State of Washington Governor

1. State of WashingtonGovernor’s Aerospace Conference Museum of Flight Briefing June 25, 2008

3. Three premises Industry background Business imperative Compelling argument Agenda

4. Three Premises Regional competitiveness should not be singularly focused on “winning” final assembly for the 737 replacement aircraft program World has moved beyond the success of “Action Washington” 787 initiative Why did Washington “lose” Global Aeronautica, Spirit Aerospace, Bombardier & Rolls Royce deals? Is Washington still competitive? The business imperative is to create & maintain regional competitiveness in the A&D industry: Benefits are “defensive” as much as about job creation Not just about commercial airplanes

5. Industry Background

6. Grand Total Global Industry Spend – 2007

8. Global A&D Procurement

10. US A&D Industry Consolidation

11. US A&D Industry Employment History

13. Commercial Airplane Customer’s Condition

19. Business Imperatives

20. Market Growth Drivers Armed conflicts Equipment replenishment Defensive buildup in global hot spots Defense modernization – net-centric warfare War on terror and homeland security – R&D Technology driven modernization; e.g., Air traffic management Composites & materials Propulsion efficiency UAV’s Long term air travel growth - pax & freight Long term procurement commitments

21. Competitive Environment Government support - Driven by need for power projection, prestige & economic revitalization Technology - Design anywhere, build anywhere, allowed by the digital product design revolution Enables global low cost sourcing Poland, Mexico, Czech Republic key beneficiaries Growing economies - Rise of China, Russia, India and Japan US regional competitiveness South Carolina, Alabama, North Carolina Kansas, Texas

22. Regional A&D Competitive Benchmarks Mobile, Alabama is highly competitive with attractive wage rates and cost of living, outpacing King County

23. Regional A&D Competitive Benchmarks Charleston, South Carolina is also a highly competitive location, with attractive wage rates and cost of living, outpacing King County by a considerable margin

24. Regional A&D Competitive Benchmarks Kinston, North Carolina, after many attempts, has become an increasingly competitive location, with attractive wage rates and cost of living

25. Wichita Kansas has incumbency and continues to be highly competitive with attractive wage rates and cost of living, outpacing King County by a considerable margin Regional A&D Competitive Benchmarks

26. Competitiveness Data Points Mexico wins Bombardier aero-structures plant 5/08 $250M investment resulting in 1,000 new jobs New aerospace plant in Mexico to build composite parts for new Learjet 85 Program ramp-up over 7 years, will employ 1,000 people, in addition to those already employed by the company at its aerospace complex in the central state of Queretaro. Bombardier's existing plant will make electrical harnesses. Final assembly will be done at Bombardier's facility in Wichita, Kansas. "This new investment implies a significant transfer of technology. There is no doubt that the use of composite technology is strategic for the aerospace industry," the official said. Cited as having a "good and flexible workforce," as well as federal and state government support, for the company's decision to bring the technology to Mexico.

27. Competitiveness Data Points South Carolina wins Global Aeronautica plant, opened in December, 2006 Located in North Charleston, the 334,000 square-foot facility is where Global Aeronautica assembles, integrates, tests and applies surface finishes to 60 percent of 787’s fuselage Vought opened a 342,000 square-foot production facility in 2006. Vought fabricates and assembles fuselage sections 47 and 48 for the 787. Facility employs 300, with two-third in a manufacturing capacity. Vought employs about 600 people at its South Carolina facility, targeting 775 by 2011. A separate 14,000 square-foot training facility serves both nearby Vought and Global Aeronautica operations Boeing in process of purchasing Vought’s JV interest

28. Competitiveness Data Points Kinston, North Carolina wins Spirit Aerospace composite aero-structures plant in 2Q08 Initial production for Airbus A350-XWB barrel sections. Spirit will design and manufacture Section 15 center fuselage frame section, a composite structure approximately 65 feet long, 20 feet wide and weighing nearly 9,000 pounds. Facility will cost about $570 million and result in the creation of 1,031 jobs over the next six years. According to Spirit President and CEO Jeff Turner: “The State of North Carolina met our requirements for financial incentives and this location offers a strong industrial base, a runway and port access, a growing labor force and an excellent technical training system.”

29. Competitiveness Data Points Late June 08, US GAO rules in favor of Boeing protest over selection process in NOC/EADS KC45A contract Initially, Mobile, Alabama won Northrop Grumman Air Force tanker based on Airbus A330 platform Initial award of $35 billion was made on February 29, now tbd. Located at Brookley Field, plant consists of two buildings and initially employ 1,500 workers, The longer term economic benefit to Mobile area expected to be far greater than that directly associated with Tanker work. EADS, Northrop Grumman’s partner, agrees to perform production work on commercial A330 freighter at facility Would be 1st new manufacturing center for large commercial aircraft built in the U.S. in last 40 years.

30. Competitiveness Data Points Virginia wins Rolls Royce engine plant in 1Q08 Will build/test RB262 regional and corporate jet engines To convince Rolls Royce, the governor and his team put together an incentive package that included “generous” tax breaks As part of the deal, and with state subsidy, UVA will construct the Commonwealth Center for Advanced Manufacturing on land donated by Rolls Royce, near the new plant James M. Guyette, president & CEO for Rolls-Royce's North American operation, said company's decision to locate plant in Virginia has to do with its people and strong education system The facility, located in the Tri-City area and set to open in 2009, and will require an initial investment of $170 million with an initial 100 skilled workers and 500 jobs overall The jobs are expected to have an average salary of $48,000, above Prince George County average.

31. Canada retains Pratt & Whitney Canada, providing more than $1.6 Billion1 in assistance from 1982 To 2006

32. Missouri news report: Bombardier is shopping for final assembly location for new C-Series next-gen regional jet production Government officials hoping to land Bombardier plant Missouri's governor and economic development officials visited Montreal in May 2008 to convince Bombardier to locate an airplane assembly plant in Kansas City, MO Gov. Matt Blunt already has signed legislation authorizing up to $240 million in tax credits for Bombardier Aerospace to locate in Missouri

33. What’s Important to A&D Companies Inevitable march towards commoditization, means product cost, and its value chain, is of paramount importance Wages, benefits and entitlements Cost of living Transportation and infrastructure Innovation environment Academic and government partnerships Skills and educated workforce Purchased parts Cost Supplier co-location Schedule commitments Design, reliability and quality

34. Compelling Argument

36. Key Messages Washington is getting outgunned, and is no longer competitive, according to the data and the recent deals Can’t do much about cost of living and wage rates Governments and academia can become gap closure weapons Commercial aerospace is only 37% of the entire industry; defense and military A&D is important, representing a key opportunity Cost of change and inertia keeps companies from moving, but it is getting easier to do so Regions have to pay to “play”, and have to pay to “stay” competitive in the economic development game

37. Opportunities The Euro-USD FX rate differential currently favors US aerospace industry manufacturers Airbus desperately needs to “dollarize” its content Finmeccanica, EADS Defense, Thales, Dassault, BAE Systems, Safran, MTU, and Rolls Royce reportedly have, or are looking, to invest in new efficient, low cost plants North American A&D firms continue to scan for lower life cycle cost locations Lockheed Martin, Raytheon, Bell and other Texas based businesses continue to stress the importance of costs* East coast defense contractor businesses of GD, UTX, TXT, Harris have also stated the importance of competitiveness* Logistics and transportation costs naturally favor incumbent final assembly sites

38. Some Ideas to Explore Further Land grants, with buildings built to spec, leased on favorable terms Additional B&O tax rate reductions for aerospace industry B&O tax holiday incentive for industry, pending deal completion, with clawbacks Incentives to link software skill base with defense electronics marketplace Direct linkage of State hardware & software engineering and schools to applied research for A&D industry Increased marketing budget for State CTED-Aerospace Effective direct marketing and capture strategy and pursuit program

39. Summary Inevitable realities Difficult to cost justify on direct job creation Highly ambitious and well financed competitors Time to take the gloves off and protect your franchise Government economic and academic incentives for industry needs reconsideration Close the gap Consider the ideas presented Proactive pursuit campaigns required Work together as a region Becoming competitive all around will get Washington in fighting shape for eventual narrow body replacement program

41. Disclaimer Report subject to conditions of engagement agreement email dated June 12, 2008 the between Deloitte Consulting LLP and Economic Development Council of Snohomish County (client). This report is intended for the exclusive use of Grant County Economic Development Council, enterpriseSeattle, Economic Development Board for Tacoma-Pierce County, Greater Spokane Incorporated, Economic Development Council of Snohomish County, and Aerospace Futures Alliance of Washington. Written permission must be obtained from Deloitte Consulting LLP for further use. This report does not constitute a recommendation regarding the acquisition or financing of any business, assets, liabilities, or securities; (ii) a market or financial feasibility study; (iii) a fairness or solvency opinion; or (iv) an examination or compilation of, or the performance of agreed upon procedures with respect to prospective financial information in accordance with standards established by the AICPA, the PCAOB, or other regulatory body. The Services are not intended to be, and shall not be construed to be, “investment advice” within the meaning of the Investment Advisers Act of 1940. It is understood that the Deloitte US Entities have not provided, nor will the Deloitte US Entities be responsible for providing, legal advice hereunder. In addition, it is understood that the data contained herein is based on industry research, experience and calculations conducted on a best efforts basis. The Deloitte US Entities have no responsibility for the accuracy or completeness of the information provided by, or on behalf of client. No other party is entitled to rely on this report for any purpose whatsoever and we accept no duty of care or liability to any other party who is shown or gains access to this report.