Northrop Grumman Corp. and General Atomics Aeronautical Systems quietly build the bulk of the nation's drone fleet in North County, and that impact on the local economy was finally revealed.
Unmanned aerial vehicle (UAV) production neared $1.3 billion in San Diego during 2011, according to an analysis of Department of Defense contract spending, and the pilot-free planes now make up the largest segment of San Diego’s defense manufacturing sector.
The National University System Institute for Policy Research conducted the study, which was released Wednesday at the sixth annual Unmanned Systems Interoperability Conference (USIC) at the Coronado Island Marriott Resort & Spa.
UAV contracting activities in 2011 supported 7,135 direct and indirect jobs throughout San Diego County.
The San Diego North Chamber of Commerce commissioned the study because 86 percent of the local UAV industry’s economic impact sits in the northern Rancho Bernardo and Poway areas.
Northrop Grumman's (NYSE: NOC) high-altitude Global Hawk UAV is used for intelligence, surveillance and reconnaissance in the Middle East and Afghanistan.
The company has hired more than 800 employees in North County over the past three and a half years and has plans to hire 100 more, said Jim Zortman, Northrop Grumman sector vice president and Unmanned Systems Development Center site manager, during a panel at the conference on Wednesday.
Northrop's design and development functions occur in 800,000 square feet of leased office space in North County. Northrop accounted for 61.6 percent of San Diego’s total prime UAV contracts from 2008 through 2011.
General Atomics, which designs and develops the Predator and Sky Warrior UAVs, accounted for 37 percent of contracts over that period.
The figures in the report are conservative, since the government doesn't report classified contracts like drones used by the Central Intelligence Agency.
To increase international sales of drones, panelists at the conference agreed the United States needs to loosen its stringent International Traffic in Arms Regulations.
Rep. Duncan D. Hunter visited India in mid-October to discuss the obstacles of selling U.S. technology — even to its NATO allies.
“It’s ridiculously hard and bureaucratic and regulatory, so what happens is they say, fine we won’t buy the Predator or Global Hawk, we will buy Israeli [drones] just because,” he said, at the panel.
Zortman said the United States doesn’t want to handle UAVs the way it did its space program in the 1980s and 1990s.
“The U.S. had a large and very significant lead in space systems. Our allies and other people wanted to buy that stuff from us, but we didn’t capitalize on it,” he said.
So, they bought it from other manufacturers or developed a market for it themselves.
“As a result we aren’t anywhere near where we would be in space market share today,” Zortman said. “We have a chance to not repeat that mistake in the unmanned business, and we have a fairly narrow window to do that.”
The global demand for UAVs could reach $12 billion by 2019, even in the face of sharp cuts in U.S. military spending.
UAV spending has nearly doubled in San Diego since 2008.
UAV production comprises more than 12 percent of all DOD contracting activities in San Diego County, according to the report, and production of UAVs is forecast to double by the end of the decade.
Aerospace workers made an average salary of $88,149 last year, compared to the average $47,815 for all private-sector U.S. workers.
The average salary of UAV employees is a whopping $121,000.
UAV employees are spending their earnings — and therefore, supporting jobs — at local bars and restaurants, health providers, retail stores, and personal service providers, notes the report.
The industry's high wages, paired with its relatively clean environmental footprint, is stirring competition among economic development zones.
“It has this double whammy for economic developers they are particularly intrigued by,” said Erik Bruvold, president of the institute.
There are more than a dozen states and regions actively taking steps to lure the UAV researchers and manufacturers away from San Diego through specialized educational programs and financial incentives like cash grants and tax rebates for UAV employers, according to Bruvold.
MIT, the University of Oklahoma, and the University of North Dakota are building and marketing multidisciplinary programs focused on UAV activities.
Oklahoma convened a high level economic development taskforce to identify the state's available airspace assets that would facilitate UAV testing.
North Dakota, northern Florida and Ohio are also seeking to leverage uncluttered airspace access for future testing.
“We have to recognize that won’t be an asset San Diego will bring to the table, given the complexity of our air space,” Bruvold said.
Next year the Federal Aviation Administration is expected to designate six areas around the country as UAV test sites.
“San Diego seems ill-prepared to compete in this area given the extremely active airspace in our region,” said the report.
However, San Diego could potentially partner up with the Antelope Valley (Edwards Air Force Base) or Arizona, which are both competing for the FAA designation.
One strong UAV feature of San Diego is its proximity to the ocean, Hunter said.
“A lot of the UAVs need to work off of ships and boats and to have power sources out there,” Hunter said. "You can make it here in California and immediately test it.”
The access to top military officials at Camp Pendleton or the latest admiral in town is also an advantage.
“Driving time is an hour from your business to the Navy, to the Marine Corps and back to your business, and you can go surfing by noon. There is nowhere else like that in the U.S.,” he said.
San Diego remains an expensive place to do business, however, and with UAV manufacturers' principal customer facing sequestration and a budget crisis, it may be wise to figure out ways to save the government money.
Bob Watkins, founder of R.J. Watkins & Co., suggests looking across the border, where manufacturing costs are cheaper and there are 20,000 aerospace workers from Tijuana into Mexicali.
“Couple that with the people in San Diego, and there’s a tremendous amount of capability to really excel in this area,” Watkins said.