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Kentucky’s exports are flying high with aerospace

By Chris Clair

Kentucky’s export market is booming, and aerospace manufacturing is leading the way. Promisingly, members of that sector see economic sunny skies for at least the next decade.

The total value of all products manufactured in Kentucky and sold abroad in 2014 was $27.5 billion, according to figures from the U.S. Census Bureau. That’s a nearly 9 percent increase from 2013, and it continues a recent trend in Kentucky export growth, which now routinely establishes new highs. Since 2011, the value of goods exported from the Bluegrass State has grown 36.8 percent.

The GE-90 turbofan engine is used by the Boeing 777. GE Aviation and Boeing now have the largest order backlogs in the history of both companies, which is creating major growth in aerospace parts exports from Kentucky companies that are suppliers. Kentucky exported $7.8 billion in aerospace parts and products in 2014.
The GE-90 turbofan engine is used by the Boeing 777. GE Aviation and Boeing now have the largest order backlogs in the history of both companies, which is creating major growth in aerospace parts exports from Kentucky companies that are suppliers. Kentucky exported $7.8 billion in aerospace parts and products in 2014.

Half of Kentucky’s exports are transportation equipment, divided between $7.8 billion in aerospace parts and products, and $5.9 billion in motor vehicles, parts, bodies and trailers.

What foreign sales means to Kentucky’s economy, according to the state Cabinet for Economic Development, is 127,000 export-related jobs in the commonwealth paying an average of $56,000 per year including benefits. Among those are 50,200 jobs directly tied to exports that pay an average of $68,100 per year. Kentucky’s median household income for the five-year period from 2009 to 2013 was $43,036, according to the Census Bureau.

“Kentucky’s impact on the global economy is significant,” Gov. Steve Beshear said in a statement. “The fact that we’ve shattered export records for four years running shows our initiatives to help businesses succeed are working.”

Up in one corner of the commonwealth, however, the boom in manufacturing and exports appears to have more to do with broader growth trends in the U.S. and global aviation sector. In particular, General Electric Co.’s GE Aviation business, headquartered in Evendale, Ohio, outside Cincinnati, has seen a rapid increase in production, which has affected its suppliers, a number of which are based nearby in Kentucky.

Major U.S. and foreign airlines are responding to shifting economic and demographic trends by ordering new fleets of larger, more fuel-efficient planes. As a result, GE Aviation and other aerospace manufacturers have an enormous production backlog to meet the needs of manufacturers like Boeing and Airbus, which, in turn, are trying to meet the airlines’ demands for new planes.

On April 15, GE Aviation announced its jet engine backlog exceeds 15,000 engines. Its total industrial backlog is more than $135 billion, including equipment and long-term services contracts. That represented a backlog increase of 25 percent over the past two years. Much of the engine backlog involves engines still currently in development. GE Aviation’s LEAP engine, which starting next year will power Airbus’ A320neo, has a backlog of more than 8,500 engines. The engine for Boeing’s 777X airplane, the GE9X, which goes into service five years from now in 2020, already has a backlog of 700 engines.

Aerospace ascent could last 15 years

After decades of losing money, airlines have become profitable as a result of cost cutting, managing seat capacity more tightly and introducing ancillary fees for various services that formerly were part of basic airfares. The International Air Transport Association said in December it expected 2014 global net profits of $19.9 billion, rising to $25 billion in 2015.

Engineers work on a more fuel efficient LEAP commercial jet test engine for GE Aviation. Kentucky suppliers provide parts for the engine, which is being made by CFM, a joint venture between GE and French manufacturer Snecma.
Engineers work on a more fuel efficient LEAP commercial jet test engine for GE Aviation. Kentucky suppliers provide parts for the engine, which is being made by CFM, a joint venture between GE and French manufacturer Snecma.

John Zurborg, president and chief executive at precision sheetmetal fabricator Skilcraft LLC, in Burlington, Ky., said he and other suppliers see the airplane industry as being in the early stages of a 10- to 15-year cycle of increased production to meet the demands of the airlines. More new planes means more new engines, brakes, landing gear and other components that go into airplane production and maintenance. That means more jobs.

Northern Kentucky, along with southwestern Ohio and southeastern Indiana, is one of the country’s key hubs for aerospace manufacturing. More than 60 aerospace companies, including GE Aviation, call the region home and directly employ 12,000 workers. Expand the view to include all the companies supplying aerospace manufacturers, and the total number of jobs jumps to 116,000, according to the U.S. Commerce Department. And that’s set to increase in response to the demands of the airlines, which cascade through the supply chain.

Airplane parts manufacturers have made it clear to their suppliers that they must expand their capacity.

“A year ago at a GE (Aviation) supplier summit with Boeing, they basically said if you’re not building brick and mortar (manufacturing facilities) and adding employees and have a plan in place today, you’re going to get left behind,” Zurborg said. “And it was very blunt and pointed, because they both have their biggest backlogs in their history. They need the supply base to step up and add capacity.”

Zurborg said four years ago Skilcraft wasn’t even part of the aerospace industry supply chain. Today, making components for GE Aviation, aircraft engine builder Rolls-Royce and companies that supply them accounts for 35 percent of Skilcraft’s total sales. That figure could reach 50 percent of sales in the future, he said.

Skilcraft is setting up a separate business unit to handle its aerospace work, he added. Now in the 90s, Skilcraft’s workforce has grown by 36 percent over the past four years, and Zurborg said he expects to add even more jobs.

“There are suppliers to me that have actually grown faster than I have,” he said. “They were already in (the business), but they have doubled their square footage of facilities or they’ve added employees.”

State studying its aerospace industry

That growth is having a real effect on Kentucky’s economy. In 2014, Kentucky’s aerospace parts and products industry accounted for roughly one-quarter – $7.8 billion – of the commonwealth’s $27.5 billion in total exports, according to Census Bureau figures. It is by far the biggest export sector by dollar value. And aerospace exports from the state have more than doubled in value since 2011. Among major industry sectors, only vehicle exports have grown at a faster rate here.

This jet engine production line for CFM, a joint venture of GE Aviation and Snecma, should be busy for at least the next 10 years and will use parts produced by Kentucky aerospace suppliers.
This jet engine production line for CFM, a joint venture of GE Aviation and Snecma, should be busy for at least the next 10 years and will use parts produced by Kentucky aerospace suppliers.

Between 2013 and 2014 alone, exports from Kentucky of components for aircraft parts grew 37.5 percent. It was among the fastest-growing export sectors in the state, eclipsed only by production of small transport trucks and substances for chemical analysis, both of which are much smaller sectors.

Those numbers have caught the attention of government officials. In March the Kentucky legislature passed a measure ordering a study of the aviation/aerospace industry in the commonwealth. House Joint Resolution 100, sponsored by Rep. Rocky Adkins of Sandy Hook and Sen. Alice Forgy Kerr of Lexington, directs the state’s Economic Development and Transportation cabinets and the Commission on Military Affairs to study the economic impact of the aerospace/aviation industry, as well as ways to help it grow.

The federal government is paying attention, too. In 2014, the region including Northern Kentucky was named as the lead aerospace region for a U.S. Department of Commerce program designed to promote and improve manufacturing communities. The Southwestern Ohio Aerospace Region Manufacturing Community – or SOAR – includes the Interstate 75 corridor from Dayton to Cincinnati, as well as Carroll, Gallatin, Boone, Kenton, Campbell, Bracken, Pendleton, Grant and Owen counties in Northern Kentucky.

The region’s application to the Commerce Department was filed by REDI Cincinnati – an entity including the city’s economic development arm, the Dayton Development Coalition, the city of Dayton and Northern Kentucky Tri-County Economic Development Corp.

The federal designation is meant to help the region access funding and information to improve workforce training, bolster research and development, expand the list of available manufacturing sites, maintain and expand transportation infrastructure, promote trade, help suppliers achieve the necessary certifications and connect with manufacturers, and provide more capital for manufacturers and assist them in becoming more efficient.

“A really nice location logistically”

Wade Williams, vice president for manufacturing and business retention and expansion at Northern Kentucky Tri-ED, said much of what the SOAR community’s federal designation will do for the region boils down to giving it a leg up on competing aerospace manufacturing areas.

kentuckyexports“We will have, I think, opportunities for grants through a lot of the major federal agencies to help us find funding: maybe for some research and development and other opportunities that could help us thrive and bring more investments into the region, whether it’s new companies or expansions of existing companies,” he said. “That could be a huge advantage.”

Northern Kentucky’s largesse when it comes to aerospace manufacturing growth has much to do with the fact that the industry tends to cluster around major manufacturers. GE Aviation’s presence in Evendale, Rolls-Royce’s production plants in relatively nearby Indianapolis and proximity to Wright-Patterson Air Force Base outside Dayton have led to the development of a large aerospace supply chain in the region.

“The aviation industry is a very niche industry. So they are very loyal to their supply base, and it takes a long time to develop the skill sets to serve it,” Skilcraft’s Zurborg said. “Once that supply base gets established, it’s not mobile.”

Zurborg also pointed to the region’s transportation advantages, including river, air and highway connections.

“Whether it’s Greater Cincinnati Airport, or putting stuff on a boat that makes its way down the (Ohio and) Mississippi to a port, or whether it’s on a rail, or down Interstate 75, which runs all the way up to Detroit and down to Tampa, Fla., we’re right in the middle – the heart – of that. It’s a really nice location logistically to be a supply base for any type of business.”

Northern Kentucky Tri-ED’s Williams said the area had long been home to machine tool manufacturers like Cincinnati Machine and Mazak. Those firms had previously supplied auto manufacturers, which led naturally to making components for planes.

What are Kentucky’s opportunities?

There is hope that the aerospace manufacturing boom could spread beyond Northern Kentucky, perhaps even lifting economic boats in eastern, southern and western parts of the commonwealth. The aerospace study commissioned by the commonwealth will examine that possibility, among others. Symbolically, Gov. Beshear signed the legislation at Morehead State University’s Space Science Center.

A CFM Leap turbofan engine on display at the 2013 Paris Air Show. Back orders for the LEAP engine are expected to keep suppliers operating near top capacity for at least the next decade.
A CFM Leap turbofan engine on display at the 2013 Paris Air Show. Back orders for the LEAP engine are expected to keep suppliers operating near top capacity for at least the next decade.

Kentucky Space, a nonprofit consortium working from Morehead State and at the University of Kentucky, subcontracts with the U.S. Defense Department and foreign space programs to build components that are put into orbit and is among the International Space Station’s approved partner.

“It’s essential that we identify ways we can continue to develop this new economy for Kentucky, and especially Eastern Kentucky, with its high-skilled, high-paying jobs,” Rep. Adkins said in a statement.

Aerospace operations already have some presence beyond Northern Kentucky. For example, 90-year-old Lord Corp. of Cary, N.C., a global leader in aircraft engine fasteners and vibration control systems, has had manufacturing operations in Bowling Green since 1974. Commercial aircraft wiring repair specialist Star Aviation in Oldham County began business in 1995.

Among the things the Cabinet for Economic Development will examine are where aerospace manufacturers are located in the commonwealth and the status of education and workforce training programs. Kentucky already seems to have cornered the market on aerospace education at the high school level. According to the Cabinet for Economic Development, of the 98 schools in the country that teach aerospace and aviation skills, 25 of them are in the commonwealth.

The Transportation Cabinet will inventory existing manufacturing facilities and study the transportation networks connecting them, including airports.

In addition to studying the aerospace industry as we know it, commonwealth officials also want to look at new technologies like commercial unmanned aerial systems, or drones.

Aerospace, it seems, could be the gift that keeps on giving lift to Kentucky’s economy.

Chris Clair is a correspondent for The Lane Report. He can be reached at [email protected]

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