In this episode of the Arkansas Inc. Podcast, our host Clint O'Neal, Executive Vice President of Global Business at the Arkansas Economic Development Commission, is joined by guests Chad Causey and Katherine Holmstrom to discuss the state of the Aerospace & Defense industry in Arkansas. 

Chad is Executive Director of the Arkansas Aerospace & Defense Alliance, and Katherine is Senior Project Manager at the Arkansas Economic Development Commission. 

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Transcript

Speaker 1:

Welcome to The Arkansas Inc. Podcast where we discuss the latest topics and trends in economic development with subject matter experts and influencers from across the nation and around the world.

Clint:

Welcome to the Arkansas Inc. Podcast. My name is Clint O'Neal. I'm the Executive Vice President of Global Business for the Arkansas Economic Development Commission. Today we're going to be talking about the Aerospace & Defense industry in Arkansas.

Clint:

To say that aerospace and defense is a major part of Arkansas's economy would be an understatement. Aerospace and aviation is Arkansas's leading export with over $1.5 billion in goods exported annually. Some of the industry's leading companies have major operations here, including Lockheed Martin, Aerojet Rocketdyne, Raytheon, and Dassault Falcon Jet, which has established its largest facility in the world in central Arkansas. According to US Bureau of Labor Statistics, there are nearly 10,000 employees at approximately 220 aerospace and defense operations throughout the state, and over the past two years we've seen multiple companies announce expansions across Arkansas.

Clint:

We're going to be talking about the drivers behind the growth of the aerospace and defense industry in Arkansas and why companies are finding success here. To help me navigate the discussion are my guests today, Chad Causey and Katherine Holmstrom. Chad is the Executive Director of the Arkansas Aerospace and Defense Alliance. Katherine is a Senior Project Manager at the Arkansas Economic Development Commission where she serves as the point person for aerospace and defense projects. Welcome, Katherine and Chad.

Katherine:

Thanks, Clint. Happy to be here.

Chad:

Thanks Clint.

Katherine:

Well, the aerospace and defense industry did not appear overnight in Arkansas. In fact, it's been decades in the making. Chad, could you start by giving us some of the history of the industry's origins in Arkansas?

Chad:

Sure, Clint. It's good to be here with you and Katherine and always enjoy working with you all on various aerospace and defense projects around the state. There is a long history for aerospace and defense in the state, and it's varied, it's happened in bits and pieces, but it's grown to be an industry of over 200 aerospace and defense companies in the state employing north of 14-15,000 Arkansans in good high-paying jobs. A lot of these companies like those around Hot Springs moved in from places like California through sometimes family connections or a better cost of doing business in a more competitive business environment. Dassault Falcon Jet, which is one of the larger aerospace employers in the state, they started as a much smaller operation that was doing work for Dassault, and they did such great quality work that Dassault moved their production, their finishing facility here at Arkansas and it's Dassault's largest.

Chad:

And then if you look at the defense sector in the state around Camden, there's a large defense cluster of companies like some which you mentioned, Lockheed Martin, Raytheon, Aerojet Rocketdyne, others down there, Esterline. There's an old World War II naval base there with hundred-plus bunkers that used to store black powder and other explosives, and now it stores the explosives for a state-of-the-art missile and rocket production facility that's run by Lockheed Martin, Raytheon, and others. So it's a great place to put things that explode because there's lots of great bunkers there to put them under the ground and it won't hurt anybody if they explode. Doesn't happen often, but it has on occasion.

Clint:

That's great. Thanks. Chad. Before we dive into Arkansas in more detail, can you give us kind of a holistic look at the industry? What behind the industry's growth at the national and international level?

Chad:

Sure. I think you have to look at that on two different levels. One is on the aerospace, on the commercial side, and the other is on defense. Both sectors are seeing growth over the last several years. '19 versus '18 on the aerospace side, we'll take it first. We did see a reduction actually in the backlog for commercial aircraft orders, but that's short lived. I think if you look at the major reports looking at aerospace outlook in the coming years, PricewaterhouseCooper or Deloitte, you'll see an expected 40,000 units commercial aircraft coming online over the next two decades. A huge backlog. The backlog is as big as it's ever been. That's good news for Arkansas supplier companies here. We have many suppliers that that supply to companies like Lockheed Martin and to Boeing, Gulfstream, and others that will benefit from that growth in commercial aircraft production.

Chad:

And on the defense side we've also seen steady growth. We've seen more defense spending and increases in that spending in the last couple of years here in the federal budget, and we've also seen our allies around the world increase their defense budgets. Countries like Germany have increased their defense spending budget. That means they're purchasing more defense components and those, most of which come from the United States. The F-16 was actually brought back into production. It's still a one of the best fighter jets you can buy on the planet. It's just not quite as good as the F-35, but it is a more affordable option for some of our allies like Greece, Israel, Poland, and others that want a good, strong defense system but can't afford too many F-35s.

Chad:

So we've seen defense spending increase. Those foreign military sales have gone into that, and as you both know with the work that y'all have done individually with these companies around Camden, we've seen just about every one of them with some form of expansion and new contract down there, which means more potential jobs for Arkansans. And so lots of growth, lots of positive outlooks for 2020 and beyond in both aerospace and defense.

Clint:

Let's talk more about that. Katherine, you've been on the front lines of winning projects in the aerospace and defense industry and you know how competitive these projects are. What's important to companies in this sector when it comes to deciding where to expand?

Katherine:

Thanks, Clint. Without a doubt, the number one factor is going to be workforce. No matter what type of monetary incentives are offered to a company, they are not going to expand anywhere where they don't have a full confidence in the existing workforce. They want to know that if they locate a facility there or if they expand, they are going to have a strong workforce that's committed to the company and is really going to have a great, great work product.

Katherine:

A lot of what our job is doing is trying to prove to these companies that the workforce is there, that the skill sets are there, and we're going to be able to meet their needs in a quick timeframe. Sometimes this is across the entire US. Low unemployment rates can make this difficult, but I think in Arkansas we can boast a large number of people that are currently employed here in the aerospace and defense industry. It's part of our culture. We have a rich history and we have many training institutions that are working hard to get a talent pipeline ready for these employers, so I think we're doing a really good job with that.

Clint:

Excellent. Chad, you kind of speak for the industry in the state with the Aerospace and Defense Alliance. Anything you'd like to add about what's important to companies that you work with?

Chad:

Yeah. Well, I think Katherine certainly hit on it with workforce. That's what we hear from every company. Aerospace and defense has the need to hire good quality workers. We have those in Arkansas and that's one of the downsides of low unemployment is that there's not a lot of available trained work force right now, but I think what I would add, what companies in Arkansas like as well is we're a top five state in terms of the cost of doing business for an aerospace or defense company. We have some of the cheapest power cost of doing business in Arkansas here if you're an aerospace company is, you just can't find a better place to do business.

Chad:

And I think also with the governor's leadership, we have begun to make Arkansas much more competitive on the tax basis, on the tax front with our neighboring states, so we're seeing corporate income tax drop, we've seen some manufacturing taxes over time be reduced through the governor's leadership, and I think that is attracting more business and more growth to the state as well. So I think those are some important factors on why companies want to be here and why they're growing as they are here.

Clint:

Excellent.

Katherine:

And just kind of to piggyback on Chad's, my second bullet point was going to be a competitive business environment. One of my favorite stories to tell companies when working with them is talking about how hard our governor works, how responsive our legislature is. One of my favorite examples to tell companies when I'm talking about the responsiveness of our governor and our legislature is that this past legislative session, the legislature adopted a single sales factor apportionment formula whereas previously it was a double weighted sales factor apportionment formula. This change had a really real impact on company's bottom lines, and I think it shows that we're really actively listening to the concerns of our companies and we're really working to make our business environment stronger.

Clint:

As you've both referenced, we're winning projects in Arkansas. It's something our state should be very proud of. We're putting Arkansans to work in this sector. Katherine, can you talk about some of the recent expansion announcements that come to mind?

Katherine:

Yeah, absolutely. One of my, one of my favorite projects that I worked recently was Radius Aerospace in Hot Springs, Arkansas. They just broke ground on their new titanium components plant expansion in Hot Springs. Now, Radius is probably a new name to a lot of people here in Arkansas, but it was formerly Triumph Fabrications. They currently employ over 300 people in Hot Springs. They're going to be adding 65 new jobs and actually probably by the time it's all said and done, it's going to be a hundred new jobs in total. It's a really neat facility. They're doing a lot of really, really cool stuff and we're glad to see them continue to invest in Hot Springs.

Katherine:

Mundo-Tech, which I think we kind of talked about earlier, is based in Rogers, Arkansas. It's a small family-owned company, but they recently announced that they're doubling their physical presence with an $800,000 investment. Of course, Lockheed Martin, as we both discussed, it's a huge factor in the aerospace and defense industry, but last year at the Paris Air Show we were able to announce a $142 million investment and 326 new jobs at their facility at the Highland Industrial Park. We are actually having a ribbon cutting there later this month for their new PAC-3 production facility and we're really glad to see that they're doing well.

Katherine:

In relationship to Lockheed Martin, Aerojet Rocketdyne recently broke ground on their large solid rocket motor development facility, and later this month as well, we're going to go have the ribbon cutting for that facility and look forward to seeing the state-of-the-art technology that they have and the people that they are putting to work down there.

Katherine:

But as you know, it's not always about the big, flashy announcements. There's a lot of smaller companies all across the state that are doing really, really neat work and a lot of times Arkansans aren't familiar with them. One of those companies is ESNA Aerospace, which they're based in Pocahontas. They've been there for decades. They employ 78 people in Pocahontas, Arkansas, which is a huge number when you're talking about smaller, more rural communities. They're a big supplier to OEMs. They do fasteners, and actually if you've ever been on a commercial flight and you look down at the seat in front of you and look and see how that seat is bolted to the floor, you'll see a little red nut, and that more than likely came from Pocahontas, Arkansas. They call it the red ring of reliability. I think that's a really, really neat story. They've been there for a long time and they're continuing to invest in their facility.

Katherine:

Another company that we have in Arkansas in Northwest Arkansas is Ducommun. While they're headquartered in Santa Ana, California, they have production facilities in both Huntsville and Berryville, Arkansas. In Huntsville, they employ 159 people. In Berryville. they employ approximately 180. If the population is approximately 5,000 people, that's a huge impact that they're having on that local economy. But they do a lot of electronics manufacturing for design and designs for the aerospace defense and industrial markets. And a lot of what they produce actually goes down to Camden, to the facilities down there. So those are just some really cool examples that people often don't think of, but there's a hundred examples of these smaller aerospace and defense companies all across the state of Arkansas.

Clint:

That's an incredible amount of momentum and we're very proud to have all of these companies in Arkansas.

Clint:

You've both talked about the importance of workforce to supply the workforce needs of all these companies across the state. Chad, can you talk to us a little bit about the education and training opportunities available around the state?

Chad:

Sure. We have great opportunities for further education in aerospace and defense, which is primarily advanced manufacturing, and then on the aerospace side for those that are looking to work in a maintenance repair and overhaul facilities or maybe even parts of Dassault and some of the other MROs around the state, we have great AMP, aircraft maintenance technician programs throughout the state. Pulaski Tech has a wonderful one, SAU Tech, Mid-South in West Memphis and Arkansas Northeastern in Blytheville have programs. We have a wonderful engineering program at The University of Arkansas and we have more than 25 different community colleges around the state that are offering some form of aerospace or advanced manufacturing training.

Chad:

That's what we try to tell K-12. When we get out around the state, we sometimes have the opportunity and I have that opportunity to visit with junior highs or high schools. Usually they call me at the end of the year when they're trying to fill some time after too many sick days or a couple of snow days, and they'll have me come in and talk to them. And what I always try to do is let them know that regardless of where they're from from around the state, if they have an interest in aerospace and flight or serving by manufacturing or designing rockets and missiles for a major company, they can do that right here in Arkansas. They can go to school and get a high quality education right here in Arkansas to do those things, and they're probably going to end up going to school and living in a community that looks a lot like their own. So it's a matter of getting the word out and spreading the word that these opportunities exist.

Chad:

But we have a very strong educational system here in Arkansas as it relates to programs specific to aerospace and advanced manufacturing, and I think there's more that we can do in that area. But part of what we can do is that connectivity between students exiting K-12 and what they're going to do with their careers and getting them interested in those aerospace and defense careers. But yes, great, great schools around the state that provide a great quality education to get folks started in the aerospace and defense industry right here in Arkansas.

Katherine:

And we also have a lot of great companies that are willing to open the doors, their doors and letting the students come in and see what they're doing firsthand. I think I grew up in Arkansas all my life and had no idea the companies and the industry that was here until I was in college, so it's amazing to get to see that early on and help kind of spark the childrens' interest and hopefully kind of guide them to a career path in the industry.

Chad:

Yeah. Typically when I go in and present to one of these classes, I show them ... they don't really pay a whole lot of attention to me until I hit play on the videos and we'll play videos of a $50 million Falcon jet coming in for a landing in the Swiss Alps, and that gets them pretty energized, or I like to show a lot of videos of PAC-3 missiles that are made right here in Camden, Arkansas, in Arkansas, south Arkansas, excuse me, that are keeping men and women safe around the world, keeping our allies safe around the world in very hostile places, and that gets them energized, that gets them excited. And then when they make that connection that they can have that impact here in Arkansas and not have to go too far from home or live somewhere close by to where they're comfortable, it gets them excited.

Clint:

That's great. Well, let's talk a little bit more about upcoming industry events and trade shows. If you spent much time around the team at the Arkansas Economic Development Commission, you know that our number one priority is taking care of existing companies in Arkansas and helping make sure that they're satisfied and doing business in our state, so we attend a lot of events to support our industries in Arkansas. We also want to send a strong message that Arkansas is a favorable place to do business and that we're open to  new businesses, so we promote ourselves at industry events and trade shows. Katherine, can you give us a rundown of events that we'll be at over the next few months?

Katherine:

Absolutely. Later this month, actually on March 18, we're going to be having the Aerospace and Defense Industry Day at the Little Rock Air Force Base. They are a huge asset to our local economy. They're a huge asset to the state, so we look forward to inviting all our partners out and participating in that day. We'll also be participating in the Mid America Aerospace and Defense Summit in Fort Smith on May 5-6 at the Fort Smith Convention Center. Chad works really hard on putting this on every year, so Chad, I'm going to let you talk a little bit more about it.

Chad:

It's a labor of love, I suppose. It's our second one in a row that we've done in Fort Smith at the Convention Center. Last year we transitioned from what we had done in the past for 10 years, which was an Arkansas summit, and that, not by design, but by branding really was focused more on Arkansas companies, and last year our companies really wanted to expand out, both our larger OEMs and our suppliers. Our suppliers came to the Alliance and really wanted to look at bringing in OEMs from around the country and getting more connections and more suppliers that were coming in. And our buyers really wanted to expand that supplier network from companies that were located not just in Arkansas but from around the surrounding mid-America region, so that's when we rebranded into a mid-America show.

Chad:

It's not unlike other air shows. It's a smaller show. It's nowhere as close to big as like an NBWA, National Business Aviation Association Convention national show, but we have a really good, high-quality attendee list. Lots of good buyer companies participating in B2B and it gives Arkansas companies a chance to not only get to know each other better and do more business together, but also expand out and look beyond Arkansas for other needs that they may have, whether it's a OEM needing more suppliers in their network or if it's a supplier wanting to make those connections with an OEM. And we've had companies that come and have been coming to the summit for years and attribute that summit to business relationships they've developed as they've attended that show. But it's a great one. We have a good speaking program, too. We're really excited. The governor's coming back. I think he was a big reason why we drove attendance up last year as well.

Chad:

Secretary of Commerce Mike Preston, as you all know well, too, he will be there giving us an update on what we're talking about here and, but I would say that, too, is as it relates to the mid-America summit and the industry day that is going to be happening at the Little Rock Air Force Base, we couldn't do those, industry couldn't do those without a great partnership that we have in place with you guys, Arkansas Economic Development Commission. We always enjoy working with you all in putting these events on and attending these events that really add value to the aerospace and defense industry here in the state.

Katherine:

Thanks, Chad. I think you kind of hit the nail on the head. This summit really adds a lot of value to the existing industries and it brings people to the state that often don't get here, so we're happy to at to host them and show off everything that Arkansas has to offer.

Katherine:

We will also be doing that at the Farnborough International Airshow later this year. I believe it's July 20-24 at the Farnborough Airport at the UK. The governor will be going with us as well as a team from AEDC, and several existing industries around the state will be joining us as well. We're very proud to have the governor go with us. I think it really says a lot when the governor is willing to travel overseas to meet with our existing employers to make sure they're happy and also work to recruit new industries to the state.

Katherine:

We have a lot to be proud of. We have a lot to offer companies and we're really, really pleased that he is willing and able to do that, and really puts a good presentation in front of CEOs of major aerospace companies.

Katherine:

Chad and I will probably be at NBAA later this year in October. We typically partner together on a booth and it's always remarkable to see the people that stop by and have no idea what type of aerospace and defense industries we have in the state of Arkansas, so it's really cool to show them a map with all the different company logos that are here in the state and really kind of share our story and tell them about what's going on in Arkansas and hopefully open their eyes to some potential future growth in the state as well.

Clint:

Excellent. Last question for both of you. Let's look toward the future of the industry. We have some students tuning in for the podcast today that have not yet decided on their career track despite Chad's efforts and going around the state and talking about the industry. I know there'll be students listening in because I plan on making my kids listen. I would encourage you guys to do the same. What are some of the opportunities in the coming years in this industry? Do you see this as an industry that should be considered by those entering the workforce in the coming years?

Katherine:

Absolutely. Well, and without a doubt, as Chad mentioned earlier, the industry is growing. It will continue to grow, but I'd also like to note that there is something for everyone. If your child is very STEM-minded and you're very good at science and technology, there's so many unique opportunities in this field for students to jump in and learn more. But there's also opportunities for the kid that loves shop, for the kid that loves just playing with engines and tearing things apart, for those that are mechanically-inclined. You don't have to wear a suit every day to work. You could go and get greasy and get dirty and work with your hands. So there's something for everyone. There's a lot of opportunities out there in both jobs, either on the STEM, the technology side or the mechanic side there. They're very good wages. There's great opportunities to provide for yourself, to provide for your future family in any type of aerospace or defense field.

Chad:

Absolutely. I think Katherine hit on a lot of the high points on why kids should look at this industry. For one, it's exciting field and it's constantly evolving. And second, there are lots of opportunities for growth in this industry, which means opportunities for demand for a high-quality and trained and educated workforce, which means that workforce is going to make really good pay. So yeah, you can bang around on aircraft engines or build PAC-3 missiles in Camden, Arkansas and really contribute to national security issues around the globe and have a very rewarding job and get paid well to do it.

Chad:

One thing I failed to mention earlier when we were talking about opportunities for the state is when you look at that growth in the aerospace industry and the longterm, increases in defense spending around the globe, there's unfortunately, there are a lot of dangerous places in the world today. When you look at the 40,000 units in the commercial side that are going to come on in the next 20 year, the big challenge right now that the industry is trying to figure out is the supply chain issue and how they ramp up a supply chain to meet that demand for that growth over the next 20 years. To me, there's tremendous opportunity for Arkansas to help solve that problem by growing our aerospace workforce here at home.

Chad:

I think that provides a tremendous amount of opportunity for kids who, just like Katherine said, that like things in the STEM field, that like flight, that like aerospace. There's jobs all over the state, places as big as Little Rock and with Dassault Falcon Jet and as small as ESNA in Pocahontas. We talked about Mundo-Tech, too. I think that's an example of why people need to look at this industry is that's a wonderful family. The father started the business and now three of 14 children are working within the company. It's a small business but it's by no means a small family. I think I was talking to Joseph last time I was up there and I think there are 97 grandchildren in that family. So the founder of that company has 97. So it's a small business, large family.

Katherine:

So all the grandkids stay here and decide to go into the aerospace and defense industry.

Chad:

But you all know those guys, Mundo and Chris and Joseph that are with that company, and I think that's an advantage that we have in Arkansas, too, because you've got a family-focused company. They understand the challenges that people have that start families, that want to have families. It's a friendly environment to work in, a good environment to work, and we have companies like that all over this state that understand and support their workers and support their workforce, and I think that associated with the exciting nature of it and the fact that you can get a pretty good paycheck at the end of the day are reasons why folks ought to look at this industry for longterm, satisfying careers.

Clint:

Excellent. With that, we'll wrap up our podcast. I want to thank my guests today, Katherine Holmstrom, senior project manager at the Arkansas Economic Development Commission, and Chad Causey, executive director of the Arkansas Aerospace and Defense Alliance.

Clint:

To learn more about the aerospace and defense industry in Arkansas, I encourage you to visit our website at arkansasedc.com. This is Clint O'Neal, executive vice president of global business for the Arkansas Economic Development commission. Thank you for listening to the Arkansas Inc. Podcast.