Wichita likely ‘most exposed’ metro in U.S. by Boeing 737 Max crisis, economists say

Wichita’s economy is likely the “most exposed” in the United States by the Boeing 737 Max grounding, economists say. And it could be years before the city fully recovers.

A report by Wells Fargo Securities Economics Group released last week concluded that Boeing’s strong order backlog and the tight labor market for skilled aviation workers is likely to limit layoffs across the county to a handful of areas.

Unfortunately for Wichita, it’s the area that will be hit the hardest.

“It’s bad news for Wichita,” said Mark Vitner, senior economist for Wells Fargo Securities and co-author of the report. “It’s a significant impact and hopefully it’s a temporary one.”

The Boeing plane has been grounded worldwide since March after two crashes overseas killed 346 people. Regulators and Boeing have been going back and forth over deficiencies in the plane for months, and it’s remains unclear when it will re-certified.

Although Boeing has not laid off any of its own employees as a result of the uncertainty surrounding the plane’s return, Wichita employers have already cut at least 3,000 jobs. That includes 2,800 layoffs at Wichita’s largest employer and major Boeing supplier Spirit AeroSystems.

The cuts came after Spirit had continued to produce 52 shipsets a month throughout 2019, which created an “inventory overhang,” the Wells Fargo report says. Spirit recently announced it won’t return to that rate of production until 2022.

“Thus even after the Max is fully cleared, there could be a multiyear lag (in Wichita) until production returns to prior levels,” the report says.

Wichita is unique among cities that work on the 737 Max. Spirit builds 70% of the Boeing plane, which has been plagued by software problems and other deficiencies identified by the Federal Aviation Administration. More than 50% of Spirit’s revenue comes from Boeing. Unlike Boeing, Spirit doesn’t have enough work products to retain all of its workers during the shutdown.

“Boeing is reassigning some of its workforce (in Seattle), and I don’t know how they’re doing that, but clearly that is a difference,” said Keith Lawing, president and CEO of Workforce Alliance of South Central Kansas.

“Spirit doesn’t have that luxury,” Lawing said.

That worries local officials who say Wichita is in a battle for skilled workers.

“Companies from other cities are aggressively pursuing our people,” Mayor Brandon Whipple said. “And we obviously want to do everything we can to keep them here because they’re our greatest asset.”

Vitner, the Wells Fargo economist, said the otherwise healthy economy could allow laid-off Wichita workers to go where the work is.

“If someone was thinking about leaving, this might push them to doing that because there’s such a shortage of workers in other parts of the country.

“A lot of employers aren’t willing to part with any workers because it’s so hard to find skilled workers today,” Vitner said.

For some, the 737 Max crisis has been a wake-up call. More than one in 10 workers in the Wichita metropolitan area work in aerospace manufacturing. That’s 20 times the national average.

“We’ve talked a big game about diversifying our economy for a long time,” Whipple said. “It’s time we actually do that.

“And that doesn’t mean we shrink our aviation sector. It just means we have to branch out” into the tech sector and other industries, Whipple said.

The Wells Fargo Securities report calls Wichita’s reliance on aerospace “remarkably high,” putting the city in stark contrast to metropolitan areas such as Seattle, where the 737 Max is assembled.

“The impact on Seattle should be mitigated by the size, strength and diversity of the region’s economy,” the report says.

Lawing said he’s not surprised by the Wells Fargo report.

“We’re aware that we need to do things to help possibly grow other business sectors or help our folks grow in the aviation space,” Lawing said. “How can they do more than just general and commercial aviation? How can they do more defense work? It’s still related to the skill sets we have and the mix of businesses that are here. It’s how do we support them at expanding their product lines and opening up markets in other countries.”

Lawing said he and his team are working to put together job fairs and provide other resources to Wichita’s laid off workers. A list of those resources can be found at aircapitaloftheworld.com/commitment.

Some of the companies Lawing said are hiring in Wichita include Textron, Learjet and Koch Industries.

“We’re seeing lots of job opportunities out there. There’s companies in non-aviation manufacturing. There’s a local RV manufacturing company that is hiring right now. And then the construction industry, they’re definitely hiring right now,” Lawing said.

On Friday, WSU Tech announced that with the help of its partners it would offer classes at no charge to laid off aviation workers wishing to receive more training. Classes start in March and information is available at wsutech.edu/communityresources/.

Vitner, the Wells Fargo economist, said Wichita already has a fairly robust mix of aviation products and aviation customers. But Spirit’s work on the fast-selling 737 Max was a huge boon for the city.

Vitner said he expects things to slowly improve for Wichita, and aviation business in general, in the second half of this year.

“I think this, the coronavirus, the trade worries, all of those factors are likely to be somewhat of a drag on growth in the first half of this year. And in the second half of the year, those headwinds are likely to become a tailwind.”