2013 Aviation Summit Highlights Industry’s Contributions to U.S. Economic Competitiveness

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The 2013 Aviation Summit, held on Thursday, March 28 at the U.S. Chamber of Commerce, showcased the critical contributions the U.S. aerospace and airline industries make to the U.S. economy, while highlighting policy issues that must be addressed if these industries are to remain globally competitive. This matters because, as ITIF explains in Fifty Ways to Leave Your Competitiveness Woes Behind: A National Traded Sector Competitiveness Strategy, the health of U.S. traded sector enterprises in industries such as aerospace, automobiles, and airlines—all far more exposed to global competition than local-serving firms and industries—simply can’t be taken for granted. For example, while we can know there will be a certain number of jobs in domestic-serving industries like grocery retail based solely on local demand, we can’t be certain there will be aviation industry jobs in the United States, since this depends on the United States winning in global competition in this industry.

Boeing CEO James McNerney, who gave the keynote address, emphasized the vital importance of the U.S. aerospace industry to America’s economy, noting that it contributes $325 billion annually to U.S. GDP while also contributing $86 billion in export sales. In fact, in 2011, the industry generated a positive trade balance of $47 billion (the largest trade surplus of any U.S. manufacturing industry), a result of exporting 49 percent of all aerospace production. McNerney remarked that the Obama Administration’s recent completion of trade deals with Colombia, Panama, and Korea and its negotiation of new trade deals in the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (T-TIP) are poised to open important new markets for U.S. manufacturers.  He also pointed to the vital role the U.S. Export-Import Bank (Ex-Im Bank) plays in supporting American exporters, saying that, “I think if you stop doing it [offering export credit], it would, in effect, be to unilaterally disarm because most other countries provide support for their manufacturers and there are treaties that guide the behavior and guide the kind of practices and business practices and interest rates that can be used.”

Here, McNerney pointed to the increasingly competitive global aerospace industry, explaining that competition from Airbus remains stiff and that soon “the Chinese will be competitors in large commercial airplanes,” as well. He noted that “Boeing’s strategy must be to win by innovation” and that “this needs to be the strategy for [all] technologically advanced countries.”

However, McNerney, in addition to other speakers including FedEx CEO Fred Smith and United CEO Jeff Smisek, raised a number of policy concerns—including underinvestment in infrastructure, burdensome regulations, a globally uncompetitive tax system, and faltering education and immigration systems—as key threats to these industries’ continued competitiveness.

FedEx CEO Fred Smith noted that, in the 1960s, the United States annually invested about 4 to 5 percent of GDP in infrastructure, a rate that has fallen to approximately 1 percent today (making this generation of Americans the first poised to leave a degraded infrastructure to their children). This underinvestment in infrastructure is particularly acute in the slow-arriving Next Generation Air Transportation System (NextGen). As United’s Smisek added, “There’s better way-finding in a Honda Accord,” than in the U.S. air traffic control system. Smisek estimated that a modern air traffic control system could reduce U.S. airlines’ annual fuel consumption by 10 percent (in United’s case alone more than 400 million barrels of oil annually) while generating tremendous efficiencies and convenience for travelers. Several panelists also noted that if the United States does not soon get serious about implementing NextGen, it runs the risk of being leapfrogged by China, which is largely starting from scratch in its implementation of a modern air traffic control system.

Each of the CEOs also argued that the United States must get its tax and fiscal policy in order. Smith noted that the United States was the last major economy to use a worldwide as opposed to a territorial tax system, while Smisek noted that U.S. airlines incur seventeen taxes and fees (before income tax), which account for 20 percent of the cost of a domestic ticket and raise the cumulative ticket prices paid by U.S. airline passengers by some $19 billion per year. Smisek joined other speakers in calling for U.S. policymakers to collaborate with industry in developing a national airline policy, noting that the U.S. airline industry, “is competing on a global scale, and there are some governments that are far more enlightened than the United States’ [about how to optimally support the competitiveness of a country’s aviation industry] and we are losing that race.”

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About the author

Stephen Ezell is a Senior Analyst with the Information Technology and Innovation Foundation (ITIF), with a focus on innovation policy, international information technology competitiveness, trade, and manufacturing and services issues. He is the co-author with Dr. Atkinson of "Innovation Economics: The Race for Global Advantage" (Yale, 2012). Mr. Ezell comes to ITIF from Peer Insight, an innovation research and consulting firm he co-founded in 2003 to study the practice of innovation in service industries. At Peer Insight, Mr. Ezell co-founded the Global Service Innovation Consortium, published multiple research papers on service innovation, and researched national service innovation policies being implemented by governments worldwide.