Article by Gary Daughters for Site Selection Magazine
When California-based Kratos Defense and Security Solutions announced plans for a major expansion in Oklahoma City, the head of the company’s drone division was clear on why it had chosen Oklahoma.
“All of the pieces in Oklahoma fit what we were looking for,” said Steve Fendley, president of Kratos’ unmanned systems division. “We wanted a state that is supportive of the business we’re in, supportive of the military, supportive of advancements in our capability testing, has a close proximity to military bases and has the potential for a flight test facility.”
Kratos specializes in jet-powered unmanned systems, satellite communications, cybersecurity and warfare, microwave electronics, missile defense and training and combat systems. Oklahoma City will be the site for new tactical drone production. The company’s target drones fly against DOD defense systems, such as the Aegis combat system, and simulate incoming missiles and aircraft. A $93-million contract to supply target drones to the Army, the company says, makes Kratos the sole supplier of jet-powered, sub-scale target drones to all branches of the U.S. military. Kratos’ unmanned target drones recently participated in Exercise Formidable Shield 2017, a live-fire integrated air and missile defense exercise conducted by Naval Striking and Support Forces NATO on behalf of the US 6th Fleet.
“Advanced military target drones with fighter-like performance,” says Fendley, “have been the mainstay of our company, and we have come to dominate that market as our customers are replacing their drone fleets with the latest technology. As a result, orders have increased substantially.”
A Thriving Aerospace Landscape
Aviation and aerospace is Oklahoma’s second-largest industry behind the energy sector. Civilian and military aviation account for $43.7 billion in economic activity annually, according to figures recently released by the Oklahoma Department of Commerce. More than 1,100 aerospace-related companies are in Oklahoma, with some 200,000 workers employed in aerospace- and defense-related industries.
Vince Howie, aerospace and defense director for the Oklahoma Department of Commerce, says the state has two main “magnets” for aerospace.
“In Oklahoma City,” Howie tells Site Selection, “is Tinker Air Force Base, and it’s the largest maintenance, repair and overhaul [MRO] facility for the Department of Defense. It’s got 32,000 employees. Up in the Tulsa area, American Airlines has their MRO facility, and it’s the largest commercial MRO facility in the world. They employ around 6,500. With those two entities there and with our six military bases, it’s made for quite a cluster.”
Sustaining and growing the aerospace cluster has been a prime goal of the Oklahoma state government. Last spring, Governor Mary Fallin signed into law a bill extending incentives to employers and employees in the aerospace industry. The legislation extends the sunset date on the state’s aerospace engineer employee and employer tax credit to January 2026.
“This legislation will help us attract and retain new business and retain the great jobs made available by industry giants like Boeing and American Airlines,” said Fallin. “The aerospace engineer tax credit has helped create hundreds of new, high-paying jobs for skilled Oklahomans. It’s also played a key role in maintaining Oklahoma’s position as an internationally recognized hub for aerospace business.”
The tax credits, which initially took effect in 2010, generated some $1.4 billion in economic output, according to a review by the Oklahoma Incentive Evaluation Commission. In addition, they were shown to have generated $287 million in employee wages, 4,200 new jobs paying about $80,000 a year and a 17-percent growth in aerospace engineer employment in the state.
The credits include:
- A tax credit to employers of up to 10 percent of an engineer’s salary for up to five years;
- A tax credit to employers for tuition reimbursements they make to newly-graduated engineers;
- A tax credit to qualifying engineers for up to $5,000 for up to five years.
Ushering In a New Era
For its part, Kratos expects to invest between $20 million and $40 million into its Oklahoma City expansion, according to Howie. The company says it will hire a minimum of 350 workers and as many as 500 over the next five years. The company is in the process of narrowing down a list of sites.
Gov. Fallin says she hopes the company’s expansion will encourage others to follow.
“When you get a company like Kratos that locates to Oklahoma, there are also suppliers to them who will look at the possibility of coming to Oklahoma because they want to do business with a major supplier of unmanned aerospace and the latest technology.”
Howie believes the Kratos expansion could usher in a new era for the state’s aerospace industry.
“We have a lot of manufacturing in the state,” he says. “We have companies that make parts for both Boeing and Airbus. But this puts aircraft manufacturing back in the state. And it’s been a long time. We used to have Gulfstream here, and they’ve been gone for 20 years. One of my personal goals was to get aircraft manufacturing back into the state.”
Howie isn’t alone in seeing the Kratos expansion as a potential game-changer.
“These are cutting-edge components of technology and aviation coming to Oklahoma City,” says Roy Williams, president of the Greater Oklahoma City Chamber. “It represents the future of the industry. Much of what we have in Oklahoma City is maintenance and overhaul, which is taking care of everything that is old. This is the next wave of growth in the sector. We think this is a home run.”