At UK Airshow, Defense Execs Warn of Inflation, Supply Chains, and Worker Shortages
The Biden administration needs to invest in apprentice schools, CEO of top aerospace and defense firm says.
FARNBOROUGH, England — You couldn't tell from the maskless throngs packing railcars, exhibit halls, and evening receptions for the 2022 Farnborough Airshow that the coronavirus, which canceled the previous edition of this sprawling biennial show, is mounting its third major wave of the year. But in the air-conditioned chalets stacked along the flight line at Farnborough Airport, executives focused on how the pandemic is still very much affecting the aerospace and defense industry. Worker shortages, record inflation, and a broken global supply chain dominated the discussions among large firms, smaller suppliers, and government leaders.
“I don't think we've had a single meeting since we got to London on a Saturday night that has not talked about three things: inflation, supply chain, and workforce,” Raytheon Technologies CEO Greg Hayes said in an interview Tuesday. “We want to be talking about sustainability. We want to be talking about the mission and connected aerospace. The fact of the matter is, supply chain continues to be the topic du jour because everybody is suffering from it.”
While there was a general sense of excitement and optimism among those returning to the first major air show in Europe in three years—the virus canceled the 2020 event here and Paris Air Show in 2021—there was resounding consensus that several hurdles lie ahead, especially toward filling job vacancies across the blue- and white-collar workforces.
“There's just not enough people to support the industry today for the growth that we've seen,” Hayes said.
And the sector needs the Biden administration’s assistance.
“What we've been pressing the administration on is: help us convince kids that apprenticeship programs and these skilled jobs are actually as important as a four-year college degree,” Hayes said.
Raytheon, America’s second-largest aerospace and defense company, has partnerships with community colleges near company factories in Boston; Huntsville, Alabama; and East Hartford, Connecticut.
“We just need the administration to help support this,” Hayes said.
Trade jobs were among the hardest to fill even before the pandemic. Shipyards, which need an abundance of skilled workers, including welders and pipefitters, have been sounding the alarm as they struggle to hire thousands to fill orders for U.S. Navy warships. Shipbuilding firms have invested heavily in their own apprentice schools, and the Biden administration has signaled its interest. In May, Labor Secretary Marty Walsh visited a Huntington Ingalls Industries apprentice school in Newport News, Va.
In some cases, defense firms are dealing with the same workforce issues that come amid relatively low unemployment levels in the United States. But the “Great Resignation” hit defense firms harder, about 6 percent above the national average, according to a new McKinsey study. The consulting firm estimates that about 46 percent of aerospace and defense workers were somewhat likely to leave their job in the next three to six months. At Raytheon, the attrition rate is 10 percent this year, up from the usual 7 percent, said Hayes, whose company aims to hire 5,000 engineers this year.
But software engineers are leaving the industry at twice the rate of other employees at a time when large aerospace and defense companies are hiring two software engineers for every hardware engineer, the study also found. One reason is the paycheck. Software engineers working for defense companies make half of what they would make working in the commercial sector, according to Eric Chewning, a former top industrial policy official at the Pentagon who co-leads the consulting firm’s aerospace and defense practice.
“It wasn't just base salaries, but it's the combination of base salaries, performance based bonuses, and stock awards,” Chewning said in an interview.
The study recommends allowing younger employees to more easily move around between programs within the company.
“The pay gap is something that you can address relatively easily, but this idea around, how do I change the value proposition in terms of the programs people get to work on, how we rotate them, how we deploy the human capital, that gets into…more of an operating model question,” Chewning said. “That's going to be a bit harder.”
Raytheon is planning to spend around $100 million this year on incentives to retain and recruit workers, Hayes said.
“We cannot compete with the Googles and Amazons in terms of base salary,” Hayes said. “Where we compete with them is the mission. We talk about our mission…to defend democracy around the world and to connect the world through commercial aerospace.”
The McKinsey study also recommends that approach particularly in recruiting among “underrepresented populations” such as women and people of color.
“The ability to attract people to the national-security mission, that's a broader push around recruitment in how we talk about the industry,” Chewning said.
That approach has helped Bell, the Texas-based helicopter maker, buck the trend, CEO Mitch Snyder said in an interview. An electrical engineer who has run the company since 2015, Snyder says engineers are sticking around in part because Bell is designing next-generation aircraft for the Army and broader commercial market. If Bell wins those Army contests, it will need to hire more engineers and eventually assembly-line workers.
The company is in a unique position in that its H-1 helicopter program is winding down and its V-22 Osprey work is expected to conclude around the middle of the decade. That means it could shift workers onto the assembly lines for the new aircraft, but it will still need new employees.
“We're looking for more apprenticeships, more kids going to trade schools to try and bring up those skill sets,” Snyder said.
The worker demand also comes amid a shift in the way weapons are built. At Bell, robots are replacing people who used to sand aircraft rotor blades.
“Now you have robots to do the sanding but you have the people that were standing actually operating the robots,” he said. “We are working with the local colleges in trying to find a way to get more folks interested in the trades in those areas and even the trade itself looks different than it did two years ago with the new capabilities.”
Not every company struggled during the pandemic. TSI Plastics, a Minnesota-based supplier of aerospace components, gained both employees and clients, according to CEO Pat McCready. What’s his secret? “We did not require people to get vaccinated or wear a mask, so all of our employees loved coming to work because they could wear what they want,” McCready said.
The high inflation that is driving up the price of gasoline and other consumer goods is also creeping into defense contracts.
“If you look at current production, you definitely are seeing challenges that maybe we hadn't seen in the past along with, as you're signing new contracts, you're definitely seeing the inflation,” Snyder said.
Supply-chain hiccups still remain throughout the sector; executives mentioned difficulty sourcing microchips, rocket motors, structural titanium castings, and even some raw materials. Raytheon has 350 people solely working on alleviating supply-chain issues, Hayes said.
“When you recognize the enormity of the chip shortages and what that means to us, that's a problem,” he said.
The seeker for the popular Javelin anti-tank weapons that the U.S. has been giving Ukraine to defend itself from Russia uses 250 different chips.
“We have been investing more in terms of buying ahead of need,” Bill Lynn, a former deputy defense secretary who is CEO of Leonardo DRS, a company that has a large microelectronics business. “The canonical just-in-time delivery doesn't work so well in this world. So you are trying to put microelectronics on the shelf, so you have them.”