$5 Billion in Local Defense Contracts

By Romi Carrell Wittman

Every time you hear the low rumble of a military cargo plane in the sky above you or the rat-tat-tat of a hovering military helicopter, think about the millions of dollars that are pouring into Southern Arizona.

It’s easy to see the economic benefit of being home to Davis-Monthan Air Force Base or Fort Huachuca. Each site employs thousands of military and civilian personnel – people who pump money into the economy just going about the daily business of life.

But what’s not so easy to see – yet is just as critical to Southern Arizona’s economic viability – is the financial impact of defense and homeland security contractors like Raytheon Missile Systems, Bombardier, Honeywell Aerospace, Lockheed Martin, Sargeant Controls and scores of other local companies, plus Northrop Grumman in Sierra Vista.

Combined these companies provide skilled high-wage jobs for tens of thousands of people. The Department of Defense alone employs nearly 40,000 people in Arizona – two-thirds of whom are civilian personnel.

“Defense and homeland security is a big focus for Arizona. It’s a huge economic driver,” said Jeffrey Goldberg, dean of the University of Arizona College of Engineering. “It helps drive business development for the entire region.”

The Arizona Commerce Authority reports that in fiscal year 2010, Arizona companies captured $10.8 billion in defense contracts – 50 percent of which went to companies in the Tucson area. Statewide the aerospace and defense industry contributes some $300 million to state and local tax revenues.

“The fortunes of these companies go up and down with their ability to get subcontracts from the defense department – and our ability to provide a solid workforce in engineering,” Goldberg said. “All of these depend on the link to the Department of Defense – and that starts with the military.”

When you add in the indirect impacts of the defense industry – ancillary jobs such as doctors, car dealers, realtors, dry cleaners and grocers that are created in response to the wants and needs of the 40,000 aerospace and defense jobs – the total number of jobs created jumps to more than 90,000.

On a 2010 contract basis, Arizona’s most significant defense-related product lines statewide were guided missiles, general healthcare services, basic research and development of missile and space systems, guided missile subsystems and rotary wing aircraft.

With the wars in Iraq and Afghanistan coming to a close, defense
spending is expected to be cut in some areas. However certain technologies – like unmanned air systems – are expected to expand. Arizona stands to benefit to the tune of more than $12 billion in contracts by 2015, according to the ACA. That represents an increase of $1 billion in federal defense contracts.

Unmanned air systems are a natural fit for Arizona and, in particular, the Tucson area. “We have a lot of space, great weather and a great university system, including Embry-Riddle Aeronautical University (in Prescott), that can help move research and tech forward,” said Goldberg.

UAS includes a multitude of technologies and systems – including semiconductor manufacturing; search, detection and navigation instruments manufacturing; aircraft manufacturing, and computer systems design services.

Goldberg recently assisted the ACA in drafting its proposal to the Federal Aviation Administration to designate Arizona as an unmanned vehicle airspace. If Arizona wins the contract, it will be a huge financial boon to local defense contractors providing the ancillary services necessary to manufacture, fly and monitor unmanned aircraft.

“One of the key factors is our relationship with Air Force and Army posts,” Goldberg said.

Competition for the contract is fierce – 34 states submitted proposals. The ACA hopes to learn by the end of the year if Arizona made the short list.

Several local businesses are deeply invested in the unmanned aircraft market. Chris Peterson is the director of inside sales at Sargent Aerospace & Defense – a global supplier of precision-engineered customized components, as well as flight-critical aftermarket aviation services.

“As a defense contractor, Sargent has taken an active role in the development of unmanned air vehicles,” he said. Sargent worked on both the RQ-4 Global Hawk UAV and the X-47B UCAV developmental aircraft. The company is currently evaluating and pursuing opportunities in the U.S. Navy’s Unmanned Carrier-Launched Airborne Surveillance and Strike program.

Arizona has many things going for it when it comes to securing future federal defense contracts. First, Arizona is home to several military installations and has a long history with the defense department. In addition, Arizona’s climate allows for year-round training, as well as equipment testing under harsh desert conditions.

If current trends continue, according to the ACA report issued in 2011, Arizona is on track to create between 3,000 and 6,000 new jobs by 2015. And, if Arizona locks in the contract with the FAA for UAS testing, truly the sky is the limit for Arizona’s economic future.

By the Numbers

$10.8 billion – defense contracts to Arizona annually

$5 billion – defense contracts to Tucson annually

$300 million – state & local tax revenues from defense/aerospace industry

90,000 – number of military, civilian and ancillary jobs

Source: Arizona Commerce Authority