Jan. 5 (Bloomberg) -- Boeing Co.’s decision to shut down its Wichita, Kansas, plant after more than 80 years betrayed public officials who helped the planemaker win a U.S. Air Force contract for midair refueling tankers, the city’s mayor said.
Boeing didn’t consult with city officials or ask for financial incentives to stay put before announcing its decision yesterday to close the Wichita plant with 2,160 workers before 2014, Mayor Carl Brewer said in a telephone interview. The company had indicated that winning the tanker work last year would support 7,500 local jobs, he said.
“They weren’t totally honest with us,” said Brewer of Boeing, which has benefited from about $4 billion of municipal bonds and hundreds of millions of dollars in tax relief. “We thought the relationship was a lot stronger.”
Wichita’s loss may be a harbinger of reductions for cities and states around the nation that depend on defense industry employers as budget deficits squeeze Pentagon spending. Cuts of as much as $1 trillion may be made over a decade under a congressional deal to extend the U.S. debt ceiling last year.
“Before we had euro-zone contagion concerns, expectations were that the budget was going to be stable,” said Peter Arment, a defense industry analyst with Sterne Agee & Leach. “Now we’re looking at a defense budget that has to reestablish a new baseline, meaning a meaningful cut. We’re seeing the realities of that played out, unfortunately, in Wichita.”
Boeing chalked up the move to changing industry economics.
For Wichita, a community of more than 382,000 known as a general, commercial and military aviation center for almost a century, Boeing’s pullout may damage “a key part of the city’s psyche,” said Lon Smith, executive director of the Kansas Aviation Museum in the city. At one time, Boeing employed 40,000 locally, Smith said.
“It’s hard to go anywhere in this city and find people who haven’t worked for Boeing or don’t have family who worked for Boeing,” Smith said. “Boeing was a huge factor in this town.”
The manufacturer played a big role in the lives of some residents of the city.
“I like to say that Boeing has helped pay for every piece of food I’ve eaten since I was six months old,” said Judy Swisher, a 71-year-old retired Boeing worker who spent 29 years with the company. Her father and son also worked there.
“It was a good company to work for,” she said. “It’s really going to be hard on Wichita.”
The company’s sprawling works made B-29 bombers during World War II, B-52s as the Jet Age unfolded and modified aircraft to serve as the president’s Air Force One in recent years. In 2005, Boeing sold its local commercial plants, forming Spirit AeroSystems Holdings Inc.
“We all hope Spirit will take over the plants,” Swisher said, taking a break from shopping at a Disabled American Veterans thrift store not far from the plant. “They have more customers and are more diversified than Boeing.”
While the maker of commercial airframes and wing parts added 1,000 workers last year worldwide and plans to continue growing, a Spirit spokesman in Wichita said there was no special push to pick up Boeing employees. The company supplies parts to Boeing, such as the front section for airliners.
“There are some cross-overs in the skills that we need, but not as much as most people probably think,” said Ken Evans, the spokesman. “There’s a great difference between military modification work and commercial first production.”
Other planemakers in Wichita have also pared jobs in recent years, including Textron Inc.’s Cessna, which fired 7,500 employees, or about half its workforce, in 2009, while Bombardier Inc. cut 820 from its Learjet factory in the city. Wichita is known as the “Air Capital of the World,” reflecting the presence of manufacturers such as Hawker Beechcraft. European Aeronautic Defence & Space Co.’s Airbus unit also has an engineering center in the area.
The community and state have taken steps to retain the Boeing’s aircraft works and jobs. Since 1979, Wichita has issued more than $3.5 billion of industrial revenue bonds to help Boeing finance plants and facilities, city figures show. The manufacturer has received $650 million in property-tax relief.
“Boeing is a poster child for corporate tax incentives,” state Representative Jim Ward, a Wichita Democrat, said in a statement. Kansas will be “less trusting” in awarding such benefits in the future, Ward said. Boeing got sales- and property-tax breaks and infrastructure investment “at every level of government.”
The Kansas congressional delegation and other state and local officials rallied around the Chicago-based company last year to help it win the tanker contract. Boeing beat EADS in February to land a $3.5 billion order for the first 18 aircraft, extending its role as the sole supplier of the planes to the Air Force since 1948. The work was up for grabs since at least 2002.
The company said it would locate the resulting jobs in Wichita, according to Brewer, the mayor.
“We put up a huge fight to help them win that tanker program,” said Brewer. “We wanted those jobs, but they weren’t totally honest with us about whether we would get them.”
Jim McNerney, Boeing’s chairman and chief executive officer, “promised me” that if the company won the tanker contract, it would stay in Wichita, U.S. Senator Pat Roberts, a Kansas Republican, said yesterday in a statement. Others at the meeting in his office included then-Senator Sam Brownback, a Republican who is now the state’s governor.
“The chairman again promised the entire delegation the work would remain in Wichita just last February,” Roberts said.
Boeing didn’t plan to close the local operation when Kansas politicians lobbied to help Boeing win the contract, Mark Bass, a vice president in the company’s defense unit, told reporters on a conference call yesterday in response to questions about what city and state leaders were told. He said the new work won’t make up for expiring projects in Wichita, where labor, facilities and infrastructure costs aren’t competitive, and that would make planes made there unaffordable for the Air Force.
Changes in the defense market in the past 18 months altered Boeing’s plans, Bass said, and while a reevaluation of Wichita’s viability included government incentives, they “weren’t a driver” in that process. The company had said it would build the tankers at its Everett, Washington, plant, which assembles 767 jets. Wichita was to make required military modifications.
Jobs to Move
Bass said 800 jobs will move from the Kansas site to Oklahoma City, as many as 400 will go to San Antonio and 100 to the area around Seattle. The company plans to sell its Wichita property, with 97 buildings.
About 400 workers facing job losses are members of the International Association of Machinists & Aerospace Workers, according to Kathy Petersen, president of the union’s Lodge 839. Much of the production is going to a nonunion shop in Texas.
“Boeing is always something Wichita counted on,” said Petersen, an industry worker for 25 years, some with Boeing. “If you say Wichita and you say aircraft, you say Boeing.”
The loss may cost the local economy $1.5 billion in forgone wages over 10 years, said Jeremy Hill, director of Wichita State University’s Center for Economic Development and Business Research. Another 8,200 jobs may be at risk, depending how much Boeing’s suppliers are affected by the move, he said.
“I think the workers are getting ripped off,” Boeing retiree Swisher said. “I know a lot of people who are still working there who aren’t old enough to retire.”
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