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Boeing: You Cut Defense, We May Close Wichita

TheStreet.com - November 23, 2011, By Ted Reed

CHICAGO -- Does a dysfunctional Congress really want to do battle with a determined defense industry?

Now that the super committee's failure to cut spending allegedly has triggered automatic budget cuts of $1.2 trillion over 10 years, about half of that from defense cuts starting in fiscal 2013, the battle has begun and Boeing (BA) has fired an early shot.

Boeing announced on Tuesday, the day after the spending cut effort collapsed, that it is studying whether to close a Wichita, Kan., facility, given the outlook for reduced defense spending. The plant employs 2,100 workers. It maintains, modifies and upgrades military and government planes, including Air Force One, the B-52, and the C32A and C40 military passenger and cargo planes. Completion of the study is expected by early 2012.

The announcement was entirely predictable, said Richard Aboulafia, an aerospace and defense industry analyst at the Teal Group in Fairfax, Va.

"This is a well-played effort to expand the network of politicians willing to fight against the 'sequestration' cuts," he said.

Massive defense spending is, for better or worse, a cornerstone of the U.S. economy. In fiscal year 2012, which ends Sept. 30, 2012, Pentagon spending is expected to total $513 billion, enhanced by $118 billion to fund the wars in Afghanistan and Iraq.

Strategically spread across many states, defense spending has backing not only from hundreds of members of Congress from all across the political spectrum, but also from dozens of key interest groups, from right wingers to the International Association of Machinists. Despite a cyclical downtown as war efforts wind down, most experts consider additional drastic cuts to be extremely unlikely.

"One reason the cuts won't happen is that efforts like this one will create an awareness of what's at stake," Aboulafia said. Indeed, Kansas Gov. Sam Brownback told reporters Tuesday that the state's congressional delegation "will fight and fight hard" to keep Boeing in Wichita, according to The Wichita Eagle.

Brownback said he would remind Boeing officials of their promise that Wichita employees would be involved in construction of the Air Force refueling tanker if Boeing won the hotly contested contract.

"Boeing has promised publicly and repeatedly in writing that the success in winning the tanker contract would mean `7,500 jobs' in Kansas, including several hundred jobs at Boeing-Wichita for the Tanker Finishing Center,'' said Brownback and members of the state's congressional delegation, in a statement. "We expect the company to honor that commitment.''

Meanwhile, U.S. Sen. Jerry Moran (R- Kan.) said he and other members of the state's congressional delegation had requested a meeting with Boeing CEO Jim McNerney.

Additionally, the IAM "is hope that Boeing will utilize the full experience of the work force in Wichita," said Mark Blondin, the union's national aerospace coordinator.

"The Wichita work force has always delivered for Boeing and is fully capable of performing military or commercial work," Blondin said. "The infrastructure is in place and it would be the right decision to keep the assets in Wichita and place work in the facility."

Boeing spokesman Dan Beck said the Wichita facility "has been facing pressure because of product and services contracts that have matured and expired, and limited prospects for future work. We are in the process of engaging key stakeholders -- including customers, government officials and union representatives -- to share this information as we continue to have open and candid discussions about the challenges we face in the current budget and economic environment."

Beck said the Wichita study is not unique.

"We have engaged in a number of studies similar to the current Wichita site analysis in the past and have announced other facilities consolidations, most recently a move of engineering work in support of B-1 bombers and the C-130 AMP program from Long Beach to Oklahoma City," he said.

"At this point it would be too early for us to speculate on what deep defense budget cuts might mean for individual programs or the facilities that support them," Beck added. "We must wait and see where the (Department of Defense) decides to make cuts."

 

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