Analysts: Loss of Boeing would hurt city, region

The possible closure of Boeing’s long-standing Wichita site would be a huge economic blow to the city, surrounding communities and the state, experts say.

More than that, it would be a blow to Wichita’s psyche.

“Boeing has always been around here in this community for as long as most of us can remember,” said Steve Rooney, a top Machinists union official. “It’s played a major role in the economy and to the state.

“To just up and close this facility would be devastating.”

It’s a sobering prospect, said Janet Miller, a Wichita City Council member.

“I think the impact would be enormous in our community, both financially and psychically,” she said.

“If you ask Wichitans who Wichita is, Boeing is one of the first words … to come to a lot of people’s minds.”

Last Monday, Boeing said it was studying the future of its Wichita operations, which includes the possibility of closing the Wichita site, which employs 2,100 people. That surprised the state’s elected officials, who had been told repeatedly by Boeing that its Wichita plant would benefit from a contract to build Air Force refueling tankers.

The facility, near 47th Street South and Oliver, faces a number of issues, such as looming defense budget cuts, product and service contracts that have matured and expired, and limited prospects for future work, the company said in a statement.

Boeing officials have declined to comment beyond their statement.

The impact of a closure would be significant, said Jeremy Hill, director of Wichita State University’s Center for Economic Development and Business Research.

It would mean a loss of 2,100 direct jobs and $1.5 billion in wages over 10 years. That could translate into a loss of a total of 8,223 jobs, when taking into account a multiplier effect formula.

It also could lead to a reduction of $10 million in retail tax collections to Wichita, $5 million to Sedgwick County and $95.8 million to the state over 10 years.

But Hill said he doubts the numbers would be that high because the formula doesn’t figure in that another employer could use the facilities if the company leaves. And Spirit AeroSystems, a major Boeing supplier, is growing and would be unlikely to reduce its workforce in response.

Hill also questions whether Boeing is posturing and plans to make its case to the Department of Defense for more money or to the state for tax breaks.

“A complete removal of the company may not be that likely considering existing agreements, suppliers and transportation costs,” he said.

Even the threat of a closure, however, will reverse two or three months of economic progress and recovery in Wichita, Hill said. After two years of a downturn, the labor market has just begun to improve. Now, businesses will likely pull back while there is uncertainty about the local economy.

“It really affected the psyche, the thought process, of our businesses locally,” Hill said. “I’m pretty confident this is going to shake some companies up.”

The tanker contract

In September, Boeing extended its labor contract with its engineering union for two years rather than negotiate a new contract. That was because of a lack of clear understanding about future business at the site, officials said at the time.

That included the uncertainty of what Boeing’s tanker contract with the Air Force would mean to the facility, the union said. It also has lost some smaller programs over the years.

For years, Boeing has said that Wichita would become a tanker finishing center should it win the contract, worth $35 billion, against its rival Airbus. Boeing said the tanker contract which it won earlier this year, would mean 7,500 jobs in Kansas, including several hundred jobs at Boeing Wichita.

Now, Gov. Sam Brownback and the Kansas Congressional delegation, who lobbied hard for Boeing in its fight with Airbus, say the company must make good on that promise of jobs. They, along with union and city officials, have requested meetings with Boeing leaders to find out what can be done to keep the plant open.

One of the problems, Boeing has said, is that existing work has been drying up and tanker work wouldn’t begin in Wichita until 2014.

Closing the plant would be a big hit to Wichita, said analyst Scott Hamilton. But he thinks it would be a gradual wind down of the plant, rather than a turnkey closure.

One piece of good news for Wichita, however, is that Spirit AeroSystems is ramping up production of Boeing commercial aircraft, including the 737 and 787, he said.

“The guys in Wichita ought to be putting their applications over at Spirit right about now,” he said.

A long history

Wichita wouldn’t be the Air Capital of the World if it weren’t for Boeing and World War II, historians say.

The company directly and indirectly played a role in building Wichita into the state’s largest city, they say.

Boeing’s Wichita division began when Kansas native Lloyd Stearman moved his Stearman Aircraft Co. to the city in 1927. He previously had worked for some of Wichita’s earliest aviation companies, such as the E.M. Laird Airplane Co., Swallow Aircraft Manufacturing and Travel Air Manufacturing.

In 1929, it almost became a victim of the stock market, but it was saved when it and Boeing Airplane Co. were bought by United Aircraft and Transport Co. In 1934, United Aircraft and Transport was broken apart by federal antitrust efforts, and Stearman was absorbed by the larger Boeing Co., which kept Stearman because it made airmail planes.

During World War II, Boeing’s line of trainers and the B-29 Superfortress pushed the Wichita plant into the national forefront of military activity. During World War II, the city became one of the nation’s busiest military production centers, and 40,000 people flocked to Wichita to work in the plant.

In 2004, the company, which employed 12,400 in Wichita, said it planned to sell off its commercial aircraft division here. It closed a deal with Onex Corp. the next year, forming Spirit AeroSystems.

Boeing officials at the time said they had no plans to sell the military division and that it was committed to the city. But some analysts said then, however, that workers shouldn’t be surprised if some of the defense jobs shifted elsewhere or if a sale was eventually discussed.

Defense cuts

Boeing’s announcement of a potential closure was predictable, said Richard Aboulafia, an aerospace and defense analyst with the Teal Group.

With looming defense budget cuts, the threat of plant closures makes politicians more aware of what’s at stake, he said. It will help Boeing win allies in Congress working against the cuts.

“No one is really sure how seriously to take these threats of defense cuts,” he said. “If the defense budget really does get cut, then sure, the plant is very much at risk.”

Last week the Congressional super committee failed to cut spending, possibly triggering automatic budget cuts of $1.2 trillion over 10 years. About half of that comes from defense cuts, which begin in 2013.

An analysis by the Aerospace Industries Association projected defense cuts could mean a potential loss 352,000 U.S. aerospace, defense and supply chain jobs – and a total loss of more than 1 million direct and indirect jobs.

In its favor, Wichita has some work on existing programs and a skilled workforce to do it, Aboulafia said. But if Boeing doesn’t get the political backing and budget cuts impact the programs there, then “of course they’d close,” Aboulafia said.

Boeing’s study isn’t unique. Defense companies across the country are analyzing their businesses in light of the cuts, said Barclays Capital aerospace analyst Carter Copeland

“I think the reality throughout the defense contractor universe is the industrial base probably has a little too much infrastructure for the direction the Department of Defense is heading,” Copeland said.

“That brings into question the (Wichita) facilities.”

Boeing also has to analyze costs on the tanker work slated for Wichita and whether it could be done more efficiently someplace else, he said.

“There will be a lot of variables going into that calculation,” Copeland said.

A closure would be sad for Wichita, especially given what the city has been through during the economic downturn, he said.

“There’s a really talented workforce there that’s taken a much harder hit than the broader economy,” Copeland said.

The downturn caused the market for business jets to drop, and Wichita’s business jet producers cut thousands of local jobs in response.

“If Boeing were to close the Wichita facility, it would layer on another impact that that community really doesn’t deserve,” Copeland said.

Contributing: Beccy Tanner of the Wichita Eagle; Associated Press

This story was originally published November 27, 2011 at 5:00 AM with the headline "Analysts: Loss of Boeing would hurt city, region."