHS 13 April 2016

3.1 NAICS Data Segmentation

IHS performed a detailed analysis of relevant NAICS sectors to ensure that all sectors providing

components directly to the end users of industry categories were properly captured. A joint review of

this list with AIA was necessary to affirm a shared understanding of the ‘market’ and an extensive

review of the definitions and limitations of the industry were done to ensure clarity and consistency

in the market sizing. Below are tables outlining the NAICS sectors associated with the A&D

industry. Some NAICS sectors that were determined to have a direct impact were also considered

part of the supply chain in which case only a portion of that sector was used. The final result of the

industry segmentation was a comprehensive picture of the size of the U.S. A&D industry at the

national and state level, broken out by employment for 2013 to 2015. This data then served as the

inputs for the national and state level input-output models that were used to determine the full

economic impact of the A&D industry.

Table 1: NAICS sector listing of direct A&D businesses NAICS Description 332994 Small Arms Manufacturing 334511 Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing 336111 Automobile Manufacturing 336411 Aircraft Manufacturing 336412 Aircraft Engine and Engine Parts Manufacturing 336413 Other Aircraft Parts and Auxiliary Equipment Manufacturing 336414 Guided Missile and Space Vehicle Manufacturing 336415 Guided Missile and Space Vehicle Propulsion Unit and Propulsion Unit Parts Manufacturing 336611 Ship Building and Repairing 336612 Boat Building 336992 Military Armored Vehicle, Tank, and Tank Component Manufacturing 488999 All Other Support Activities for Transportation 541330 Engineering Services

Table 2: NAICS sector listing of indirect A&D businesses NAICS Description 325211 Plastics Material and Resin Manufacturing 325520 Adhesive Manufacturing 325998 All Other Miscellaneous Chemical Product and Preparation Manufacturing 326199 All Other Plastics Product Manufacturing 331491 Nonferrous Metal (except Copper and Aluminum) Rolling, Drawing, and Extruding 33151 Ferrous Metal Foundries 331524 Aluminum Foundries (except Die-Casting) 331529 Other Nonferrous Metal Foundries (except Die-Casting) 332710 Machine Shops 332722 Bolt, Nut, Screw, Rivet, and Washer Manufacturing 3329 Other Fabricated Metal Product Manufacturing 332911 Industrial Valve Manufacturing 332919 Other Metal Valve and Pipe Fitting Manufacturing 332992 Small Arms Ammunition Manufacturing 332993 Ammunition (except Small Arms) Manufacturing 332994 Small Arms Manufacturing 332995 Small Arms, Ordnance, and Ordnance Accessories Manufacturing 333415 Air-Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment

Manufacturing 333912 Air and Gas Compressor Manufacturing 339991 Gasket, Packing, and Sealing Device Manufacturing 333996 Fluid Power Pump and Motor Manufacturing 334118 Computer Terminal and Other Computer Peripheral Equipment Manufacturing 334220 Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing


© 2016 IHS 14 April 2016

Table 2: NAICS sector listing of indirect A&D businesses (cont’d) NAICS Description 334290 Other Communications Equipment Manufacturing 334413 Semiconductor and Related Device Manufacturing 334417 Electronic Connector Manufacturing 334418 Printed Circuit Assembly (Electronic Assembly) Manufacturing 334419 Other Electronic Component Manufacturing 3345 Navigational, Measuring, Electromedical, and Control Instruments Manufacturing 334511 Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing 335314 Relay and Industrial Control Manufacturing 336111 Automobile Manufacturing 336419 Other Guided Missile and Space Vehicle Parts and Auxiliary Equipment Manufacturing 336611 Ship Building and Repairing 336612 Boat Building 488999 All Other Support Activities for Transportation 541330 Engineering Services

Table 3: NAICS sector listing of indirect businesses providing services to A&D supply chain NAICS Description 236 Construction of Buildings 2362 Nonresidential Building Construction 2381 Foundation, Structure, and Building Exterior Contractors 2382 Building Equipment Contractors 2383 Building Finishing Contractors 423430 Computer and Computer Peripheral Equipment and Software Merchant Wholesalers 423830 Industrial Machinery and Equipment Merchant Wholesalers 423860 Transportation Equipment and Supplies (except Motor Vehicle) Merchant Wholesalers 423510 Metal Service Centers and Other Metal Merchant Wholesalers 4247 Petroleum and Petroleum Products Merchant Wholesalers 481111 Scheduled Passenger Air Transportation 4812 Nonscheduled Air Transportation 481212 Nonscheduled Chartered Freight Air Transpiration 4881 Support Activities for Air Transportation 488119 Other Airport Operations 488190 Other Support Activities for Air Transportation 4885 Freight Transportation Arrangement 488510 Freight Transportation Arrangement 492210 Local Messengers and Local Delivery 493190 Other Warehousing and Storage 511199 All Other Publishers 511210 Software Publishers 517 Telecommunications 517110 Wired Telecommunications Carriers 517210 Wireless Telecommunications Carriers (except Satellite) 517410 Satellite Telecommunications 517919 All Other Telecommunications 5182 Data Processing, Hosting, and Related Services 518210 Data Processing, Hosting, and Related Services 523910 Miscellaneous Intermediation 524114 Direct Health and Medical Insurance Carriers 541211 Offices of Certified Public Accountants 5413 Architectural, Engineering, and Related Services 541310 Architectural Services 5415 Computer Systems Design and Related Services 541511 Custom Computer Programming Services 541512 Computer Systems Design Services 541513 Computer Facilities Management Services 541519 Other Computer Related Services 5416 Management, Scientific, and Technical Consulting Services 541611 Administrative Management and General Management Consulting Services


© 2016 IHS 15 April 2016

Table 3: NAICS sector listing of indirect businesses providing services to A&D supply chain

(cont’d) NAICS Description 541614 Process, Physical Distribution, and Logistics Consulting Services 541618 Other Management Consulting Services 541690 Other Scientific and Technical Consulting Services 5417 Scientific Research and Development Services 541712 Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology) 551112 Offices of Other Holding Companies 561320 Temporary Help Services 561491 Repossession Services 561499 All Other Business Support Services 5616 Investigation and Security Services 561612 Security Guards and Patrol Services 561613 Armored Car Services 5629 Remediation and Other Waste Management Services 611699 All Other Miscellaneous Schools and Instruction 811310 Commercial and Industrial Machinery and Equipment (except Automotive and Electronic) Repair and

Maintenance

The foundation of this data was the proprietary IHS Business Market Insights (BMI) service. This is

a database (based off of the US Census, County Business Patterns data) of employment and output

for all six-digit NAICS categories for the U.S. down to the zip-code level that is modeled and

maintained by IHS industry experts. This level of sector detail and geographic granularity was

necessary to conducting this study. In order to derive an accurate depiction of the A&D industry, it

was important to have detailed economic data not only about the affiliate businesses’ classification,

but also the location in which they operate.

Extending the segmentation

Once direct employment at the national level was established, we then used the same methodology to

collect the state data. Since the BMI database is based in NAICS codes, the error of attributing

employment to a sector that does not exist in a given state was diminished. However, in some cases

we have more information than what is provided due to lags in reporting or changes that occur in

classifications. Any new information provided by AIA or IHS industry experts was layered into the

analysis for a robust understanding of the sector composition in each state.

3.2 Measuring the Contribution of the A&D Industry

Business transactions with local suppliers and service providers serve as catalysts that trigger a flurry

of economic activity throughout the U.S. For example, when a supplier sells a product or service to a

producer of an end-use good or service, that supplier needs to hire employees (e.g., labor) to

transform inputs (raw materials, energy, intellectual capital) into the final product or service. The

inflation-adjusted ratio of sales to employees, which economists call output per employee, is a

measure of productivity.

The models IHS developed to assess the economic footprint of the A&D industry contain

productivity statistics for 440 industry sectors that are produced by IMPLAN. These sectors are

aggregations of six-digit NAICS codes and are utilized to reduce any inconsistencies present in state-

level data. IHS' BMI employment data provided the starting point in assessing the direct impact of

the industry. This data enabled an accurate assignment of jobs for each tier-I supplier to the


© 2016 IHS 16 April 2016

appropriate industry sector in the models. Industry specific productivity data could then be applied to

quantify the level of output supported by the business transactions within each industry sector. These

contributions occur as a result of direct spending with a tier-I supplier, and are therefore classified as

a direct impact.

Sourcing the inputs a supplier requires to produce the product or service ordered by the producer of

an end-use good or service invokes additional rounds of economic impact. Referring to the left side

of Figure 2 below, when a tier-I supplier makes a sale, that supplier must then purchase the inputs

(supplies and services) needed to produce the final product. Some of these purchases will be

imported from outside the U.S. economy and as such, were not included in this analysis. The

remaining purchases, which represent sales for local businesses, remain within the U.S. economy.

Each supplier must, in turn, hire employees and source additional inputs from its suppliers. This

effect occurs as a result of transactions between vendors and their supplier networks (inter-industry),

and is considered an indirect economic impact.

Figure 2: Diagram of economic impact analysis

The difference between the value of a sale and the cost of its required non-labor inputs is known as

value added. As its name suggests, this represents how much more valuable a final product or service

is relative to its inputs. The sum of all of the value added by all industries within an economy is

equivalent to gross domestic product (GDP). Utilizing value added guards against the double-

counting that occurs when compiling output or revenue data by industry.

GDP is generally considered the broadest measure of the health of a national economy. The models

developed by IHS for this study included value added statistics for each of the 440 industry sectors,

allowing IHS to assess the contribution of the A&D industry to national GDP.

Sales

(Output)

Value Added

Labor Income

(wages and benefits)

Profits Sales (Output)

Industry

Productivity(Output/Worker)

Employment(jobs created or

sustained)

Local Intermediate

Purchases

Supplies

Imported Intermediate

Purchases

Services

Value Added

=

GDP Contribution

Local Purchase

Stimulate

Multi-tiered

Local

Supply Chains

Further rounds of

Economic Impact!


© 2016 IHS 17 April 2016

Finally, the direct and indirect employees spend a portion of their salaries in the regional economy

on consumer goods and services. This stimulates yet another round of economic activity, which

results in “induced” impacts on employment, value added, and so on.

The results from the national model yielded employment, value added, labor income and tax revenue

generated by the A&D industry. State-level models were primarily driven by the levels of direct

employment determined in the data analysis and segment breakdown. However, states also

experience significant intermediate activities in support of direct economic activity in other states.

These results are captured within the national model but can fall out of a state-specific analysis that

is driven solely by in-state direct employment. IHS addressed this issue by allocating those

remaining intermediate state through our proprietary regional economic models and BMI data. This

process ensures that our state level analysis is in harmony with our national models and allocates all

data based on existing industry supply capacity. The resulting levels of direct and intermediate

impacts then determine the significance of the spin-off impacts for each state. The graphic below

highlights the overall sequence of analysis:

Figure 3: Diagram of modeling process

The results of this analysis provided industry specific income, employment and value added data for

each state. IHS maintains broad industry-level data, by state, for employment and Gross State

Product through its U.S. Regional Economics group. The results of our findings not only placed the

impact of the A&D industry overall and by segment within the proper context of each state’s unique

economy, but also highlight the significance of the primary industries within the overall industry of

each state – i.e. the A&D industry provides X% of total manufacturing employment in state Y, while

also supporting Z% of professional services employment. Federal and state tax generation by state

was also determined from the economic impact analysis. IHS placed the state taxes generated into

the context of the overall share of state government revenue and also determine the per-household

contribution to state taxes that A&D industry provides in each state.


© 2016 IHS 18 April 2016

4.0

Economic Impact Analysis


© 2016 IHS 19 April 2016

The following tables and charts summarize the economic impact results for the U.S. A&D industry

over the 2013 to 2015 period. The analysis starts with the industry’s direct (end-use) employment,

which was determined to be 697,330 across 13 primary economic sectors in 2015. Those direct

workers supported another 964,590 employees throughout the industry’s supply chain, which

resulted in a total A&D employment base of 1.7 million jobs. The A&D industry also generated $349

million in direct sales, which supported an additional $437 million in business activity across the

U.S. In sum, the A&D industry supported a total of $586 billion in economic output in 2015. Put

another way, for every million dollars in direct sales activity, eight employees are supported

throughout the supply chain and across industries.

Table 4: Economic impact of A&D industry

2013 2014 2015

Employment (Number of workers) 2,820,580 2,779,700 2,797,370

A&D Industry Impact 1,673,490 1,650,610 1,661,920

End-Use 700,150 691,630 697,330

Supply Chain 973,340 958,980 964,590

Induced 1,147,090 1,129,090 1,135,440

Contribution to GDP (Million US$) 297,163 298,608 306,572

A&D Industry Impact 196,128 197,093 202,365

End-Use 86,415 86,851 89,226

Supply Chain 109,713 110,242 113,139

Induced 101,035 101,515 104,207

Labor Income (Million US$) 206,475 207,562 213,197


End-Use 75,439 75,903 78,047

Supply Chain 74,534 74,889 76,875

Induced 56,502 56,770 58,275

Output (Million US$) 762,185 765,741 786,156


End-Use 337,165 339,258 349,035

Supply Chain 249,252 249,827 255,707

Induced 175,768 176,655 181,414

Government Revenues (Million US$) 60,647 60,877 62,637

Federal Tax 40,355 40,524 41,709

State and Local Tax 20,292 20,353 20,928


© 2016 IHS 20 April 2016

4.1 Employment

Nationally, the A&D industry supported an average of nearly 2.8 million jobs, between 2013 and

2015. During this period, the greater U.S. economy employed an average of 140 million non-farm

jobs, meaning that A&D jobs represented approximately two percent of the nation’s total

employment base. Of the jobs supported in 2015, 697,330 were directly within firms producing end-

user goods and services, while 964,590 were within supply-chain businesses. A majority of the jobs

created were the result of changes to income, or induced jobs, that numbered over 1.1 million on

average over the three-year period.

The bulk of direct jobs in the A&D industry are contained within the broad manufacturing industry.

On average, over 625,000 direct jobs supported by A&D spending are classified within NAICS as

manufacturing. For example, aircraft engine and engine parts, and military armored vehicle, tank,

and tank component manufacturing are employment subsectors that are directly impacted by the

A&D industry. The information and professional services sector also realizes direct impacts,

supporting 70,660 employees on average over the 2013-15 time period.

Chart 1: Employment Impact (2013-15 average)

As noted in the figure above, the indirect impacts are far-reaching and span across a more diverse set

of industries. However, there is still a similar concentration of these jobs within the information and

professional services and manufacturing industries, with an estimated average of 393,490 and

293,130 respectively, between 2013 and 2015. The supply-chain impacts are also present in the

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200,000

400,000

600,000

800,000

1,000,000

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© 2016 IHS 21 April 2016

financial activities (68,000 jobs supported), leisure & other services (64,360 jobs supported),

transportation & utilities (57,750 jobs supported) and wholesale & retail trade sectors (57,460 jobs

supported).

The direct and indirect jobs supported by the A&D industry provide a further round of economic

stimulus as wages flow through unrelated sectors of the economy. These induced impacts supported

employment in the information and professional services, leisure, and wholesale and retail trade

sectors the most. Many of these induced jobs are in the service sectors of the economy, which benefit

from higher levels of employment, and therefore higher incomes. Similarly, retail stores and

wholesale trade businesses are greatly impacted by the changes in disposable income that result from

fluctuations in employment due to hiring in the A&D industry.

The impact on employment at the state level was pronounced in Washington, California, Texas,

Michigan, Missouri and Florida, which, combined, accounted for 60 percent of total A&D-supported

employment over the 2013-15 time period. As expected, much of this is a result of the presence of

the industry’s major players in those states. And the knock-on effect from those businesses’

production is equally important. From a supply-chain stand point, these six states represented 22

percent of total employment supported during this time period – ten percent more than the direct

employment’s share.

Chart 2: Employment Impact Percentage by Top Six States (2013-15 average)

Breakdown by A&D Subcategories

In 2015, the commercial aerospace sector supported 531,030 jobs, which included 375,030 jobs

directly employed by the sector’s end-use producers. Commercial aircraft manufacturing represented

78% of the sector’s employment followed by general aviation and space systems manufacturing. At

23%

16%

8% 5% 4%

4%

40% Washington

California

Texas

Michigan

Missouri

Florida

Rest

Source: IHS


© 2016 IHS 22 April 2016

the same time, the defense and national security segment supported a total of 510,570, which

included 322,310 jobs directly employed the sector’s end-use producers and service providers.

4.2 Sales

The broadest measure of economic activity generated by the A&D industry can be measured in terms

of final sales, also known as output. This metric includes value added as well as the purchase of

intermediate goods and services, both local and imported. Just as value added can be described as

final sales minus the cost of intermediate purchases (hence the additional value created after those

purchases), total output is value-added plus intermediate purchases.

The A&D industry created an average of $771 billion in total output between 2013 and 2015,

expanding at an annualized rate of 1.6%. Industries that are directly associated with A&D averaged

$342 billion and accounted for 44% of total sales. The indirect effects, which represent sales between

the industries with a direct impact and their suppliers, amounted to an average of $252 billion each

year, while the re-spending of wages earned in the direct and indirect industries created the induced

impacts of $178 billion in total output.

As expected, the majority of the direct and indirect sales activity occurred in the manufacturing

sector over the 2013-15 time period. The $333 million in average direct manufacturing sales

supported another $140 million through the supply chain. Wages earned by employees working to

fulfill these sales were spent mostly in financial services, information and professional services and

manufacturing.

Chart 3: Sales Impact (2013-15 average)

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

Induced

Indirect

Direct

Source: IHS

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© 2016 IHS 23 April 2016

4.3 Contribution to GDP

Between 2013 and 2015, the A&D industry produced an average of $301 billion in total economic

value, which amounted to 1.8 percent of total nominal GDP in the U.S. Over that same period, the

total contribution to GDP from the A&D industry grew an average of 1.6% annually, from over $297

billion in 2013 to nearly $307 billion in 2015. The direct component of this contribution, the lion

share of which can be attributed to the manufacturing sector, averaged $87.5 billion between 2013

and 2015 Industries that benefit directly, such as aircraft manufacturing, also require supplies and

services, creating value added in both upstream and downstream supplier industries. Suppliers to the

direct component of the A&D industry had an indirect economic impact of over $111 billion, on

average, between 2013 and 2015. The induced impact of A&D similarly reached $102 billion, as

wages generated in the direct and indirect A&D industry were spent throughout the broader

economy.

While the largest economic impacts are attributed to core A&D businesses like aircraft

manufacturing and ship building, many sectors that are not typically associated with this industry

have realized significant economic benefits as a result of it’s indirect link to the A&D industry. One

such example is the financial services sector, which produced an average of $11 billion in value

added between 2013 and 2015 as an indirect supplier of services to the aerospace industry. After

manufacturing and information and professional services, the financial services industry contributed

the most to GDP between 2013 and 2015, followed by wholesale and retail trade ($8 billion) and

transportation and utilities ($6.6 billion).

Chart 4: Value Added Impact (2013-15 average)

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Source: IHS

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© 2016 IHS 24 April 2016

4.4 Labor Income

A large portion of each industry’s value added is contained in the wages and proprietor's income paid

out to individuals. Proprietor's income and wages and benefits generated by companies in the A&D

industry averaged over $209 billion annually between 2013 and 2015. Over this period, directly paid

labor income is estimated at $76 billion annually; indirect production generated nearly $75 billion

per year in compensation; and induced labor income tallied an average of over $57 billion.

Overall, compensation paid to employees and owners supported by the A&D industry grew by 1.6

percent annually between 2013 and 2015. While the manufacturing industry creates the largest direct

economic impact, the information and professional services sector creates the largest indirect and

induced impact on local wages and other compensation. While wages and proprietor income from

A&D added $209 billion on average in income to employees and owners of businesses nationally,

the regional distribution is similar to the total employment effects of the industry. Washington ($47.7

billion), California ($37.9 billion), and Texas ($17.3 billion) top the list, with these three states

receiving almost 50% of the total labor income generated by firms in the A&D industry.

Chart 5: Labor Income Impact (2013-15 average)

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© 2016 IHS 25 April 2016

4.5 Taxes

Firms that operate within the A&D industry contribute taxes at both the federal and state level. In

2015 these firms paid a total of $62.6 billion in federal and state taxes, up 2.9% from nearly $60.9

billion in 2014 and $60.6 billion in 2013. Taxes paid at the federal level amounted to $41.7 billion, a

contribution that represents approximately 1.6% of the total U.S. federal budget of $3.8 trillion in the

2015 fiscal year. State and local governments also received an estimated $20.9 billion in 2015, which

is roughly on par with the total 2015 state budget of Georgia ($20.8 billion), and greater than the

combined state budgets of Vermont ($3.6 billion), South Dakota ($4.3 billion), Delaware ($4.7

billion) New Hampshire ($5.4 billion).

Table 5: Tax Impact Millions of dollars 2013 2014 2015

Total 60,647 60,877 62,637

Federal Tax 40,355 40,524 41,709

State and Local Tax 20,292 20,353 20,928


© 2016 IHS 27 April 2016

5.1 Additional Tables

Economic Impact by Industry and Metric Employment Impact of A&D Industry Number of workers 2013 2014 2015 Total 2,820,582 2,779,695 2,797,366 Construction 27,289 26,888 27,038

A&D Industry Impact 16,827 16,589 16,681 End-Use - - - Supply Chain 16,827 16,589 16,681

Induced 10,463 10,299 10,357 Financial Services 205,895 202,819 204,007


Induced 137,428 135,271 136,032 Information & Professional Services 862,006 851,088 857,351

A&D Industry Impact 465,922 461,219 465,288 End-Use 68,629 70,610 72,733 Supply Chain 397,293 390,609 392,556

Induced 396,085 389,870 392,062 Leisure & Other Services 324,042 319,170 321,054


Induced 259,293 255,225 256,661 Manufacturing 978,522 963,164 969,032


Induced 52,122 51,304 51,593 Natural Resources 38,273 37,709 37,926


Induced 27,184 26,758 26,908 Transportation & Utilities 99,237 97,756 98,303

A&D Industry Impact 58,485 57,643 57,964 End-Use 272 278 282 Supply Chain 58,212 57,365 57,681

Induced 40,753 40,113 40,339 Wholesale & Retail Trade 271,553 267,544 269,020


Induced 213,754 210,400 211,584 Government 13,763 13,558 13,636


Induced 10,009 9,852 9,907


© 2016 IHS 28 April 2016

Sales Impact of A&D Industry Million US$ 2013 2014 2015 Total 762,185 765,741 786,156 Construction 4,122 4,113 4,190


Induced 1,686 1,681 1,712 Financial Services 60,575 60,961 62,658















A&D Industry Impact 707 715 737 End-Use - - - Supply Chain 707 715 737

Induced 1,652 1,670 1,725


© 2016 IHS 29 April 2016

Value Added Impact of A&D Industry Million US$ 2013 2014 2015 Total 297,163 298,608 306,572 Construction 1,965 1,976 2,028


Induced 847 851 873 Financial Services 40,891 41,103 42,195
















Induced 685 688 706


© 2016 IHS 30 April 2016

Labor Income Impact of A&D Industry Million US$ 2013 2014 2015 Total 206,475 207,562 213,197 Construction 1,668 1,678 1,722


Induced 640 643 660 Financial Services 12,292 12,361 12,693
















Induced 732 736 755


© 2016 IHS 31 April 2016

Economic Impact by State and Metric

Total Economic Impact of A&D Industry (Average 2013-2015)

Employment (# of workers)

Output (Million US$)

Value Added (Million US$)

Labor Income (Million US$)

United States 2,799,210 771,361 300,781 209,078 Alabama 39,420 10,503 3,435 2,460 Alaska 1,300 281 128 83 Arizona 94,790 26,466 9,861 7,369 Arkansas 8,160 2,145 682 466 California 436,180 123,945 51,665 36,871 Colorado 31,320 7,511 3,065 2,405 Connecticut 92,930 32,159 12,378 9,298 Delaware 2,110 535 215 150 District of Columbia 570 97 70 60 Florida 114,750 26,585 10,730 7,422 Georgia 87,400 22,349 8,123 5,716 Hawaii 2,100 408 207 156 Idaho 2,260 495 204 124 Illinois 35,090 9,957 4,095 2,704 Indiana 23,520 8,000 2,557 1,864 Iowa 26,020 5,691 2,464 1,702 Kansas 82,680 22,026 7,299 5,314 Kentucky 8,660 2,908 796 544 Louisiana 12,280 2,650 1,126 722 Maine 7,640 2,039 669 494 Maryland 41,710 9,629 4,546 3,364 Massachusetts 41,910 11,835 5,178 3,997 Michigan 143,520 46,016 14,163 9,746 Minnesota 15,110 3,386 1,619 1,027 Mississippi 10,670 2,492 926 571 Missouri 116,400 27,054 10,098 7,822 Montana 2,390 494 144 111 Nebraska 2,010 486 159 125 Nevada 1,790 411 149 106 New Hampshire 16,910 3,802 1,803 1,250 New Jersey 23,110 5,349 2,628 1,925 New Mexico 4,810 1,082 516 282 New York 36,300 9,377 4,484 3,150 North Carolina 14,410 4,384 1,893 1,068 North Dakota 810 129 62 47 Ohio 60,770 20,420 7,139 4,847 Oklahoma 22,390 5,785 1,797 1,390 Oregon 23,950 6,726 2,882 1,568 Pennsylvania 62,150 16,011 6,128 4,436 Rhode Island 2,670 490 228 180 South Carolina 59,350 15,040 4,810 3,537 South Dakota 530 101 38 26 Tennessee 17,220 4,992 1,546 1,165 Texas 234,690 66,829 25,899 17,300 Utah 26,170 6,531 2,452 1,655 Vermont 2,870 889 131 217 Virginia 53,940 11,448 5,524 3,881 Washington 640,820 180,812 73,178 47,692 West Virginia 3,300 1,041 304 243 Wisconsin 7,150 1,530 573 419 Wyoming 260 37 13 11


© 2016 IHS 32 April 2016

Direct Economic Impact of A&D Industry (Average 2013-2015)





United States 696,370 341,819 87,497 76,463 Alabama 13,070 5,931 1,335 1,207 Alaska 580 156 49 43 Arizona 27,100 13,582 3,462 3,396 Arkansas 2,860 1,243 241 207 California 84,290 36,972 10,381 10,374 Colorado 9,590 3,838 989 1,059 Connecticut 28,150 15,320 4,141 3,716 Delaware 560 293 66 62 District of Columbia 330 57 41 40 Florida 29,720 11,706 2,953 2,664 Georgia 17,140 9,438 1,824 1,747 Hawaii 560 181 79 83 Idaho 950 314 106 68 Illinois 10,900 5,031 1,475 1,083 Indiana 9,900 5,313 1,345 1,135 Iowa 7,560 2,976 981 823 Kansas 28,200 12,519 2,720 2,432 Kentucky 3,090 1,851 347 272 Louisiana 3,860 1,064 347 307 Maine 3,250 1,442 343 295 Maryland 12,130 4,833 1,683 1,538 Massachusetts 13,880 6,646 2,074 1,945 Michigan 54,890 28,277 6,193 4,678 Minnesota 3,760 1,329 482 340 Mississippi 3,520 1,338 375 270 Missouri 20,910 12,035 2,124 2,631 Montana 1,050 318 54 55 Nebraska 940 332 75 73 Nevada 750 226 54 49 New Hampshire 4,500 1,919 679 543 New Jersey 6,870 2,284 780 762 New Mexico 1,530 590 237 133 New York 12,910 4,703 1,597 1,336 North Carolina 5,980 2,885 1,088 624 North Dakota 410 76 30 29 Ohio 21,190 11,976 3,361 2,458 Oklahoma 9,360 3,629 713 733 Oregon 6,740 2,992 803 578 Pennsylvania 13,660 6,476 1,390 1,440 Rhode Island 820 215 80 76 South Carolina 13,330 7,193 1,368 1,346 South Dakota 230 59 16 13 Tennessee 5,940 2,780 548 545 Texas 48,200 22,498 5,496 5,364 Utah 6,910 2,690 684 612 Vermont 1,440 672 32 149 Virginia 16,100 5,099 1,751 1,661 Washington 122,280 76,989 20,127 15,111 West Virginia 1,950 817 201 179 Wisconsin 2,380 699 168 172 Wyoming 150 22 5 6


© 2016 IHS 33 April 2016

Indirect Economic Impact of A&D Industry (Average 2013-2015)





United States 965,640 251,596 111,031 75,433 Alabama 12,530 2,724 1,102 717 Alaska 290 58 36 19 Arizona 30,870 7,825 3,321 2,256 Arkansas 2,620 553 244 156 California 179,060 53,934 23,046 16,128 Colorado 9,210 1,852 995 707 Connecticut 33,180 11,896 4,882 3,668 Delaware 560 107 64 42 District of Columbia 110 18 14 11 Florida 40,060 8,514 4,038 2,666 Georgia 29,880 7,124 2,994 2,102 Hawaii 440 71 38 24 Idaho 550 90 47 28 Illinois 10,690 2,637 1,298 876 Indiana 6,520 1,663 638 429 Iowa 7,920 1,280 679 451 Kansas 25,480 5,612 2,389 1,657 Kentucky 2,840 689 249 164 Louisiana 3,670 907 393 219 Maine 1,780 276 137 93 Maryland 11,590 2,221 1,285 908 Massachusetts 11,060 2,603 1,479 1,037 Michigan 43,700 11,186 4,439 3,069 Minnesota 4,920 1,026 561 367 Mississippi 3,280 653 277 160 Missouri 35,050 6,925 3,395 2,476 Montana 640 96 46 30 Nebraska 440 71 37 26 Nevada 550 119 52 34 New Hampshire 5,030 913 514 357 New Jersey 6,710 1,477 888 602 New Mexico 1,400 265 145 77 New York 10,280 2,460 1,449 988 North Carolina 3,690 801 399 237 North Dakota 140 20 12 7 Ohio 19,730 5,552 2,176 1,490 Oklahoma 6,020 1,220 549 356 Oregon 8,920 2,617 1,450 630 Pennsylvania 20,290 5,250 2,265 1,584 Rhode Island 740 125 64 51 South Carolina 19,940 4,740 1,751 1,233 South Dakota 130 21 10 6 Tennessee 5,570 1,388 527 354 Texas 90,040 28,053 11,311 7,017 Utah 9,960 2,531 1,068 656 Vermont 680 128 47 38 Virginia 14,840 3,011 1,699 1,126 Washington 229,200 57,682 26,275 17,934 West Virginia 600 136 51 36 Wisconsin 2,210 465 201 134 Wyoming 50 8 4 3


© 2016 IHS 34 April 2016

Induced Economic Impact of A&D Industry (Average 2013-2015)





United States 1,137,210 177,946 102,252 57,183 Alabama 13,810 1,849 998 536 Alaska 430 67 44 21 Arizona 36,820 5,059 3,078 1,716 Arkansas 2,670 349 196 103 California 172,830 33,040 18,238 10,370 Colorado 12,520 1,821 1,081 640 Connecticut 31,600 4,943 3,356 1,914 Delaware 990 136 85 45 District of Columbia 140 22 15 9 Florida 44,970 6,364 3,739 2,092 Georgia 40,380 5,787 3,304 1,867 Hawaii 1,100 156 89 49 Idaho 760 92 50 28 Illinois 13,500 2,289 1,322 746 Indiana 7,110 1,023 574 300 Iowa 10,540 1,434 804 428 Kansas 29,000 3,895 2,190 1,225 Kentucky 2,730 368 200 108 Louisiana 4,750 680 386 197 Maine 2,610 320 190 106 Maryland 17,990 2,575 1,578 918 Massachusetts 16,970 2,586 1,625 1,015 Michigan 44,930 6,553 3,531 1,999 Minnesota 6,430 1,031 576 321 Mississippi 3,870 501 273 142 Missouri 60,440 8,095 4,580 2,715 Montana 710 80 45 25 Nebraska 620 83 47 27 Nevada 490 67 43 23 New Hampshire 7,390 971 610 350 New Jersey 9,520 1,589 960 561 New Mexico 1,870 227 134 72 New York 13,110 2,214 1,438 827 North Carolina 4,730 698 405 206 North Dakota 260 33 19 10 Ohio 19,850 2,892 1,602 899 Oklahoma 7,010 935 535 301 Oregon 8,290 1,117 630 360 Pennsylvania 28,210 4,285 2,473 1,412 Rhode Island 1,110 150 85 53 South Carolina 26,090 3,107 1,691 958 South Dakota 160 21 12 7 Tennessee 5,710 824 471 266 Texas 96,460 16,278 9,092 4,918 Utah 9,310 1,310 700 387 Vermont 750 89 52 30 Virginia 23,000 3,338 2,074 1,094 Washington 289,330 46,141 26,777 14,646 West Virginia 740 89 52 28 Wisconsin 2,560 367 203 113 Wyoming 60 7 4 2


© 2016 IHS 35 April 2016

5.2 BMI and IMPLAN

IHS Business Market Insights

Business Market Insights is a robust database that provides market leading forecast views of business

employment and output at the state, MSA, and county level. Using advanced modeling techniques and a rich

dataset from the US Department of Census, our teams of economists and business specialists leverage the IHS

internationally recognized US macroeconomic, industry, and regional forecasts to generate business activity

indicators by county and detailed 4-digit NAICS code. Private companies, financial institutions, and

government agencies use this one-of-a-kind database to get a deep look at US markets. It enables users to

estimate the size and growth potential of a specific industry in a particular geography even when regional data

are limited. The database is designed to allow users to easily aggregate our historical data and forecasts by

market area or industry.

Database Coverage:

Employment

Number of Establishments

Sales (output) in current and constant dollars

4-digit NAICS Code

US States, MSAs, counties and census Regions

25-year forecast, 15+ years history, annual data

IMPLAN model

IHS Global Insight sourced an IMPLAN model to serve as the initial foundation from which to quantify

the contribution of the A&D industry to the US economy. The IMPLAN model closely follows the

accounting conventions such those used in the US Bureau of Economic Analysis's study, Input-Output

Study of the US Economy, and is flexible enough to evaluate changes via the value of output or

employment from the source industry. Using data from the World Industry Services, World Economic

Services and other IHS-proprietary data assets, we customized and refined the modeling environment.

The direct, indirect, and induced job estimates in this report were quantified through input- output modeling

and social accounting matrices using the customized IMPLAN model. Input-output accounting

describes commodity flows from producers to intermediates and final consumers. The total industry

purchases of commodities, services, employment compensation, value added, and imports are equal to

the value of the commodities produced.

The notion of a multiplier rests upon the difference between the initial effect of a change in final demand and

the total effects of that change. Total effects can be calculated either as direct and indirect effects or as

direct, indirect, and induced effects. Direct effects are production changes associated with the immediate

effects or final-demand changes. Indirect effects are production changes in backward-linked industries

caused by the changing input needs of directly affected industries (for example, additional purchases to

produce additional output). Induced effects are the changes in regional household spending patterns caused

by changes in household income generated from the direct and indirect effects.


© 2016 IHS 36 April 2016

Type I multipliers

A Type I multiplier is the direct effect produced by a change in final demand plus the

indirect effect, divided by the direct effect. Increased demands are assumed to lead to

increased employment and population, with the average income level remaining

constant. The Leontief inverse (Type I multipliers matrix) is derived by inverting the

direct coefficients matrix. The result is a matrix of total requirement coefficients, the

amount each industry must produce for the purchasing industry to deliver one

dollar's worth of output to final demand.

Type SAM multipliers

Type SAM multipliers incorporate “induced” effects resulting from the household

expenditures from new labor income. The linear relationship between labor income

and household expenditure can be customized in the IMPLAN software. The default

relationship is PCE and total household expenditure. Each dollar of workplace- based

income is spent based on the SAM relationship generated by IMPLAN.

IHS Customer Care:

Americas: +1 800 IHS CARE (+1 800 447 2273); [email protected]

Europe, Middle East, and Africa: +44 (0) 1344 328 300; [email protected]

Asia and the Pacific Rim: +604 291 3600; [email protected]

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