Auto/Aero Supplement to the Q3 2019 Issue of Area Development by Area Development

2019

SPECIAL INDUSTRY REPORT

The Evolving Automotive Landscape

Controlling Aerospace Manufacturing Conditions

Which Policies Will Drive the AV Sector?

Where to Invest in the Aerospace Industry

A Special Supplement to

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Industry is at a Crossroads. It’s called Woodstock, Ontario, Canada The City of Woodstock is a rapidly growing, industry based community, centrally located in Southwestern Ontario’s manufacturing corridor. Uniquely positioned at the crossroads of super-highways 401 and 403, Woodstock boasts one of the most optimal ground transportation systems in the province. Quick and easy access to international airports, shipping ports and rail systems, further add to Woodstock’s logistical excellence.

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Editor’s Note According to a report from McKinsey & Company, four disruptive tech-driven trends are impacting the auto industry: autonomous driving, electrification, connectivity, and diverse mobility.1 All of these trends are discussed in this edition of our Auto/ Aero Special Industry Report — from which government policies will drive the autonomous vehicle (AV) sector forward to “future-proofing” buildings to account for AVs to how the convergence of technology and auto is impacting site selection. The aerospace industry is also being affected by changes in technology. Modern assembly facilities now rely on high degrees of automation and precision, and facilities must, therefore, continue to evolve to meet ever-changing requirements. Find out where companies are investing in the booming aerospace and defense industry. The articles in this special supplement and the sponsors profiled here can help to guide your advanced technology firm in its new facility decision. If we can help you further with your needs, please contact me at gerri@areadevelopment.com.

Table of Contents of Technology + Automotive 4 and Convergence Its impact on Site Selection

The

Automotive suppliers must approach site selection prudently, with an eye to a long-term solution when evaluating potential locations as well as their labor pools.

T he Evolving Automotive Landscape: What’s Driving the Future?

Dramatic changes in automotive technology are impacting the industry’s labor force, as legislative moves attempt to steer the industry’s future.

9 Which Government Policies Will Drive the AV Sector Forward?

State policymaking geared toward interconnectedness and integration is key to growth of the autonomous vehicle sector.

Controlling Conditions in Aerospace 12 Manufacturing Facilities Modern aerospace facilities have special interior environmental requirements in order to support the manufacture of cutting-edge technology and products.

“Future-Proofing” Buildings to Account 15 for Autonomous Vehicles As self-driving vehicles become more ubiquitous, facility designers and owners will need to develop strategies that cover a wide range of possibilities.

Where to Invest in the Booming 18

Aerospace Manufacturing Industry

The U.S. remains top-ranked globally for aerospace attractiveness, but companies must consider labor, infrastructure, and tax policy among other factors when deciding where to locate their next U.S. facility.

FDI in the U.S. Auto Industry Continues Unabated 20

Foreign automakers and their suppliers continue to invest in the U.S. to access its huge market, highly educated workers, and “culture of innovation.”

Sponsors 22 editor PUBLISHED BY 1

https://www.mckinsey.com/industries/automotiveand-assembly/our-insights/disruptive-trends-thatwill-transform-the-auto-industry

PUBLISHER: Dennis J. Shea ART & DESIGN: Patricia Zedalis EDITOR: Geraldine Gambale PRODUCTION MANAGER: Jessica Whitebook FINANCE: Mary Paulsen WEB DESIGNER: Carmela Emerson

ADVERTISING: Bill Bakewicz

DIGITAL MEDIA MANAGER: Justin Shea BUSINESS DEVELOPMENT: Matthew Shea

BUSINESS SERVICES: Barbara Olsen

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The Convergence of Technology + Automotive and Its impact on Site Selection By Patrich Jett, Chair, Global Automotive Desk, Colliers International

The American Center for Mobility in Michigan is a 500-acre proving ground for the testing + validation and product + standards development related to connected and automated vehicles.

AUTOMOTIVE SUPPLIERS MUST APPROACH SITE SELECTION PRUDENTLY, WITH AN EYE TO A LONGTERM SOLUTION WHEN EVALUATING POTENTIAL LOCATIONS AS WELL AS THEIR LABOR POOLS.

The automotive industry is emerging as a tech-based industry that is changing the way we think about the future of transportation. This new technology will impact everything from our individual behavior and productivity, to the way commerce is transacted, to the way urban planners build future cities.

HARDWARE- AND SOFTWARE-FOCUSED SUPPLIERS The industry is comprised into hardware-focused suppliers that provide the OEMs with traditional parts (old cos.); software-focused tech companies that are disrupting the industry in electrification, autonomous vehicles, mobility, and connectivity (new cos.); and well-established OEM and tech giants trying to navigate both areas, while remaining relevant and profitable through vertical and horizontal integration strategies. Traditional suppliers are expanding technical centers that focus on mechanical

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engineering in key automotive hubs like Detroit, with facilities aiming to attract and retain talent and, at the same time, looking for cost-effective, skilled labor for manufacturing and just-in-time (JIT) operations in the U.S. Midwest and South, competing on very low margins to grow or retain OEM business. In either scenario, labor availability/cost and availability of existing facilities are creating pressure on the industry in key submarkets, while trade tariffs and USMCA guidelines are impacting FDI decisions; e.g., Ford Motor Co paid a $65 million penalty in 2017 to cancel plans for an automotive plant in San Luis Potosi, Mexico, transferring the project to China; one year later, in 2018, Ford announced a $740 million+ investment into a new “innovation hub” for future transportation in downtown Detroit to attract a millennial workforce. Meanwhile, software-based tech suppliers are growing through acquisitions of startups and looking for software engineers with AI experience in key markets like Silicon Valley. These suppliers have much more financial flexibility to pursue new investments, but the competition for labor in this sector against many other tech giants makes organic growth opportunities limited and plug + play acquisitions more likely. Furthermore, many software-based suppliers are coming to the realization that they also need the experience and resources of the traditional suppliers and engineering talent in markets like Detroit; e.g., Waymo, Google’s self-driving affiliate and

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subsidiary of Alphabet, partnered with American Axle to repurpose a plant in Detroit to provide final assembly on Chrysler Pacifica’s and Jaguar’s I-Paces for its commercial fleet. We have also seen most of the OEMs and Tier-I companies establish a presence in Silicon Valley.

LABOR COMES FIRST

Michigan, on the other hand, has developed the American Center for Mobility, a 500-acre state-of-the-art proving ground for the testing + validation and product + standards development related to connected and automated vehicles. The project — located in Ypsilanti, Mich., just down the road from the University of Michigan in Ann Arbor — is also developing an on-site tech park to give partners and suppliers the opportunity to build/lease on-site technical centers to leverage the largest density of automotive talent/mechanical engineers anywhere in the U.S.

UNDERSTANDING LABOR As traditional suppliers and tech-based supAVAILABILITY, pliers continue to integrate, it is clear that labor COST, AND availability and cost — whether in key automotive/ UNIONIZATION, AS tech hubs like Detroit or Silicon Valley, in urban CBDs where they’re hoping to attract millennials, WELL AS LOOKING or in the skilled labor pools of the U.S. Midwest or AT SECONDARY/ Alabama has also been seeing more large South — will be the horsepower these companies UNTAPPED LABOR automotive projects like the Toyota-Mazda plant in need to compete and succeed. So how do labor MARKETS, IS MORE Huntsville, due to having one of the largest skilled and other factors play a role in the site selection RELEVANT THAN labor pools and mechanical engineering pools outprocess for these suppliers, and what strategies are EVER BEFORE. side of Detroit, as the economy has shifted from they using to overcome these challenges in order the textile to the automotive industry. Due to this to unlock the best growth opportunities? shift, Alabama has found the unique opportunity Labor comes first, period. Understanding labor to reposition its workforce. availability, labor cost, and unionization, as well as looking at secondary/untapped labor markets, Another example of developing a is more relevant than ever before as labor capacunique workforce is the Ph.D. program for autoity across the board has become more and more motive engineers at Clemson’s CU-ICAR in Greenscarce. Individual states and local EDCs can supply informaville, S.C. This program focuses on electric vehicles and is one tion on specific workforce availability and cost through NAICS of the only graduate programs of its kind in the U.S. CU-ICAR codes during the site selection process or by using labor also has an on-site tech park to give partners and suppliers analytics tools (e.g., EMSI) to determine top locations based the opportunity to locate technical centers on site. on specific MSA variables including total workforce and earnings. Along with regional STEM initiatives and training EXISTING FACILITY VS. GREENFIELD PROJECT? programs, this can lead to site selection decisions in secondAvailability of existing facilities/creative reuse vs. the timing ary markets. and cost associated with a greenfield project — including Importantly, suppliers should not rely on small pockets utility + infrastructure cost and local zoning and regulations of labor or cannibalizing the pre-existing labor market, but — also plays an important role in where to locate, as vacancy instead look at the criteria — high quality life, a labor market rates in most markets have fallen below 5 below. Finding that isn’t totally saturated, local schools and training options an existing facility that meets all of a supplier’s operational — that will be most favorable to a strong, sustainable labor goals and objectives can be very challenging, whether that is pool. trying to achieve a density ratio of 6 employees:1,000 square feet in a CBD/submarket that does not have ideal public BELOW ARE SOME EXAMPLES transportation for its workforce, adjacent parking solutions, OF STATES LEADING THE WAY: and zoning restrictions; or trying to achieve speed to market when finding large footprints in markets that have limited existing product; or tertiary markets with a limited labor pool. Arizona’s governor signed an executive order to The best opportunity resource a supplier can give themselves create an ecosystem with the state’s academic institutions and is time to complete full due diligence on all viable options, DOT to support the development and testing of autonomous including creative reuse options. vehicles, which has attracted companies like Uber, Waymo, and GM; and Lucid Motors just announced a $700 million electric vehicle manufacturing plant in Casa Grande, Ariz. Continued on page 11

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The Evolving Automotive Landscape: What’s Driving the Future? By Stephen Gray, President & CEO, Gray Construction

changes. Put simply, the auto industry is evolving. This evolution will not be met without bumps, bruises and maybe even scars.

WORKFORCE

DRAMATIC CHANGES IN AUTOMOTIVE TECHNOLOGY ARE IMPACTING THE INDUSTRY’S LABOR FORCE, AS LEGISLATIVE MOVES ATTEMPT TO STEER THE INDUSTRY’S FUTURE.

Manufacturing has long been touted as a motivating force behind the U.S. economy. Within the American manufacturing industry, the automotive sector is truly the driver of this momentum with automakers and suppliers generating more business and jobs than any other industrial segment. In fact, according to the Auto Alliance,1 half the companies listed in the Dow Jones Industrial Average depend on autos for revenue. The sector is made up of automakers; suppliers of parts, components, and materials; as well as the retail and maintenance arm. Since the recession, the U.S. auto sector has reached unprecedented levels selling over 17 million units in 2018, the fourth best sales year historically. Globally, sales tapered off in 2018 due to political changes and trade tensions. From an output standpoint, some 11 million vehicles were produced in the U.S. last year, with this number expected to hold steady through 2025. Still, the current news cycle indicates strain and uncertainty for the sector. Between the trade war, slowdown in China, influx of new technologies, and the preferences of millennials and Gen Z consumers, doubt and hesitation exist, thus influencing consumer demand. The past year has resulted in plant closures, workforce shifts, and joint ventures such as Mazda Toyota Manufacturing, U.S.A., Inc., among other

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In order to meet smart manufacturing expectations, unlike other market verticals, the auto industry is experiencing dramatic labor trends. Similar to the larger manufacturing industry, the skills gap is a dominant factor in automotive as baby-boomers are aging out of the workforce. The added layer to the workforce challenge is the diminishing popularity and acceptance of trade skills. “If the supply of workers interested in working in blue-collar jobs was growing as rapidly as demand, we would not have a problem. But in reality, the supply of workers for bluecollar jobs has been shrinking. People with a college degree are very unlikely to end up working in a blue-collar job, partly due to the stigma attached to manual labor,” wrote Gad Levanon, chief economist at The Conference Board, and Frank Steemers, associate economist at The Conference Board, in a labor market report.2 These trends are driving change in the auto workforce. Trade workers such as welders and millwrights are a rarity, forcing manufacturers to look toward automation solutions. Robotics and manufacturing have become synonymous in recent years, but the pairing has gained its fair share of negativity largely due to the job loss association. In reality, the back-breaking labor that was often linked to plant work has been replaced by automated elements. One of the leading drivers for this shift

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is the safety of workers, since integrating robotics reduces the risk of exposure to physical hazards. Automation has also enabled the need for sophisticated jobs to operate these robots. Furthermore, as production has become more advanced and complex, big data and analytics now must be calculated into the process, which creates yet another level of workers who are now needed. Looking ahead, the automotive workforce will likely shift even further. As consumer demand requires more customization, auto manufacturing has to be ready to be flexible, while also maintaining speed-to-market expectations. Digitization will put additional focus on training and retraining individuals as well as increase the need for more knowledge workers.

millennials get older, they are moving to the suburbs, making more money, and thus buying cars. It’s expected that Generation Z will follow suit. From the consumer standpoint, it’s also important to realize that some consumers simply enjoy driving. This characteristic will not change quickly. The positive factors related to autonomous vehicles are significant, especially when considering the reduction of drunk or impaired driving. Additionally, parking structures could be converted into new developments, and insurance rates would have to be decreased, both of which would mean more money going back into the economy. The caveat? The technology has to be perfected. It will get there, but the timing is unclear for now.

TECHNOLOGY

LEGISLATION

The digital disruption of the auto industry cannot be mentioned without reference to electric and autonomous vehicles. While touted as holding the potential for the largest area of growth for automakers, electric and autonomous vehicles could arguably hold the most challenges as well. Electric vehicles (EVs) have actually been around for more than a century but didn’t really gain attention until Tesla released its Roadster in 2008. Currently, one in 250 vehicles on the road are battery-powered.3 Growth is expected for the market but not until 2030, with only a third of global cars predicted to be electric by 2040 according to Bloomberg’s 2019 Electric Vehicle Outlook.4 EV models are attractive for many reasons. From an economic standpoint, EV adoption could affect the dependence on oil the U.S. imports, which could correlate to U.S. jobs. Automakers are betting these incentives will grow and are, in turn, investing in this area. Beyond Tesla, GM, Volvo, Toyota, Ford, Daimler, BMW, Volkswagen, and Fiat Chrysler are all taking steps to become players in the EV market. Still, the future rising demand of EVs will be driven by government requirements rather than market preferences. Autonomous vehicles are yet another potential gamechanger for the industry. Headlines are abundant that flaunt the self-driving car market’s ability to transform the industry. While true, many hiccups first need to be overcome. The fact is autonomous vehicles are still in developmental phases. One day they will be on roads, but those models may look nothing like the current test-runs. This is why some companies have decided to join forces to tackle the challenges associated with this concept. GM and Honda are working together on battery development; and BMW, Daimler, and Volkswagen are looking to partner on R&D. Companies apart from automakers — like Apple, Google, Uber, and Lyft — also have skin in this game. The consumer impact with self-driving cars has to be factored into the equation as well. While some analysts credited lower auto sales to millennials, 2018 sales indicate that, as

All around the globe, governments are looking to dictate the future of automotive manufacturing. Both Europe and Asia are pushing for automakers to electrify their vehicles even though demand has yet to take off. The U.S. has been the leader in emission standards, with Europe following suit. China specifically is investing billions of dollars to subsidize the manufacturing of electric vehicles and batteries. The country is focusing its attention on the EV market as a result of new emission standards that went into effect July 1. Here in the U.S., the focus is similar. On the environmental side, in 1975, the Corporate Average Fuel Economy (CAFE) standards were passed as part of the Energy Policy and Conservation Act in order to set a guideline for the average new vehicle fuel economy. Although the rules were a direct result of the 1973 oil embargo, the intent was to reduce the use of gasoline while making improvements in fuel efficiency. In 2012, the Obama administration released new CAFE standards to raise the average fuel efficiency of new cars and trucks to 54.4 miles per gallon by 2025. The current White House, along with the Environmental Protection Agency (EPA) and the National Highway Traffic Safety Administration (NHTSA), is proposing the Safer Affordable Fuel Efficient (SAFE) standards to freeze the 2012 increase of 54 miles to 37 miles after 2021, citing the “balance of safety, economics, technology, fuel conservation and pollution reduction.” As the SAFE standards are being debated, states like California and Colorado are pushing back against the regulations. Wherever they land, both automakers and consumers will feel the impact related to jobs and oil. Across the board, regulatory pressures are expected to tighten, indicating that automakers must be agile to succeed.

THE FUTURE From workforce to technology and even legislation, uncertainty abounds for the automotive market. But with this uncertainty comes tremendous opportunity. Automakers and suppliers alike have the ability to advance to make the dif-

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ference in the marketplace. The truth is, investment into the future is happening. The American Automotive Policy Council credits the auto industry as the largest manufacturing sector in the U.S.5 From an output standpoint, international carmakers would need to assemble more than two million more cars and trucks in the U.S. to match the production of FCA US, Ford, and General Motors.

The recently unveiled “Next Generation C8” is a game-changer for the Kentucky-made Corvette. The 2020 model has been in high demand since introducing its mid-engine design.

KENTUCKY CONTINUES AUTOMOTIVE PROWESS Kentucky’s three OEMs and hundreds of suppliers continue to invest in the state and its drive for automotive engineering and manufacturing excellence. Gov. Matt Bevin frequently calls for his state to become America’s hub of engineering and advanced manufacturing. As the nation’s third-leading producer of cars, light trucks, and SUVs — and first per capita — the Bluegrass State’s automotive industry is heeding the call. With four major automotive assembly plants and three OEMs — two Ford plants and one each for Toyota and General Motors —– the Commonwealth’s reputation as a national leader in automotive production and engineering is nothing new.

America is clearly staking its claim on the sector, but competition will, no doubt, be fierce. Buckle up, because the next decade looks to be a wild ride. <> 1

https://autoalliance.org/economy/ https://www.conference-board.org/blog/postdetail.cfm?post=6894&blogid=7 https://www.cbinsights.com/research/report/electric-car-race/ 4 https://about.bnef.com/electric-vehicle-outlook/ 5 http://www.americanautocouncil.org/sites/aapc2016/files/2018%20Economic%20Contribution %20Report.pdf 2 3

Each of the major automakers with Kentucky facilities have had a year of major announcements: Corvette, manufactured in Bowling Green, recently unveiled its “Next Generation C8,” which includes the most dramatic transformation in the classic car’s history. The 2020 model will move the engine from the front to the middle of the vehicle behind its passengers. The aim is to improve both performance and handling. At Toyota’s Georgetown plant, the company is investing another $238 million to build the RAV4 crossover SUV and the hybrid Lexus ES. Toyota Motor Manufacturing Kentucky, already Toyota’s largest vehicle plant in the world, has the capacity to build 550,000 vehicles and 600,000 engines annually. Meanwhile, Ford, with two facilities in Louisville, has ramped up production of its Ford Expedition and Lincoln Navigator, while preparing to add a new compact Lincoln SUV called the Corsair.

Numerous automotive suppliers around the state have followed suit. Below are a few of the notable investments in recent months. • Kobelco Aluminum Products & Extrusions announced a $42 million expansion in Bowling Green that would bring its total investment in Kentucky to $95 million with 220 newly created jobs. •D ajcor Aluminum has plans for a $19.6 million investment to locate its first U.S. operation in the eastern Kentucky community of Hazard. The project is expected to create 265 jobs. •C entral Motor Wheel of America is set to double the size of its operation in Paris, Ky., with a $112 million investment that will create 145 full-time jobs. •P ounds of Plastic announced a more than $4 million investment to create up to 54 jobs in Owenton, 60 miles northeast of Louisville. These are just a few of the recent announcements that have furthered the automotive industry in Kentucky, which already employs more than 100,000 people at nearly 525 facilities.

Copy supplied by the KENTUCKY CABINET FOR ECONOMIC DEVELOPMENT

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Which Government Policies Will Drive the AV Sector Forward? By Benton Blaine, Vice President, Infrastructure & Economic Development; and Michele Satterlund, Senior Vice President, State Government Relations; McGuireWoods Consulting LLC

are instead seeking to increase taxes on related autonomous equipment.

States and cities are increasingly looking for ways to attract the emerging autonomous vehicle (AV) industry — making it even more important for companies that will be early implementers or are providers to the AV sector to carefully consider their options for expansion or relocation. Interconnectedness and integration are the cornerstones of the AV industry and provide a clear lens through which to evaluate how a state approaches policymaking related to the industry. Below are three areas upon which to focus:

Regulatory Landscape — Currently state guidance ranges from no legislation or executive orders whatsoever, to limiting AV to testing, to allowing full AV use (for hire and private) on all public roadways. Such varying degrees of inviting regulatory landscapes could steer AV product designers and developers in the direction of states and localities where testing and implementation are widely accepted. This driving force could, in turn, alter the traditional original equipment manufacturer (OEM) supply chains, and AV technology (software and hardware) will play an increasingly important role in the automotive supply chain even though it is not linked to current OEM supply hubs. Suppliers are wise to consider where clusters of yet-to-be located AV supply chains will settle, and early adopters should have their eyes peeled for locations where AV implementation is allowed, keeping in mind that technology development, for the most part, will follow the path (or state) of least resistance.

State Policy — A company considering a particular state for relocation should consider whether the state has embraced policies that allow for the broad utilization of autonomous technologies, or has taken a more cautious approach, or has put in place burdensome barriers, such as additional permit or registration requirements. Ask whether the municipalities within the state are investing in infrastructure that will help facilitate interconnectedness (such as broadband and 5G) or

Infrastructure Planning — Another key indicator of whether a state is positioning itself as an attractive location for AV companies is long-term infrastructure planning and shovel-ready site development that

The United States Postal Service has partnered with automated trucking startup TuSimple to create a pilot program for hauling packages and letters between Phoenix and Dallas.

STATE POLICYMAKING GEARED TOWARD INTERCONNECTEDNESS AND INTEGRATION IS KEY TO GROWTH OF THE AUTONOMOUS VEHICLE SECTOR.

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incorporate the use of autonomous technology and interconnectedness. Do these sites promote interconnectedness and integration with vehicle-to-infrastructure (V2I) communications technology? Are intelligent technologies, such as signage that is uniform and visible to humans and machines, being incorporated into planned developments and capital investments? Are capital improvements being made with an eye toward autonomous technologies and interconnectedness?

PRACTICAL APPLICATIONS FOR THE LABOR FORCE

Autonomous vehicles, when combined with artificial intelligence, will impact the daily life of a significant portion of the labor force. One of the largest beneficiaries of the AV disruption may be those with physical limitations. Several of the nation’s biggest cities view AVs as a possible soluTHE SPEED AT tion to the “last-mile challenge” (getting people WHICH A STATE from their work or residence to the nearest transit MOVES INTO stop). By using autonomous vehicles to suppleTHE COMMERCIAL ment existing transit options and thus reducing USE PHASE OF the last-mile burden, those with physical limitaAUTONOMOUS COMMERCIAL USE: tions may be able to participate in the workforce VEHICLES LARGELY A Landscape View in new ways. For employers, the new workforce DEPENDS ON The speed at which a state moves into the mobility, combined with the shift of manual labor SUPPORT FROM commercial use phase of autonomous vehicles jobs to systems-manager type roles due to AI, will COMPANY largely depends on support from company execumean anticipating workers’ changing needs. tives and elected officials. EXECUTIVES AND In addition, the millennial population that For example, in Mountain View, California, ELECTED OFFICIALS. recently flocked to downtown cores is now finance developer Intuit Inc. worked with Starmoving to the suburbs. This trend could create a ship Technologies Inc., an autonomous delivery suburb-targeted shift, as AVs take the hassle out startup, to utilize autonomous robots for food of commuting, allowing families to move farther delivery services within the company’s Silicon from downtown areas, thus creating new areas Valley campus. While autonomous delivery for development in the suburban environment. vehicles are aimed at delivering food in an efCompanies and cities will have the ability to ficient manner to employees across the camrethink their urban footprint. AVs will reduce the pus, the vehicles are also capable of delivering parking spaces needed for office and mixed-use interoffice mail, parts and equipment, and other development, opening up millions of square needed office supplies, eliminating the cost, feet in downtown areas. Repurposing parking decks can be waiting time, and environmental impact of traditional smallexpensive, but existing surface parking can provide an immeitem delivery drop-offs. California keeps good company with diate source of developable land. The reduced construction other states such as Virginia, Florida, Ohio, and Texas, where costs of these new developments without parking decks may corridors have likewise landed on the map. slow the rent appreciation that makes downtown areas costEarlier this year, the United States Postal Service partprohibitive to many companies. nered with automated trucking startup TuSimple to create a pilot program for hauling packages and letters between Phoenix and Dallas. This type of long-distance route is INFRASTRUCTURE NECESSITIES tough on human drivers and often requires a team, which The proliferation of autonomous vehicles requires a increases the difficulty of recruiting and acquiring drivers. substantial investment in infrastructure to streamline their Using autonomous semis allows for significant cost-effiimplementation. Investment will be made in both traditional ciencies in fuel and labor. infrastructure — including smart lanes, AV-compatible sigOf course, such programs require planning for the nage, fiber networks, and cell towers (5G) — and nontradiproper infrastructure, such as dock access that is compattional infrastructure such as upskilling of the population, safe ible with autonomous trucks, and distribution centers that public Wi-Fi, and on-road telematics and data. are equipped to handle these vehicles. Moreover, because The implementation, regulation, and associated cost of automated trucks can travel round-the-clock and would the infrastructure may be borne by a mix of government not be subject to hours-of-service rules, warehouses and entities (city, county, state, federal), end-users, or third-party distribution centers can be located in more remote geoproviders. There is currently not a defined or suggested cost graphic locations, freeing up prime property for other allocation, as the market investment reflects initiative rather opportunities. than status quo. Examples of the new infrastructure projects

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include Las Vegas digitally mapping its downtown corridor for use by AVs; San Diego installing more than 3,200 smart streetlights; and numerous high school and community colleges incorporating auto-tech and programming courses into their programs to satisfy positions that are already in high demand. Moving forward, the costs of infrastructure will likely be a collaborative initiative, but experience and pending legislation tell us that some communities are looking for a tax windfall from the new disruptors, while others are positioning their community to be at the forefront of development. Regulation will play a material role where technology is implemented and thus will impact where the subsequent projects, data centers, office/programming hubs, connected distribution, AV depots, etc. are located. Burdens that can seem mundane — such as the placement, height, and appearance of cell towers or 5G nodes, or excess fees for placement of fiber cables — can have a substantial effect against implementation. Some obstacles are more apparent, like decaying infrastructure, roads in need of repair, specialty AI/AV taxes, and communities attempting to prohibit via regulating the use of AI/AVs instead of retraining the population. The cost and regulation of AV infrastructure and implementation makes it unlikely that the technology will be implemented simultaneously across the U.S. This will allow some communities to pull ahead in the process. These areas have the ability to create new tech clusters, thus anchoring jobs to those areas for decades to come. Additionally, the next generation workforce is likely to view the new technology as an amenity when choosing a city in which to live, therefore providing a steady influx of an educated workforce.

IN SUM Early implementers and providers of the autonomous vehicle sector have endless factors to consider not only when mapping out their next technological advancement, but also when planning for future growth and expansion. Understanding how a state’s policymakers approach interconnectedness and integration is critical to an AV company’s success in planning for its next move, business collaboration, or road test. <>

The Convergence Continued from page 5

MERGERS & ACQUISITIONS Lastly, the automotive sector finds itself in a state of evolution, which has led to a flurry of mergers and acquisitions (M&A) as companies position themselves to lead the charge in innovative technology solutions, particularly in automation, electric vehicles, and urban mobility. The tools we see traditional and tech-based suppliers using for growth in acquiring plug + play opportunities are their corporate development and M&A strategies. This is a very effective way for suppliers to integrate new and innovative platforms, adding talent, facilities, and hopefully revenue. Both the pre- and post-acquisition processes require suppliers to complete substantial due diligence to mitigate risk, reduce cost through consolidation and monetization strategies, and look for optimal short- and long-term utilization that satisfies the core business needs. As a generalization, most suppliers are either buying, growing to be acquired, or divesting old cos. from new cos., and this is creating a lot of market activity in the industry. With both M&A and innovations such as autonomous and electric vehicles, manufacturing and associated real estate needs will continue to evolve. How can organizations position themselves to acquire and be acquired? What steps are necessary once organizations split or acquire other companies? How do broader market factors affect flux and innovation in the automotive sector? And, how can organizations restructure physical real estate to maximize cost savings and productivity while minimizing risk? Transactions like these, which happen quickly, are most successful with the guidance of real estate specialists to evaluate opportunities and identify economies of scale. Where are locations most needed? What locations are ideal to maximize distance to suppliers and workforce availability? What lease negotiations are necessary to hedge risk in the long- and short-term? As company shareholders work with specialized, industry-leading experts to consolidate and monetize assets, they position themselves to be more immediately successful in the fast-paced world of the automotive sector. <>

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Controlling Conditions in Aerospace Manufacturing Facilities

courtesy Lockheed Martin

By Dan Wiegandt AIA, LEED AP BD+C, Director - Aviation, Aerospace and Defense, The Austin Company

Next generation tooling techniques and a highly skilled workforce perform together to produce the F-35 Lightning II at Lockheed Martin’s mile+-long factory in Fort Worth, Texas.

MODERN AEROSPACE FACILITIES HAVE SPECIAL INTERIOR ENVIRONMENTAL REQUIREMENTS IN ORDER TO SUPPORT THE MANUFACTURE OF CUTTING-EDGE TECHNOLOGY AND PRODUCTS.

Aerospace manufacturing is seeing a resurgence with more demand for passenger air travel, increased defense spending, and numerous private companies’ entry into space. The new aerospace products and vehicles to support this resurgence often have strict manufacturing requirements for specialized environmental conditions and facilities. Let’s explore some of these changing interior environmental requirements.

HISTORICAL AEROSPACE WORKING ENVIRONMENTS With the onset of World War II, the United States needed manufacturing capacity — and needed it quickly. Large aircraft and aerospace manufacturing facilities were quickly erected and enclosed: some framed in wood, others in steel. Most used trusses to provide large open spans and were clad in siding that varied from brick to steel to wood to asbestos. The choice of building materials was often driven by what was available due to the materials shortages related to the war effort.

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The interiors of these aircraft manufacturing facilities were spartan at best, featuring concrete floors and exposed structure with only the necessary lighting and heating. Few were cooled or conditioned for worker comfort: doors, windows, clerestories and an occasional fan were used to manually control the “breeze” to moderate the temperature. Humidity control was seldom provided. Creature comfort for the employees was not a major concern. The aircraft and other vehicles manufactured in these spaces were largely made of metals, often hand-made by drilling, screwing, welding, and riveting components together without a great deal of precision or automation. While quality was important, functionality and quantity or production rates were the primary manufacturing requirements of the day, and out-of-spec product tolerances and gaps were not uncommon. Despite the environmental and quality limitations these buildings possessed, many are still used today to manufacture state-of-the-art aerospace products. The Lockheed Martin Fort Worth plant in Texas is one such example. Originally built during World War II for Consolidated Aircraft Company to build B-24 Liberators, it currently assembles the state-of-the-art F-35 Joint Strike Fighter. The building has been used to support at least nine different manufacturing programs since it was originally built.

CURRENT AEROSPACE WORKING ENVIRONMENTS Today’s aircraft and aerospace products perform to a much higher level

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than World War II aircraft. Materials of construction include a wide range of metals, composites, plastics, coatings, and electronics. Manufacturing with these materials and components requires a wide variety of special environmental conditions, and modern assembly facilities now rely on high degrees of automation and precision. For the parts and the products to meet these higher standards of performance, the facilities and systems must perform at a much higher level, as well. Temperature control is often required to minimize thermal expansion of the components to support closer tolerances and greater accuracy required in today’s aerospace products. Humidity control can be critical in composites to prevent cut edges from absorbing excess moisture, which would cause issues when baked or autoclaved. Too little humidity supports static electricity, which can build up and damage electronic components. Near “cleanroom” cleanliness can be required for laminating and tape-laying processes, as any dust or lint inclusions would become a potential structural flaw. Modern bonding, sealing, and adhesive agents can have specific temperature or humidity requirements to cure and develop their engineered strengths. All these factors need to be well-controlled within program manufacturing and assembly requirement specifications. Failure to maintain these environmental conditions can often be a cause to reject an expensive part or component. Furthermore, beyond products and components, skilled aerospace workers are in high demand throughout the industry. The quality of their working environment is often critical to retaining “the best of the best.” Well-controlled work environments are important to maintaining worker comfort and overall satisfaction. Many of the automated processes, robots, or other “non-human” workers can also require specific environmental conditions to perform with optimal accuracy. Environments in today’s aerospace manufacturing facilities often have temperature ranges around 70-720 F. Humidity ranges can vary with the specific manufacturing processes: they can be as wide as 20–80 percent Rh or down to 40–60 percent Rh range, or less. Cleanliness also varies with the specific processes but can easily be at a Class 100K (ISO 5) cleanroom level for particulates in a facility involved with composites. Many aerospace facilities are tall or have a large volume of space. Maintaining the required environmental conditions

within an individual workspace or the entire volume is a critical consideration and requires the proper design and necessary control systems. As the requirements and tolerances of the aerospace manufacturing environment grow more specific and restrictive, these types of facilities must be designed and constructed to support those requirements. Compared to historic aerospace and aircraft buildings, today’s facilities must be much more robustly insulated and sealed. Construction needs to be more thermal and vapor tight. In the southeastern U.S., for example, with hot and humid summers, moisture will enter the building through every door, crack, or penetration if not well-sealed. Special attention is necessary for all exterior wall assemblies, roofs, windows, skylights, personnel doors, material transfer doors, and even large aircraft and hangar doors. Increased insulation is generally an inexpensive option to improve thermal performance compared to larger HVAC systems, increased energy usage, or failure to maintain requirements. High-quality insulation usually has a relatively short payback or return on investment.

TECHNICAL CHALLENGES AND CRITICAL CONSIDERATIONS Temperature-controlled aerospace facilities often have large doors to move components or entire aircraft in or out. Because of the size of the product, vestibules or airlocks to control and isolate airflow may not be feasible. Once these types of large doors are opened, the controlled environment within the facility is compromised and the exterior temperature and humidity conditions infiltrate the facility. After the doors are closed, the building systems can begin attempting to restore the required temperature or humidity control. The time it takes to restore the required environmental conditions is the “recovery” time. During design of the building and related HVAC systems, the recovery time and exterior conditions should be defined. Temperature-critical manufacturing processes may need to be postponed or deferred until after the recovery period, when environmental conditions return to within required specifications and the affected components also return to temperature. As aerospace manufacturing facilities often have tall, open volumes of space, the air in these taller spaces tends to stratify or divide into different temperature layers. If the program requires a consistent temperature throughout the entire range of the working height, then destratification is necessary. If destratification is necessary, one method is fully flooding the space by using a combination of air distribution devices to create an upper and lower blanket of conditioned air. An alternate method would be to use air displacement equipment to circulate the conditioned air vertically. Air dis-

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placement equipment typically — unfortunately — takes up valuable manufacturing floor space. In some cases, only the lower 20–30 feet of the volume need its temperature strictly maintained. The heat generation of any manufacturing equipment or processes needs to be considered when designing aerospace HVAC systems. Certain aerospace components or processes, such as composites, may require ovens or autoclaves. Care must be taken to plan for the heat potential from the equip-

ment, as well as the product once it is removed in a heated state. Test equipment such as pumps or actuators can also give off considerable heat into the interior space. Manufacturing processes such as bonding, sealing, or the use of adhesives can generate undesirable odors. Specialized exhaust systems are used to remove these odors. Exhaust systems take conditioned air out of the interior spaces and dump it outside the building, which in turn requires additional replacement air from the outside that Continued on page 17

Relativity’s E-4 test stand at the Stennis Space Center, where the team is excited to accelerate the testing capability of their entirely 3D printed Aeon rocket engine

THE SKY’S THE LIMIT IN MISSISSIPPI In 1938, a military parachute manufacturer opened for business in Columbia, Miss. Since that time, the state’s aerospace industry has experienced unparalleled growth as global leaders invest in Mississippi and rely on the state’s skilled and committed workforce to produce some of the most technologically advanced products in the industry. In 2013, spaceflight company SpaceX brought its rocket engine testing program to the Stennis Space Center in Hancock County, home of NASA’s largest rocket testing site. SpaceX upgraded the site’s E-2 test stand with methane capabilities and began testing its Raptor methane-fueled rocket engines there. In 2019, aerospace company

Relativity followed suit by expanding its rocket component production and rocket engine testing operations at Stennis Space Center, investing $59 million and increasing employment to 200 workers. Relativity is the first and only company to integrate metal 3D printing, robotics, and software to build and launch rockets in days instead of years. In addition to expanding Stennis Space Center’s E-4 test complex with a build-out of four additional upgraded test cells, Relativity has secured an agreement with NASA for an exclusive lease of a 220,000-square-foot facility with an 80-foot-high bay and strong industrial capability. This will enable the company to build its patented autonomous rocket factory in Hancock County and integrate production and testing operations into one space, reducing lead time to launch for commercial orbital launch services. In North Mississippi, General Dynamics Electromagnetic

Systems, a contractor for the U.S. Navy, recently announced it was expanding its Shannon location — the company’s 11th in 14 years — to increase some of its most advanced defense manufacturing operations. General Dynamics’ Shannon location makes specialized aeronautical products such as drones, which are used worldwide, and the Electromagnetic Aircraft Launch System, which replaced steam-powered launch systems previously used by the Navy’s aircraft carriers. The latest expansion at its sprawling campus marks a $50 million corporate investment and is creating 50 additional jobs. These companies join industry leaders such as Rolls-Royce, Vertex Aerospace, GE Aviation, Airbus, Orbital ATK, and more, all of which rely on Mississippi’s skilled workforce to produce the top-quality products for which they are known worldwide and the state’s supportive business climate to achieve long-term growth and success. The sky’s the limit in Mississippi.

Copy supplied by the MISSISSIPPI DEVELOPMENT AUTHORITY

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“Future-Proofing” Buildings to Account for Autonomous Vehicles By Randy Thompson, Co-Lead, Industrial Build-to-Suit Advisory Group, Cushman & Wakefield

Narrowing the ramps and designing them as spirals outside of the parking garage itself allows the potential to re-purpose the facility for other uses.

AS SELF-DRIVING VEHICLES BECOME MORE UBIQUITOUS, FACILITY DESIGNERS AND OWNERS WILL NEED TO DEVELOP STRATEGIES THAT COVER A WIDE RANGE OF POSSIBILITIES.

“I

“I fear I’ll be remembered as the last CEO in history to spend $25 million on a parking garage.” These were the wise words of a forward-looking leader with whom I recently met. While it was the first time that I’ve heard someone exhibiting that level of caution in their development plans, I’m sure it won’t be the last. So be careful, parking garage developers — if you build it, they might not come. Why? We’ve all seen the videos of autonomous vehicle pilot programs, and many of us — including me — have seen the actual vehicles rolling through our neighborhoods and business parks. It’s still not entirely clear how such vehicles will be utilized or when they will become the norm, but we know it’s only a matter of time before self-driving cars and trucks freely roam our roads. Until then, the uncertainty surrounding autonomous vehicles should rouse caution from owners and developers as they design the next generation of structures — from office towers and distribution centers to hospitals and stadiums.

Because the situation is so fluid, the safest bet is to invest in convertible options — think low-cost, low-risk solutions — that allow for a number of eventualities. This way, the wise do not have to predict a single outcome; instead, they can buy themselves the flexibility needed to adapt to an unknowable end-state. Here are some of the ways building owners can plan for this changing, indefinite future:

RE-DESIGNING THE PARKING GARAGE When it comes to planning for alternative transportation approaches, there are a few key design concepts forwardthinkers keep in mind. While some are very practical, others require additional thought. Here’s an easy one: In most traditional parking garages, cars can park on both the level decks and the up and down ramps. That is, to make the best use of the garage space, architects keep the parking ramps as wide as the garages themselves, and roughly half the garage allows for cars to park on slopes up and slopes down. Fast-forward, however, to a time when the need for parking garages is minimal. In the worst-case scenario, you could put up walls and locking doors where you once parked cars — suddenly, you have a six-story self-storage facility. But people can’t repurpose angled surfaces nearly as readily as flat

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surfaces. So today, many are narrowing the ramps and designing them as spirals outside of the garage itself. This way, in a six-story garage, all six stories have the potential to be re-purposed.

ACCOUNTING FOR RIDE-SHARING

for stop lights because traffic will sort itself out without them. There might be slowdowns, but the roadways will never grind to a halt because of accidents, because people run out of gas, or because a tire blows out. How is that possible? Because the cars of the future will be able to predict and detect such events. They will drive themselves to a “vehicular remediation zone” where they will tell a robotic technician what the problem is, and it will be quickly fixed before heading back out into service without causing any delays. Sound far-fetched? I used to think so, but not anymore. For now, to future-proof our buildings, towns, and cities, master plan designers must develop strategies that cover a wide range of possibilities. First, they must consider what we know today and analyze the ways we access and exit distribution centers, factories, churches, schools, hospitals, stadiums, and other locations. Then, they must plan ways to adapt these same structures for next the generation of transportation modes. One way to start is by setting aside strategically placed zones that can be repurposed over multiple generations. So instead of building parking structures like the pyramids in Egypt, let’s build them like Legos: quick to set up, quick to take apart, and quick to adapt.

Another reality faced regularly deals with ridesharing services and how best to accommodate THANKS TO them alongside traditional transit. Not long ago, if AUTONOMOUS people needed a lift, it was spelled with an ‘i’ and it LONG-HAUL required calling for a ride. Or, in New York, people TRUCKS, BIG would frantically wave their arms to hail a cab. CHANGES ARE But today, Lyft — or Uber if you prefer — is just a ALSO COMING TO few touches away on an iPhone or Android. These THE INDUSTRIAL on-demand services are designed to make our lives SPACE. easier, and they often do — that is, until 20,000 people leave a baseball game in San Francisco, and everyone calls for a Lyft or Uber within minutes of each other. Then, chaos erupts. As architects and city planners look to accommodate this reality, many are segregating rideshare “pick up zones” from parking garages by creating multiple queue lanes to allow ride-share vehicles to line up like railcars in an intermodal yard. The recently opened Toyota Music Factory in Irving, Texas, is a perfect example. In this case, the dedicated ride-share drive is on the opposite side of the venue, so those vehicles do not compete for space with people looking to park. While not all businesses face this same sort of pressure, it is safe to say most will experience some degree of congestion during AUTOMATED SUPPLY CHAIN specific times of the day (i.e., when large numbers of people Thanks to autonomous long-haul trucks, big changes are are trying to enter or exit at the same time). Whether via also coming to the industrial space. While the logistics supply autonomous vehicles, ride-sharing, public transit, sky-taxis, or chain has become increasingly automated, trucks are still even Rent-A-Yak, we will constantly be searching for ways to completely operated by people. However, several factors are combat the constraints caused when too many people show motivating the trucking industry to look at autonomous techup at the same place at the same time. nology. First, truck drivers increase the costs associated with the supply chain. Truck drivers are an aging population, and because more drivers are leaving the industry than joining CITIES WITHOUT DRIVERS it, it’s increasingly important that companies find a solution In another very forward-looking scenario, many city to these labor shortages. Furthermore, federal regulations planners — including some in places like London and New mandate that a truck driver spend no more than 11 hours a York — are now talking about a time when it will be illegal day driving without taking an eight-hour break. for a driver to enter their cities in anything but autonomous These challenges have led major truck manufacturers and vehicles. Picture massive parking structures at a city’s edge technology companies to make significant investments in — maybe multistory, vertical garages where people will store autonomous technology. In the U.S., 20 states have authotheir cars when working in the city, or some sort of vehicular rized the testing of driverless trucks in a “platoon” formation, vending machine for long-haul vehicles that will be shared or which allows for a group of trucks to drive in a convoy. The used only when needed. lead truck is driven by a human operator, and the trucks in In major cities, all vehicles will coordinate traffic and routes the convoy follow the instructions from that truck. Further, with one another. In fact, there may well no longer be a need

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the U.S. Postal Service is testing autonomous semis to deliver mail across state lines, and we can expect that many of these trucks will be electric as well. As a result, we will see more EV charging stations at hubs and yards, in addition to queue systems similar to those at office buildings to allow for ridesharing and fewer car park locations. This new technology is sure to impact site selection. While fully autonomous vehicles are still decades away, we can expect lower transportation costs to make remote locations — such as secondary and tertiary markets where commercial real estate costs are typically lower — more attractive.

THE TAKEAWAY I, for one, share the sentiment of my CEO friend mentioned at the beginning of this piece; it is certainly conceiv-

able that kids born today may never need a driver’s license. They may grow up in a world where they can’t imagine spending an exorbitant amount of money for something they have to fill with gasoline or plug into a charging station. They’d also be saddled with something they need to get inspected annually, something that must be insured, something they need to wash, and something they need to repair, among other things. Instead, today’s youth might summon driverless vehicles from their phones, and our buildings, our towns, and our cities will look and function differently because of it. Wise leaders and developers, take note: will you be the last to spend $25 million on a parking garage that may become obsolete? <>

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needs to be conditioned. This can impact the overall HVAC design, as well as result in additional energy consumption. Designing exhaust systems to their specific tasks can optimize the capture of odors while minimizing the total volume of air exhausted, thus providing significant energy savings. The same approach can be used for smoke removal from processes such as welding. Local weather conditions should also be carefully considered to design the appropriate HVAC systems for maintaining required interior environmental conditions. While standardized local weather data can be utilized as a basis for the HVAC design, special consideration needs to be given if the facility must strictly maintain interior environmental conditions 24 hours a day, 365 days a year. For example, while California’s Mojave Desert is famous for being hot and dry, there are times when monsoonal conditions can create excessively humid conditions.

OPPORTUNITIES FOR SAVINGS The aerospace industry is renowned for its cost-consciousness. Whether government program oversight or private industry, the costs associated with manufacturing are formidable. While materials and labor are the major aerospace cost factors, the embodied energy in some of these products

can be substantial. Although the ability to reduce energy consumption within the product manufacturing process may be limited, the building and support systems provide numerous opportunities; the HVAC and lighting systems represent significant opportunities for energy efficiency. With both industry and government programs looking for greater sustainability, manufacturing facilities provide unique opportunities. The use of standardized sustainability scoring systems such as LEED® have become more commonplace. Aerospace-specific processes are typically not covered by these scoring systems, but the building and its systems impacts can be measured and compared. These standards include increased levels of energy monitoring to provide early detection of potential excessive energy usage. Usually a building that does well on these sustainability standards will be energy, water, and materials usage efficient, and potentially less expensive to operate. Modern aerospace facilities represent a unique building type with special interior environmental requirements to support the manufacture of cutting-edge technology and products. As aerospace products and components require greater precision and more specialized processes, these buildings and systems must continue to evolve to meet the ever-changing requirements. <>

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Where to Invest in the Booming Aerospace Manufacturing Industry By Scott Thompson, U.S. Aerospace & Defense Leader, PwC

Top 10 Country/Region Rankings for Aerospace Attractiveness 1 United States 2 Canada 3 Singapore 4 United Kingdom 5 Australia 6 Switzerland 7 Germany 8 Netherlands 9 Hong Kong 10 South Korea

Top 10 State Rankings for Aerospace Attractiveness 1 Washington 2 Georgia 3 California 4 Michigan 5 Illinois 6 Indiana 7 North Carolina 8 Ohio 9 Arizona 10 Oregon

THE U.S. REMAINS TOP-RANKED GLOBALLY FOR AEROSPACE ATTRACTIVENESS, BUT COMPANIES MUST CONSIDER LABOR, INFRASTRUCTURE, AND TAX POLICY AMONG OTHER FACTORS WHEN DECIDING WHERE TO LOCATE THEIR NEXT U.S. FACILITY.

The aerospace industry is booming and isn’t expected to slow down anytime soon. In fact, 2018 was a record year in terms of revenue and operating profit, with a 9 percent increase in both measures from the prior year. Moreover, commercial aerospace is forecasted to continue to grow at roughly twice the rate of global GDP for the foreseeable future. The U.S. defense budget is increasing to $740 billion by 2021, with strong growth occurring throughout the world. More specifically, much of the industry’s growth can be attributed to increased aircraft deliveries, healthy merger and acquisition activity, lower corporate tax rates in the U.S. and, as mentioned above, increased defense spending in the U.S. and globally. All in all, the aerospace and defense (A&D) industry continues to expand capacity to keep up with demand. So, what does all of this mean for those in the heart of this boom, and where are the best places to look for expansion? PwC recently released its 2019 Aerospace Manufacturing Attractiveness Rankings,1 the sixth consecutive year of analyzing the key states and countries that drive the industry. The report is meant as a helpful tool in planning for future growth, enhancing manufacturing supply chains, and reexamining costs. This is achieved by analyzing the macro considerations around the

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A&D industry, talent, cost, tax policy, infrastructure, and economy. All of the metrics and data are carefully examined in order to point companies in the direction of the best areas to invest, build, and expand operations. For the 2019 rankings, the methodology continues to evolve, with the country rankings combining a total of 32 metrics and the state rankings based on a total of 30 metrics. The metrics were spread across the following seven categories: cost, economy, geopolitical risk, industry, infrastructure, labor, and tax policy. Geopolitical risk was excluded from the state rankings due to the similar risk for all states.

COUNTRY RANKINGS The United States remains in the top-ranking position due to its large aerospace industry with $244 billion in sales last year. The country’s A&D industry accounted for 9 percent of U.S. exports, yielding the country’s best trade surplus of $90 billion, and was dominant in almost all metrics across the seven categories. The U.S. scored in the top 10 in six of the seven categories with the outlier stemming from that of the tax policy category, for which data did not yet reflect the 2018 tax reform. The only other nation to score in the top 10 in at least four of the seven categories was Germany, yet it finished seventh in the rankings due to lower rankings in the following three categories: cost, economy, and tax policy. Following the aerospace superpower — the United States — Canada takes the second spot largely due to its highly educated labor force,

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low level of geopolitical risk, and industry size. Also, the country’s launching of the Strategic Innovation Fund has encouraged R&D efforts, which in turn have spurred growth and expansion in the A&D industry. Rounding out the top five are Singapore coming in at third, United Kingdom fourth, and Australia taking the fifth spot. Those countries ranking sixth through tenth (Switzerland, Germany, Netherlands, Hong Kong, and South Korea) each had a strong economy in common, except for Germany, which made up for this with the top spot in geopolitical risk. Companies should be reconsidering their long-term supply chains due to the current trade environment.

IN TERMS OF STATE RANKINGS, WASHINGTON REMAINED IN FIRST PLACE, WITH GEORGIA JUMPING UP A PLACE TO SECOND.

STATE RANKINGS In terms of state rankings, Washington remained in first place, with Georgia jumping up a place to second. California, Illinois, North Carolina, and Oregon were all newcomers to the top 10 in 2019; Michigan, Indiana, Ohio, and Arizona remained in the top 10 since last year. The two states with the largest leaps were Michigan and Indiana. Michigan jumped four spots to #4, largely due to its strong showing in industry (14th), economy (3rd), and its #1 rank in tax policy, helped by its flat corporate tax rate of 6 percent. Michigan has strengthened its A&D sector with the support of the Aerospace Industry Association of Michigan, which represents about 800 companies. Also, being home to over 18 educational institutions with aerospace-related degrees and curriculum has provided the state with a pipeline of skilled workers. Indiana followed similar suit by excelling in the same three categories, led by an overall 2nd place tax policy ranking. New addition, California, saw itself move from 13th to third in this year’s rankings. California performed particularly well in infrastructure (3rd), industry (2nd), and economy (2nd). Labor and tax policy also finished strong at 13th and 22nd, respectively. Interestingly, at 49th in cost, California found itself in the bottom four of the overall cost rankings of 52 states/territories. California’s aerospace industry, which is made up of approximately 850 companies falls only behind

Washington. Also, the presence of three NASA research centers and the Mojave Air and Space Port has encouraged the growth and development of the state’s sector.

WHERE TO BUILD?

For companies considering where to build a future plant or R&D facility, these categories are indeed important, but there are other significant criteria to consider as well. For example, attracting talent will be a huge key for growth. The A&D industry is growing along with the overall economy and unemployment is low. As a result, there is an increased competition for talent, and A&D companies are feeling pressure to capture that young talent and need to start increasing their appeal to young people to help establish a pipeline of future talent. For example, PwC highlighted in its report the FIRST Robotics Competition (FRC) for high school students, which assists companies in developing talent and helping guide their career choices. Entering the 13th year of this international competition, the FRC has become so successful that it has created similar type programs for elementary and middle school students. A&D companies can get involved in many ways, including funding, mentoring, and providing equipment. This is an opportunity to keep the industry aligned and growing with the overall economy both now and in the future.

A CAVEAT We emphasize that any methodology is imperfect; for example, there is no consistent data available for skilled manufacturing, a priority for the industry. Further, the data should be tailored to each company’s specific circumstances. We believe our report is a useful tool to be used as a framework to evaluate investment decisions and as a guide for future strategy and planning. <> 1

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FDI in the U.S. Auto Industry Continues Unabated

Courtesy: BMW Group

By Dan Emerson

BMW engineer André Mueller does an automated driving technology check. By 2021 these systems will shrink in size but deliver superior performance needed for self-driving cars.

FOREIGN AUTOMAKERS AND THEIR SUPPLIERS CONTINUE TO INVEST IN THE U.S. TO ACCESS ITS HUGE MARKET, HIGHLY EDUCATED WORKERS, AND “CULTURE OF INNOVATION.”

Back in 1993, Mercedes-Benz started a new era in U.S. auto manufacturing when it opened an assembly plant in Alabama. Toyota, Honda, and Hyundai have since followed suit, helping create an industry that exported $7.5 billion worth of vehicles and parts in 2018. Employment in Alabama’s automotive manufacturing sector now approaches 40,000, surging from just a few thousand in the days before Mercedes. Around 27,000 of these jobs are in Alabama’s growing automotive supplier network, which now numbers more than 200 companies.1 Both employment and production will expand further when the Mazda-Toyota partnership opens a $1.6 billion joint venture assembly plant in Huntsville. Other southern and southwestern states have also attracted foreign automakers and their component suppliers, including Kentucky, Georgia, Tennessee, South Carolina, and Texas.

CLUSTER DEVELOPMENT Of course, a sizable share of automotive components is made by foreign manu-

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facturers, many of whom have also set up operations in the U.S. To a large degree, foreign auto manufacturers’ move to the U.S. is driven by the need to be close to their customers. Vehicle assembly is largely a regional business because of shipping costs, according to Mark Gottfredson, a partner with the consulting firm Bain & Company and director of Bain’s automotive practice. And the automakers want to source components from suppliers who are in relative proximity, which consequently drives cluster development in areas where foreign automakers have built their assembly plants. Foreign automakers and suppliers have also been attracted to the U.S. because of the nation’s highly educated workforce and the longstanding “culture of innovation,” Gottfredson says. “Many companies are dissatisfied in their own countries because they don’t have those innovation capabilities,” he notes. The need for technology expertise is also driving some relocation of suppliers within the U.S., according to Gottfredson. Some foreign auto suppliers that initially opened plants in parts of the U.S. with right-to-work laws and lower labor costs are now having difficulty in finding enough technologytrained workers and are looking to other U.S. locations with better-qualified workforces, Gottfredson says. California’s Silicon Valley has been called “the new Detroit” because it’s attracting foreign-based companies seeking tech expertise and partnerships. As foreign automotive component-makers continue to locate in the U.S., it’s a good bet that they will

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gradually reshape the U.S. auto-making cluster map.

— you just lost all of your cost advantage,” Gottfredson explains.

RESHORING TO NORTH AMERICA

FDI BY AUTOMOTIVE SUPPLIERS

Among foreign-based automotive suppliers, one of the biggest investors in U.S. facilities has been The Trump administration’s tariff policies are Japan-based Denso Corp., which develops artificial also leading some companies to consider reshorintelligence-based vehicle electrification and safety ing operations to the U.S. from other nations, AUTOMAKERS systems. In 2017, Denso announced it was investGottfredson adds. The new United States-CanadaWANT TO SOURCE ing $1 billion and creating 1,000 jobs to expand Mexico agreement, containing some more strinCOMPONENTS its 194-acre manufacturing campus in Maryville, gent rules-of origin-requirements, has significantly FROM SUPPLIERS Tenn., a suburb of Knoxville.3 The company also impacted automotive manufacturers, he points WHO ARE IN out. The new trade deal requires automakers to PROXIMITY, WHICH invested $75.5 million in its Southfield, Michigan, build at least 75 percent of a car’s value in North CONSEQUENTLY headquarters and $500,000 in its Dublin, Ohio, faAmerica to remain duty-free within the region, up DRIVES CLUSTER cilities that year.4 And in 2018, Denso invested $10 from the previous 62.5 percent. Car companies DEVELOPMENT IN million in Metawave Corp., a U.S. startup company also have to ensure 40 to 45 percent of the vehicle AREAS WHERE that develops cutting-edge, millimeter-wave radaris made by workers earning at least $16 an hour, sensing technologies to detect vehicles and pedesFOREIGN AUTOa provision designed to bring more manufacturtrians.5 Toyota AI Ventures and Hyundai Motor Co. MAKERS HAVE ing to the U.S. The deal also limits annual auto BUILT THEIR are other strategic investors in the company. imports from Canada and Mexico at a combined ASSEMBLY PLANTS. Another high-tech, foreign-based supplier 5.2 million, well above the 4.1 million vehicles that investing heavily in the U.S. is UK-based Delphi. In were shipped into the U.S. last year from the two 2017, Delphi, which has been testing autonomous countries. Cars that don’t comply with the new Audi SUVs in Pittsburgh, announced its partnership rules will be subject to a 2.5 percent tariff. The with BMW, Intel, and Mobileye to develop autonodeal exempts light trucks such as pickups from the mous vehicle systems.6 The partners plan to begin caps. production by 2021. Delphi also has a separate The Wall Street Journal reported last fall that, initiative with Mobileye to create a turnkey model soon after the U.S. and Canada announced the for autonomous driving by 2019. new trade deal, executives at several foreign automakers — In late 2017, the UK-based Aptiv announced that it had including German-based multinationals Daimler and BMW opened a new technology center in Boston’s Seaport district, — said they were considering revising their supply chains expanding the company’s U.S. engineering footprint and to source more auto parts made in the U.S., Canada, and further establishing itself as a leader in the future of vehicle Mexico.2 technology. Aptiv also has technology centers in Pittsburgh, Las Vegas, and Mountain View, Calif., focused on autoMeanwhile, President Trump’s policy of negotiating tariffs mated mobility-on-demand (AMoD) and data management with individual nations, such as China, has benefited other development.7 Southeast Asian countries. An automaker might ask, “Does the supplier have a plant in Vietnam they can move producMeanwhile, in the state that has historically led the U.S. tion to?” Gottfredson says. “We can track that U.S. trade automotive industry — Michigan (which still leads the nation with China has been decreasing, due to tariffs, and increasing in automotive manufacturing employment, with 180,000 with Vietnam, Thailand, and Indonesia.” jobs based on 2016 data8) — the industrial landscape is Another factor that “tends to create more local supplibeing reshaped by tech-centric component manufacturers. ers” is exchange rate volatility, according to Gottfredson. German auto supplier Webasto Roof Systems is expanding “If you’re making parts in another country — like Vietnam, its operations in Michigan with a new 300,000-square-foot China, Mexico, or Eastern Europe — exchange rates matter manufacturing facility in Plymouth Township. The company a lot.” For example, “If you move to Mexico for a 50 percent plans to invest nearly $48 million and create 441 new jobs, wage-rate advantage, and wages make up 30 percent of your after winning several contracts from Ford Motor Co. and Fiat product, that gives you a 15 percent cost reduction per part. Chrysler Automobiles NV. The facility will produce automotive But if the U.S.-Mexico exchange rate moves negatively — if roof systems with capacity to expand to other product lines in the peso strengthens against the dollar more than 15 percent the future, says Edis Tokovic, Webasto Roofing Systems’ direc-

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tor of Advanced Manufacturing Engineering and Operations Excellence.9

FOREIGN TIRE MAKERS INVESTING IN THE U.S. In recent months, one of the most active supplier sectors has been foreign tire makers opening their first plants in the U.S. Six foreign tire makers have announced projects with a total investment of $3.28 billion in the past three years. Analysts say rising material costs are a factor. By locating in the U.S., manufacturers can greatly reduce transportation costs, to help offset higher material costs. Seeking non-union labor and lower material costs, the tire makers have been drawn to the southern U.S. For example, next year, Finnish tire manufacturer Nokian Tyres plans to begin production at its first U.S. plant, in Dayton, Tenn. The $360 million facility will produce up to four

million tires a year. Other tire makers investing in the U.S. include China’s Triangle Tire, investing $580 million in Tarboro, N.C., and Sentury Tire, investing $530 million in LaGrange, Ga.; South Korea’s Hankook Tire, investing $800 million in Clarksville, Tenn., and Kumho Tire, investing $450 million in Macon, Ga.; and Giti Tire from Singapore, investing $560 million in Richburg, S.C.10 <> 1

http://www.madeinalabama.com/industries/industry/automotive/ https://www.wsj.com/articles/auto-makers-consider-shifting-more-manufacturing-to-north-america-1538737201 3 https://www.denso.com/global/en/news/news-releases/2017/20171006-g01/ 4 https://www.prnewswire.com/news-releases/denso-kicks-off-north-american-investment-push-withapproximately-755-million-to-fuel-technology-development-at-regional-headquarters-300496642. html 5 https://www.denso.com/global/en/news/news-releases/2018/20180517-g01/ 6 https://www.thedrive.com/tech/10299/delphi-joins-with-bmw-intel-and-mobileye-on-self-drivingcars 7 https://www.aptiv.com/media/article/2017/12/12/aptiv-opens-boston-technology-center 8 http://www.clustermapping.us/cluster/automotive 9 https://www.detroitnews.com/story/business/autos/foreign/2019/04/23/new-jobs-webasto-roofsystems-manufacturing-site-plymouth-township/3541383002/ 10 https://www.autonews.com/suppliers/tire-makers-are-rolling 2