Pullout from Wichita would reshape Boeing, aviation city

Copyright 2004, The Seattle Times Company

WICHITA, Kansas — The sale of Boeing's major manufacturing facility in Wichita could boost the company's profits and spark a substantial change in the U.S. aerospace-industry landscape with Raytheon Aircraft, Bombardier and Cessna in the neighborhood.

"Boeing is the benchmark company here in Wichita," said Bob Brewer, director in Wichita for the Society of Professional Engineering Employees in Aerospace (SPEEA). "I could see all the manufacturers in town being impacted by this."

The timing of any sale of Wichita operations is not clear in an internal strategic-planning document that was provided by a company insider to The Seattle Times and reported in Sunday's paper. And Boeing executives would not confirm or deny such a plan is in the works.

If fully implemented, the plant closures and divestments outlined in the document would cut in half the national footprint of Boeing Commercial Airplanes from 52 million to 26 million square feet and cut the work force from 55,000 today to about 44,000.

Even though one of the plants earmarked for eventual closure is Renton, the upshot would concentrate Boeing's commercial facilities in the Northwest. Given the outcome of the 7E7 final-assembly decision, Everett's role in Boeing's future appears central in the planning document.

One major factor that could drive a sale is labor costs.

An executive with a Wichita aerospace supplier sees a hard realpolitik behind moves to divest parts-building across the industry.

Labor costs key reason

"It's all about the unions," said the executive, who believes strong aerospace unions have created a high-wage, inflexible regime manufacturers can no longer afford.

"For Boeing, the way you get out from this unbelievable cost structure is to sell these high-cost facilities," the executive said. "The political reality is that Boeing can't close a major facility. So it has to take a glide path."

Selling to a supplier, in other words, is easier than closing a major plant and can still allow a transition to lower wages and cheaper output. After Boeing sold its Spokane plant to Triumph Group a year ago, some workers were laid off and wages of others were cut by 15 percent.

That's exactly what bothers employees any time the sale of a facility is considered.

The sale of Boeing Wichita "would be a shock to me," said Brewer. "I believe it would put fear into the majority of the Wichita community."

The average age of SPEEA members within Boeing is 49, according to Brewer, and many have spent the bulk of their careers at Boeing.

"Every aspect of their working conditions and benefits would be subject to change," he said.

In a memo sent to employees yesterday , Boeing's top executive in Wichita took pains to reassure workers.

"We have in front of us a long aviation future," wrote Jeff Turner, vice president and general manager. "And I look forward to fulfilling our role as strong contributors to our existing programs, and to work on new programs including the 7E7 and the 767 tanker."

No prospective buyers for the 12 million-square-foot facility are named in the internal document given to The Times, but analysts suggest any buyer would most likely be a major component supplier rather than another prime manufacturer.

That's what happened in 2001 when GKN Aerospace, a subsidiary of a British company, bought the fabrication division of Boeing's military plant in St. Louis.

If the Boeing Wichita plant were sold, it would be free to do subassembly work for other companies, including all the business-jet makers and even Airbus.

Raytheon, Cessna and Bombardier have all said they intend to move toward outsourcing of parts work, raising the possibility of consolidation in Wichita.

According to the industry executive, GKN is already close to a deal to buy Raytheon's fabrication division in Wichita. A spokeswoman for GKN Aerospace declined to comment on any pending mergers or acquisitions.

GKN Aerospace, with 11 plants worldwide, is a leader in production of composite assemblies for airframes. One of its customers is Boeing's rival, Airbus. It builds major composite assemblies for the forthcoming Airbus superjumbo jet, the A380. In the first six months of last year, GKN booked 2.3 billion British pounds in sales ($4.2 billion in today's dollars.)

Raytheon's fabrication division could be a good fit with Boeing Wichita. Raytheon's two new business jets, Premier 1 and the Hawker Horizon, are made from composites. Boeing Wichita has considerable composite expertise, developed through building the engine casings for Boeing jets. That work will expand with the 7E7, which will require heavy new investment.

Why sell Wichita?

Much of the work that's done in Wichita is exactly what Boeing says it wants to move away from.

On the factory floor, Wichita looks very different from the final-assembly plants in the Puget Sound area.

In the main production building, a sea of fixed machinery and tooling fills the floor from one end to the other. Permanent scaffolding hems in discrete work stations; overhead cranes must move partially completed assemblies from one to the next.

It is a scene remote from the lean, easy-flow, flexible processes Boeing foresees in its future, those already implemented in Renton and being introduced in Everett.

Boeing has sold parts plants in recent years as it moves toward a manufacturing process focused on initial overarching design and on final assembly.

It's a model sometimes compared to that of Airbus, which does quick final assembly in Toulouse, with parts arriving from other parts of France, the U.K., Germany and Spain. The difference is the subassembly work is internal — those are Airbus plants delivering the parts.

Bill Greer, head of the Airbus wing-design facility in Wichita, believes that difference is crucial and that companies that outsource wing and fuselage subassembly are "making a fundamental error."

"It's short-term profit. Obviously you can build a business model that says you are going to make a lot of money," said Greer. "But eventually you wonder who is going to design those airplanes for you."

To Teal Group industry analyst Richard Aboulafia, Boeing's public drive toward outsourcing subassembly work means that selling the Wichita plant has "an air of inevitability."

If Wichita becomes just another supplier, he said, Boeing will be better able to squeeze out savings.

"You don't want to be your own supplier," Aboulafia said. "The name of the game is to pressure suppliers. If you believe in the magic of moving up the food chain, this should improve Boeing's bottom line because it will enable them to pressure another major contractor on costs and terms."

SPEEA Executive Director Charles Bofferding also can see the logic that flows from Boeing's premise.

"If you take Boeing's thinking to its logical conclusion, you'd want to sell Wichita," said Bofferding. "It fits their announced business model."

In Kansas yesterday, Gov. Kathleen Sebelius said she has asked for a meeting with Boeing Chief Executive Harry Stonecipher when he visits the state next week.

Dominic Gates: 206-464-2963 or dgates@seattletimes.com.

Information from The Associated Press is included in this report.

Recent Boeing factory divestitures


• Irving, Texas, expected next month, buyer unknown. In August, Boeing disclosed plans to sell plant that produces commercial avionics equipment. 650 workers at time of announcement. Price unknown.

• Corinth, Texas, June 2003, buyer was Labinal, a division of Snecma Group of France. The plant produces wiring for military and commercial aircraft. 900 workers at time of transaction. Price undisclosed.

• Spokane, January 2003, buyer was Triumph Group of Wayne, Pa. The plant produces floor panels, air ducts and other components. 400 workers at time of transaction. Price $42 million.

• St. Louis fabrication division, January 2001, buyer was GKN Aerospace of the U.K. The plant manufactures metal and composites for military aircraft such as the F/A-18 and C-17. 1,200 workers at time of transaction. Price $61 million.

Wichita's aviation history


• Self-proclaimed "Air Capital of the World" and home to Boeing's second-largest plant (after Everett).

• Largest concentration of makers of business jets and private planes.

• Home to McConnell Air Force Base, from where the 184th Air Refueling Wing flies the aging KC-135 air tankers, a version of Boeing's first jet, the 707.

• Airbus, in an old, red brick building downtown, has a 160-strong team of engineers working on wing-design projects, including the wing of the forthcoming superjumbo jet, the A380.

All of that aviation activity grew from seeds planted relatively few years after the first flight by the Wright Brothers. In 1920, aviation pioneers Lloyd Stearman, Clyde Cessna and Walter Beech all worked at the Laird Airplane company here. Later, all three set up their own companies to build airplanes. In 1962, Bill Lear, the modern pioneer of business jets, set up shop here.

The direct legacy of those four men is a city with four aircraft-manufacturing plants:

• Boeing bought Stearman's company in 1929. It became Boeing Wichita.

• Cessna makes Citation business jets and private planes.

• Raytheon Aircraft inherited Beech's operation and now makes Hawker business jets and Beechcraft airplanes.

• Bombardier bought Lear's company and makes Learjets.

As of October 2003, according to Boeing, the Wichita area employed 33,000 people directly in aviation, with 113,000 more doing related ancillary jobs. Add an estimate for all of the service jobs that grow out of the aviation employment, and a total of 371,000 regional jobs are supported by the industry.