Bloomberg News

Boeing Betrays Wichita After City Helped Win Tanker, Mayor Says

January 11, 2012

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 Air Force tanker work last year would support 7,500 local jobs, Brewer said.

“They weren’t totally honest with us,” Brewer said. “We thought the relationship was a lot stronger.”

Wichita’s loss may be a harbinger of what’s to come 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.

The move “reflects the economic reality of a changing and shrinking defense budget,” said Howard Rubel, a Jefferies & Co. analyst in New York.

For Wichita, a community of more than 382,000 known for general, commercial and military aviation for almost a century, Boeing’s pullout may damage “a key part of the city’s psyche,” said Lon Smith, executive director of the city’s Kansas Aviation Museum. At one time, Boeing employed 40,000 locally, Smith said.

Company Town

“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,” said Smith. “Boeing was a huge factor in this town.”

The Wichita operation 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, the company sold its local commercial plants when Spirit AeroSystems Holdings Inc. was formed.

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 and EADS’s Airbus unit also has an engineering center in the area.

Taxpayer Support

The community and state have taken steps to retain the company’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 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 European Aeronautic Defense & Space Co. 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 company said it would locate the resulting jobs in Wichita, according to Brewer, the mayor.

‘Huge Fight’

“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.”

The company didn’t plan to close the local operation when Kansas politicians lobbied to help Boeing beat EADS for the contract, Mark Bass, vice president for maintenance, modification and upgrades in Boeing’s defense unit, told reporters on a conference call yesterday. 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.

The company had said it would build the aircraft at its Everett, Washington, plant, which assembles 767 jets, and send them to Wichita for military modifications. 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.

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.

“Today’s announcement on the phase out of Boeing’s presence in Wichita is very disappointing to all of us,” Governor Sam Brownback, a Republican, said yesterday in a prepared statement. From employees to local officials and the state’s congressional delegation, “no one worked harder for the success of the Boeing Co. than Team Kansas,” Brownback said.

--With assistance from Susanna Ray in Seattle. Editors: Ted Bunker, Paul Tighe.

To contact the reporters on this story: Darrell Preston in Dallas at dpreston@bloomberg.net; David Mildenberg in Charlotte at dmildenberg@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net


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