Boeing Wichita Closure Reflects The Times
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January 12, 2012
By Michael Mecham, San Francisco
Aviation Week & Space Technology
1/10/2012
Boeing’s decision to lower costs and increase efficiency in its defense operations by shifting work at its huge Wichita facility to elsewhere in its network may well be the first of many plant closures this year as U.S. military spending dries up.
Boeing says it lacks sufficient work to justify retaining nearly 2 million sq. ft. of floor space and 97 buildings that comprise its Defense, Space & Security (BDS) facility in Wichita, so it will close all of them by the end of 2013. What viable work remains there will be shifted to company facilities in San Antonio, Oklahoma City and Seattle’s Puget Sound region, says Vice President Mark Bass. How many of the factory’s 2,160 jobs may be preserved by shifts to those locations is unclear.
“Despite our best efforts, ongoing cost reductions are simply not yielding enough savings to make our Wichita facility work competitive,” says Bass, general manager of Boeing’s maintenance, modifications and upgrades division in Wichita.
The closure underscores a distinction in the health of the industry between its commercial aviation and defense sectors; it is a case of the haves and the have-nots for job opportunities.
Boeing Commercial Airplanes’ factories in Puget Sound have been so busy that the International Association of Machinists and Aerospace Workers (IAM) Local District 751 there has agreed since November 2009 to the temporary transfer of IAM-represented workers from Boeing Wichita to help keep commercial jets flowing off the Everett, Wash., 747 and 767 assembly lines. As of last week, 199 of IAM’s Wichita machinists were on temporary assignment in the Seattle area, even as their colleagues in Kansas were hearing that their jobs will disappear over the next 24 months. The IAM represents 450 machinists in Wichita.
Simply put, says Deloitte LLP’s aerospace and defense analyst Tom Captain, “The industry is facing an overcapacity of facilities.” One out of every four defense workers is likely to feel the impact of ongoing defense cuts, starting with the $23.5 billion taken from the Obama administration’s original fiscal 2012 budget request to the $50 billion likely to come from what the Pentagon will receive for fiscal 2013. Given that squeeze, “we expect to see a consolidation of the footprint of the industry,” Captain says.
The consolidation will come not just in factories but in employment. It is “a sign of the times,” says Bank of America analyst Ronald J. Epstein. “We expect today’s news will be the first of many similar stories as defense contractors respond to a shrinking budget.”
Those watching Wichita are likely to point to Boeing’s decision in 2005 to sell its commercial operations there to Canada’s Onex Corp. as the beginning of the end. Onex created Spirit AeroSystems, which has transformed itself into the industry’s biggest independent airframe manufacturer by expanding its commercial customer base beyond Boeing. Although the latter still accounts for 85% of Spirit’s contracts, its customers now include Airbus, Gulfstream and Sikorsky. While Spirit has grown in Wichita, Boeing has merely hung on.
And Wichita’s political establishment was watching. Even within the last year, critics say the company’s senior executives were promising better times as they sought support from the politicians to win the U.S. Air Force’s $35 billion KC-46A tanker contract against the EADS/Airbus proposal to put a plant in Alabama. Boeing won, based on its stated intent to use 767-200LR airframes made in Everett and flown to Wichita to be outfitted with military systems. That they now will not has left the Kansas state congressional delegation bitter and disappointed.
“Boeing’s chairman [James McNerney] sat in my office 22 months ago during that [tanker] battle and promised me, then-Sen. [Sam] Brownback and [Rep. Todd] Tiahrt that if we won the fight to get the tanker contract . . . Boeing would stay in Wichita,” says Sen. Pat Roberts. “The chairman again promised the entire delegation [all Republicans] that the work would remain in Wichita just last February, when the tanker contract was settled in Boeing’s favor.”
Wichita’s congressional representative, Mike Pompeo, vowed to “hold the company responsible” for those pledges. “Boeing, like every company, has the right to change its business plans and operate in the best interests of its stakeholders,” he says. “What neither Boeing nor any other company has the right to do is make false statements, violate long-held commitments to communities or to receive federal contracts based on representations it knows are not accurate.”
Asked how to explain the switch in the company’s position, Bass answers, “Over the past 18 months, the military market has changed dramatically. We looked at the best use of our facilities for efficiency. Wichita is not competitive.” He cites labor costs and the fact that more modern facilities exist elsewhere that are smaller and less costly to run as reasons why the city lost its edge.
The review of Wichita’s cost base began last summer. On Dec. 30, Boeing concluded that it was time to shut the site down, Bass says.
Wichita’s maintenance and modification work will be assigned to an under-utilized defense factory in San Antonio that the company already has tapped to help it catch up on post-production modifications to its 787s. San Antonio will see 300-400 new jobs related to the move, Bass says.
Oklahoma City will benefit the most, taking over Wichita’s engineering work for an additional 800 jobs. Like San Antonio, Oklahoma City is a non-union facility; Wichita’s machinists and engineers are unionized.
The Wichita facility’s tanker installation work will bring 200 jobs or so to Boeing’s factories in Puget Sound.
It is unclear how many of the jobs created outside Kansas will be reserved for workers from Wichita. Bass says there will be “some relocations, some transfers and some [hiring] from local markets.”
With 93,925 employees, Washington is the second-largest employer of aerospace and defense workers in the country; California is the leader. Kansas ranks 10th with 36,860 workers, but is first in the nation in terms of its dependency on the A&D sector, according to Deloitte.
The loss to Wichita’s economy is estimated at $1.5 billion over 10 years, says Jeremy Hill, director of Wichita State University’s Center for Economic Development and Business Research. He bases this on both the loss of jobs and the impact the closing will have on the local supply chain. About half of Boeing Wichita’s jobs are held by union members—585 in the Society of Professional Engineering Employees in Aerospace (Speea) and 450 in IAM.
The demographics of that workforce are difficult to pin down, but a consensus by those familiar with it is that most are older, experienced workers rather than new hires. Speea’s records offers some insights; the average age of its engineering and technical worker membership in Wichita is just under 50, and they have held their jobs for nearly 21 years. The average salary of $100,015 shows why their jobs are so valued. U.S. Census data pegs the average Wichita household income at $46,559.
The job losses are another blow to Wichita’s aviation industry, which Captain characterizes as the capital of U.S. general aviation, just as Puget Sound wears that crown for commercial jets and Oklahoma City is increasingly recognized as tops for military transport maintenance and modifications.
The latter’s rise was helped by Boeing two years ago when it shifted its C-130 Avionics Modernization Program and B-1 bomber modernization efforts to its Oklahoma City facility from Long Beach, Calif. That move leaves the C-17 as the last big fixed-wing aircraft manufactured in California. Its days may be numbered because USAF purchases are winding down, leaving Boeing dependent on foreign military sales.
Wichita, a city of 365,000, accounts for 21% of all manufacturing in Kansas. That role is dominated by aviation, not just at Boeing and Spirit but also at Cessna, Hawker Beechcraft and Bombardier’s Learjet. Besides Boeing’s own workers, Hill’s research shows that the company’s work is essential for 8,000 jobs among suppliers in the region.
Bass says Boeing spent more than $3.2 billion with some 475 Kansas suppliers in 2011 for defense and commercial accounts, including 24 on the tanker program. He says those 24 will remain on after work shifts to Puget Sound.
Still, Wichita’s metropolitan area, with its 280,000 workers, has seen its aviation employees endure the industry’s ups and downs, succumbing to the forces of factory modernization and globalization. A few decades ago, the region had 50,000 aviation workers, Hill notes.
In September 2008, on the cusp of the near-global financial crisis, the city’s aircraft employers listed 9,000 openings for machinists, aircraft-certified welders, avionics electricians and aircraft sheet metal workers, an Aviation Week analysis revealed. But the drastic drop in demand for business jets hit Wichita hard. Within a year there were 11,000 layoffs, led by Cessna and Hawker. Layoffs have continued at Boeing and for business jet and general aviation workers, even as Spirit is expanding. This latest blow from Boeing comes as some business jet manufacturers have shifted work to lower-wage plants in Mexico.
Boeing came to Wichita in 1934, when it acquired Stearman Aircraft. Besides producing Stearman Kaydet open cockpit biplane trainers, Boeing’s Wichita heritage includes making B-29s during World War II. Post-war, these factories were home to B-47 bomber production. Later, they shared production with Seattle of “tall tail” B-52s (D-F models) and all “short tail” Gs and Hs, says company historian Mike Lombardi. But the city’s real future with Boeing began with parts for the 707 and boomed when it was selected to make fuselages for the 737 and 757 and major assemblies for all of the manufacturer’s commercial jets.
All that changed in 2005 with the sale of commercial operations to Onex, leaving only BDS’s military maintenance and specialized upgrade programs behind.
Correctly betting on a tanker victory, Boeing redesigned its 767 final assembly operations in Everett for simultaneous production of civil/military versions of the two-engine, mid-sized jet. Tanker production is not expected to begin until 2013.
The original plan was to fly green tankers to Wichita for installation of their military equipment. Wichita’s closure means the work will be done in Puget Sound, reflecting a commitment Boeing made to the IAM in a four-year contract signing last month (AW&ST Dec. 19/26, 2011, p. 65).
But just where the tanker fitting work will be placed is uncertain. Boeing’s widebody factory in Everett is undergoing production ramp-ups. The facility has been so crowded that Boeing has leased additional space at nearby Paine Field for completion work on 787s and some of them were sent to San Antonio.
The company was considering the possibility of establishing a new single-aisle factory for its 737 MAX reengining program away from the main 737 factory in Renton, south of Seattle. But Boeing pledged in the new IAM contract that the MAX jobs will stay in Renton, which consumes all of the capacity there.
So if Everett is busy and Renton is full, is the best candidate Boeing Field in Seattle? It fulfills the need to have adequate runway capacity for aircraft ferry flights. Executives are not commenting, but observers say one possibility is the Boeing Development Center there, which has been used for F-22 fighter contract work.
Boeing Field was where the company tapped one under-utilized facility, Building 1401, to localize another high-profile military program with a civil aircraft pedigree. The building was revamped to support installation of military systems for the U.S. Navy’s P-8A maritime patrol aircraft, which uses a 737 airframe. In an earlier era, that work might have gone to Wichita, just as KC-46A tanker work was supposed to.
However, 1401 has no room to spare as P-8 production increases. The last P-8A test aircraft are due to leave shortly, followed by rollout of the first production unit to be flown to the Navy’s Jacksonville, Fla., training center. Meanwhile, Boeing has won its second low-rate initial production contract.
And what will become of the Wichita buildings? Spirit AeroSystems is leasing space from Boeing Wichita for 787 assembly work. But Spirit does not need additional space for other contracts, says spokesman Kenneth Evans. That includes its production ramp-ups as Boeing’s largest airframe supplier for the 737 and 737 MAX.
“Obviously both companies need to work together to ensure the 787 forward-fuselage production system is not affected,” Evans says.
