Just as the economy seemed to teeter on the edge of a new recession in September, United Technologies Corp. stepped up to buy Goodrich Corp. for $18.4 billion, paying nearly double the trading value of Goodrich's stock before the Hartford, Conn., acquirer swooped in.
If the purchase is successful, United Technologies will add Goodrich's holdings, including a 750-employee unit in Foley that makes and repairs engine casings called nacelles.
Why would a company want to spend so much at a time when many other businesses are sitting on piles of cash, apparently unable or unwilling to spend? As United Technologies Chairman and Chief Executive Officer Louis Chenevert told analysts the morning after the announcement, the deal is an attempt to cash in on expected growth in airplane spending.
"I'm bullish on aerospace, and the whole team is bullish on aerospace," Chenevert said. "It's one of the few areas with a brighter outlook today."
He's not alone.
Richard Aboulafia, an analyst with the Teal Group, told leaders at the four-state Aerospace Alliance summit last month that the aerospace market, especially for the big jets made by Boeing Co. and European Aeronautic Defence and Space Co.'s Airbus unit, was only slightly scarred.
"We got out of this just fine," Aboulafia said, speaking at the Sandestin resort in Florida. Alabama, Mississippi and Louisiana are also members of the alliance, meant to jointly market the states to the aviation and space industries.
In fact, Boeing and Airbus are gearing up for an historic expansion in big jet production, as fleets grow and airlines replace existing planes over the next 20 years.
"28,500 new aircraft. It is coming," said David Trent, site leader for the Airbus Americas engineering facility in Mobile.
Boeing expects even more than, something above 30,000. Of those, the majority will reflect growth in the world jet fleet, according to Morgan Keegan analyst Dan Cornell.
Any surge is likely to only add to the emphasis that economic recruiters along the Gulf Coast have placed on adding aerospace businesses. Aerospace has already been a keystone of economic development strategies from New Orleans to Panama City, Fla., for years.
The long push to lure an EADS tanker plant at Mobile's Brookley Aeroplex was the biggest example of the effort to build up the region's aerospace industry. But while the U.S. Defense Department is expected to spend heavily on the aerial refueling tanker, a contract won by Boeing, and a few other priorities such as the F-35 fighter, overall military spending on aerospace is expected to be relatively flat or even shrink under federal budget pressure.
"There's a lot of growth on the commercial side of the equation, probably not as much growth on the military side," said Bill Sisson, executive director of the Mobile Airport Authority, which owns Brookley and its associated industrial park.
Aboulafia and Cornell said orders for new jetliners have remained strong because they use less fuel than existing planes, and far less fuel than the gas-guzzlers that airlines mothballed at the beginning of the recession.
In recent years, airlines have spent about a quarter of their budget on jet fuel, Cornell said. The cost is threatening to surpass what airlines spend on labor, which historically was a much larger expense. He said it's less efficient for an airline to take a plane out of storage and put it back in running order than to buy another plane, either new or used.
For economic developers, Aboulafia said it might be better to recruit a network of contractors in different subsectors than to focus on one big company or one vertically integrated chain.
Noting that only Brazil's Embraer had successfully entered the ranks of airplane makers since the 1960s, Aboulafia advised summit attendees to "go with who you know." In particular, he discounts threats to Boeing and Airbus, projecting that Canada's Bombardier and the Commercial Aircraft Corporation of China will shave only slivers of the market, and that no other manufacturer will make a measurable impact.
He noted that for new component factories, being a contractor of Boeing or Airbus will be a great aid to business
"Your best friend is volume," Aboulafia said. "Nothing allows you to move up the curve faster than high production runs."
To handle volume, more responsibility is being pushed down to contractors, Trent said, with big Tier I contractors acting more and more like aircraft makers themselves.
"The part makers, the supply chain, is going to be critical," he said.
With most assembly and part-production in Europe, Airbus has struggled against an unfavorable exchange rate of the euro against the dollar. That will be one element pushing more factories into the United States, Aboulafia said.
"Dollar-zone production for the Europeans is extremely important," he said.
Indeed, Trent said Airbus' goal is to double purchases from U.S. suppliers to $20 billion a year by 2020.
Given that push, industrial recruiters believe the Gulf Coast should benefit from new and expanding aerospace industries, especially given marketing cooperation between Alabama, Mississippi, Louisiana and Florida.
"We're doing the right thing in concentrating on the aviation and aerospace sector in the region," Sisson said.
He said Mobile recruiters continue to work with potential businesses that it met during the tanker recruitment. He continued to voice hope that growth might open the way for EADS or some other firm to consider Brookley for a major facility.
"You've got to wonder if, as the sector continues to grow, will it continue to grow in the usual spots, or will they look to other areas," Sisson said.
George Freeland, executive director Jackson County Economic Development Foundation, said that his group has had contact with several new prospective aerospace companies even after Mobile lost the tanker bid.
"We're already positioned for suppliers and vendor support operations," he said. "We're clearly trying to associate ourselves as a reasonable location."
Freeland said that he thought the most obvious niche to pursue is more work related to unmanned aircraft, building on the Northrop Grumman Corp. facility that assembles Fire Scout and Global Hawk aircraft at Trent Lott International Airport in Moss Point.
One obstacle to new aerospace employers is finding workers with the right skills and education.
J.R. McDonald, vice president of Lockheed Martin's northwest Florida operations, said that the giant defense contractor hires 5 percent of all American engineering graduates each year. He said some new facilities have been held back by labor force constraint.
Trent said Airbus is happy in Mobile, but that it's much easier to hire people at its other American engineering facility in Wichita, Kans., one of the industry's hubs.
"The question is always, where is the workforce coming from?" he said. "I can't stress the idea enough that we have to have world-class public education in this area."
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