Bloomberg News

Boeing to Shut Plant With 2,160 Workers as U.S. Cuts Defense

January 04, 2012

(Updates with companies’ comments starting in sixth paragraph.)

Jan. 4 (Bloomberg) -- Boeing Co. plans to shutter operations in Wichita, Kansas, where it has built airplanes since 1929, by the end of 2013 as military projects dry up amid U.S. spending constraints.

Job reductions at the plant that employs more than 2,160 workers will begin in the third quarter of 2012, Boeing said in a statement today. Work on the aerial-refueling tankers the Pentagon ordered in February will be done at the planemaker’s wide-body jet factory in Washington state instead, and some existing work will be moved to Texas and Oklahoma.

“Over the past five years, contracts in Wichita have matured, programs have come to a close or are winding down, and the site does not have enough sustainable business on the horizon to create an affordable cost structure to maintain and win new business,” Chicago-based Boeing said.

Boeing said in November it would decide by early 2012 whether to close its Kansas facilities, including the military- aircraft plant. The departure from Wichita will be “a historic moment, but reflects the economic reality of a changing and shrinking defense budget,” said Howard Rubel, an analyst with Jefferies & Co. in New York.

The military faces $450 billion in additional reductions through 2021, and Defense Secretary Leon Panetta plans to present results tomorrow of the Pentagon’s strategic review of its roles and missions worldwide.

Non-competitive Costs

Mark Bass, vice president for maintenance, modification and upgrades for Boeing Defense, Space & Security, declined to discuss financial details of the closing. Labor, infrastructure and facilities costs in Wichita aren’t competitive, and the company can improve efficiency by moving work to existing facilities elsewhere, Bass said on a call with reporters.

Competition in the maintenance, repair and overhaul work that is Boeing’s focus in Wichita mostly comes from small rivals with two hangars and an office building, he said. That compares with Boeing’s 97 buildings on almost 2 million square feet of space, he said.

About 800 jobs will be added in Oklahoma City, 300 to 400 in San Antonio and 100 in the Seattle area, with those positions being filled through both transfers and local hires, he said. The remaining positions will be eliminated through retirements, transfers within Boeing and job cuts, he said.

Boeing began studying the possible closing in mid-2011, got the results in November and made its decision Dec. 30, he said.

Kansas Lobbying

The company didn’t have any indication that the closing would be necessary when Kansas politicians lobbied to help Boeing beat European Aeronautic, Defence & Space Co. in February for a contract to supply the U.S. Air Force with new tankers, Bass said.

That new contract won’t make up for other expiring projects in Wichita, so the plane would eventually become unaffordable for the Air Force if production work were done there, he said.

Boeing said when it won the tanker award it would build the planes, based on a 767 jet, at the Everett, Washington, factory where 767s are assembled and fly them to Wichita to be modified for military use.

Governor Sam Brownback said in November that Boeing had promised the contract would support 7,500 jobs in Kansas, and he expected that commitment to be honored.

“No one worked harder for the success of the Boeing Co. than Team Kansas,” Brownback said in a statement after today’s announcement. “The dedication and hard work of generations of Kansans built the success the Boeing Co. enjoys today.”

Machinists’ Contract

Kaydet Trainers and B-29 bombers were built in Wichita during World War II, followed by B-47 and B-52 bombers during the 1950s and 1960s as well as modifications on various aircraft including Air Force One.

In a contract signed last month with the Machinists union district in the Puget Sound area of Washington state, Boeing agreed to do the new tanker modification work in Everett if it were to shut down Wichita.

Boeing has outsourced more work in recent years and sold its commercial operations in Wichita in 2005, when Spirit AeroSystems Holdings Inc. was formed.

That company builds the entire fuselages of the 737 single- aisle jet and sections of every other Boeing airliner, including the 767. It now also supplies parts to most other planemakers around the world. At Boeing’s behest, it’s boosting production of 737 airframes by about a third through 2014 to accommodate demand for the world’s most widely flown jet.

Boeing said today it anticipates “even more work” for suppliers in Kansas, the fourth-largest state in the planemaker’s supplier network.

Spirit Workforce

Spirit boosted its global workforce by about 1,000 last year, to about 15,000 employees now at seven sites, said Ken Evans, a spokesman for Spirit in Wichita.

That hiring pace will continue for the foreseeable future as commercial aerospace expands, though the company doesn’t plan a special push to absorb Boeing’s laid-off defense workers, he said.

“There are some cross-overs in the skills that we need, but not as much as most people probably think,” he said. “There’s a great difference between military modification work and commercial first production.”

Other planemakers in Wichita have also pared their workforces during the recent recession, including Textron Inc.’s Cessna. Wichita’s nickname has been “Air Capital of the World” because of production centers there for Boeing, Cessna, Bombardier Inc.’s Learjet, Hawker Beechcraft and others. Airbus SAS also has an engineering center in the area.

Submarine Hunter

Boeing’s decision reflects greater efficiency in building military versions of its jetliners on its commercial-production lines, said Rubel, the Jefferies analyst.

For the new tanker, Boeing plans to build on its success in assembling the P-8 submarine hunter based on the 737.

Previously, the company had flown commercially built planes to facilities elsewhere to cut them apart and reconfigure them for military use.

The P-8 is built in the same plants as the 737, with features for the military plane, such as thicker fuselage skin, no windows, bomb bays and stronger wings to hold missiles, added along the assembly line. Workers then just have to add weapons and other systems at a site a few miles from the final assembly plant near Seattle.

--With assistance from Roxana Tiron, Tony Capaccio and Gopal Ratnam in Washington, D.C. Editors: James Langford, Ed Dufner

To contact the reporters on this story: Susanna Ray in Seattle at sray7@bloomberg.net; Roxana Tiron in Washington at rtiron@bloomberg.net

To contact the editors responsible for this story: Ed Dufner at edufner@bloomberg.net; John Walcott at jwalcott9@bloomberg.net


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