Boeing to move headquarters out of Seattle; manufacturing jobs stay
Seattle Times business reporters
In a stunning blow to Seattle's prestige, Boeing said yesterday it would move its corporate headquarters from the city that has been its home since its founding in 1916, leaving a contrail of questions about why a Northwest corporate icon is leaving.
"We have started a very fundamental transformation of Boeing,'' said Condit, who planned his news conference with such secrecy that not even U.S. Rep. Norm Dicks, who has helped Boeing secure many military contracts, knew about it.
Condit underscored that Puget Sound-area production facilities would remain here, meaning most of Boeing's 78,000 local workers - and the money they pump into the region -- would stay.
Reaction to the news rippled through the Seattle area, registering a near-10 on the Puget Sound angst scale. City leaders fussed and fumed. Union leaders and rank-and-file workers fretted about the future. Legislators argued the politics of the move.
"I'm waiting for the locusts," said Seattle Mayor Paul Schell, who learned of the move from a radio reporter who called him just as Condit was announcing it.
Most were left with the simple questions of why - and why now?
Boeing's rationale for moving is to shed its image as a commercial aircraft builder and to decisively recast itself as a global aerospace company. While 747s and other Boeing jetliners still account for almost 61 percent of sales, the company's other businesses have grown rapidly.
Boeing is now a key military and defense contractor, and its acquisition of Hughes Space & Communications last year made it the leader in building and launching satellites. Other Boeing units are involved in a wide array of businesses, ranging from a plan to modernize air traffic control using satellites to a service providing Internet connections for passengers flying on airplanes.
But for now, the impact is hitting close to home.
Minimal economic impact
Economists say the impact of losing 500 to 1,000 jobs is minimal in an economy with 1.7 million workers. In fact, there may not be a full loss of 1,000 jobs because Boeing has said it will find work for those headquarters employees who stay behind.
But the prestige factor could influence decisions by other companies to move here or further undermine consumers' confidence in the Puget Sound economy.
"We all think of Boeing and Boeing corporate headquarters as synonymous with the Puget Sound region and the state of Washington," said Gov. Gary Locke. "We'd rather have them call Seattle their corporate home. I think it's a blow to the prestige of the Seattle area."
Condit stressed that moving away from the factories frees top brass to think strategically, and allocate capital, among Boeing's growing range of businesses. In the past, the emphasis on commercial aircraft has left some in Boeing's military-aircraft and satellite divisions feeling neglected.
Workers and powerful unions at Boeing reacted with shock and anger, even though their jobs appear safe for now. Mark Blondin, president of the International Association of Machinists District 751, which represents 27,000 hourly workers in the region, said: "We feel they have turned their backs on us.... Bill Boeing would be turning over in his grave."
But Boeing's operations in the region remain one of the key parts of the Boeing empire, generating more than 60 percent of the company's revenues.
Boeing's reach into the community touches the area's heart. It is a huge contributor to various arts, civic and other philanthropic groups. Last year, the company gave almost $18 million to local groups.
And then there's politics. Boeing has clout in Olympia, and is able to get pretty much what it wants. But with corporate headquarters elsewhere, will all that change? Already Republican members of the Legislature are claiming the Boeing decision shows the state's business climate is not good.
Some, though, are looking ahead. One commercial real-estate agent said he knows of a Fortune 100 company that might be interested in Boeing corporate headquarters after the central staff leaves.
Boeing is a different company now from what it was only a few years ago. It is increasingly a diversified global business with no true center of operations. Its three main divisions are based in the Puget Sound area, St. Louis and Southern California, but it also has operations at dozens of other places ranging from Alabama to Australia. A recent filing with the Securities and Exchange Commission showed it owning or leasing facilities in two dozen locations around the world.
Part of the reason for the headquarters shift is simple logistics. Boeing executives want more flexibility and believe a central location, closer to customers, Wall Street and Washington, D.C., makes more sense. Condit said he traveled to the nation's capital 13 times last year.
But management experts point out that Seattle, also the home of Starbucks, Microsoft and Costco, has become one of the country's most desirable locations for corporations, in large part because jet travel has reduced its isolation.
Perhaps the most significant shift for Boeing is in its corporate philosophy driven by events in the 1990s. The end of the Cold War and its impact on defense, the rise of European rival Airbus Industrie as a legitimate competitor, and Boeing's humiliation in the stock market in the mid- to late-1990s forced the company to take a hard look at itself and its future.
Overhaul well under way
Even before yesterday's announcement, Condit had started to overhaul Boeing. In 1998, a half-dozen senior managers, some of them towering figures in the Boeing hierarchy, were nudged or pushed out the door. It was the first such housecleaning in the company's 85-year history.
"We've got to change, and we can't hope that it will just sort of happen," Condit said at the time. "We've got to do something. We have to take action. That's the message."
Yesterday, Condit took action.
Condit said Seattle's geographic isolation also played a role. Boeing's commercial-airplanes business is headquartered in Seattle. But its key military aircraft and space and communications units are in St. Louis and Seal Beach, Calif., respectively. Boeing has sizeable work forces in Wichita, Kan.; Philadelphia; Canada; and Australia, and customers in virtually all corners of the world.
All the contender cities were chosen for their proximity to Boeing's three biggest businesses. Condit said Boeing's corporate leadership didn't want to be too close to any one unit, which eliminated St. Louis despite its central location.
To underscore the separation, Boeing promoted the presidents of its three operating units with the additional title of chief executive. Alan Mulally, head of Boeing's commercial-airplanes group, will remain here at that unit's headquarters.
Boeing's entire senior corporate management, including Condit, President Harry Stonecipher and Chief Financial Officer Mike Sears, will relocate from their offices on East Marginal Way in south Seattle. The building will be put up for sale.
John Warner, Boeing's chief administrative officer, said the presence of Condit and other senior officers in Mulally's back yard inevitably cast him in his bosses' shadows. Customers in town to make deals on airplanes sometimes would ask to meet with Condit, Warner said.
"We are perceived too much as being too close to the commercial-airplanes unit. It can be a distraction for both of us," Warner said. "It's a matter of letting Alan run his business."
Boeing has made previous pointed attempts to shake loose its ties to commercial airplanes and to Seattle. In 1998, Boeing marked its recent merger with McDonnell Douglas by holding its annual meeting in St. Louis. It was the first time shareholders met outside the Puget Sound area.
Boeing moved the meeting to Los Angeles in 1999, then to Huntsville, Ala., last year because of the Boeing engineers' strike. This year's annual meeting will be at the Westin Hotel in Seattle late next month.
Warner said Boeing has done "quite a bit" of work studying the three contender cities. Much of the final choice will come down to access to air travel, cost of living and business climate, Warner said.
Texas, like Washington, does not tax personal income. Condit earned $4.5 million in total compensation in 1999, while Sears and Stonecipher made $5.9 million and $3.65 million each. But Warner said the lack of that tax won't give any edge to Dallas/Fort Worth.
Chicago, Dallas/Fort Worth and Denver all are hubs for major airlines. But Condit and Stonecipher fly corporate jets almost exclusively for security purposes, while other Boeing executives also use commercial carriers. Boeing's new corporate center will have to be within easy reach of both a major airport and an airport to keep the Boeing jets, said Jim Dagnon, Boeing's senior vice president of people.
Warner said Boeing plans to settle corporate employees in the new locationby August to give parents time to enroll their children in school. That likely means Boeing will select a temporary corporate center before buying or building a permanent building.
While Boeing is scouting the three metropolitan areas, they have started to target Boeing. The battle for Boeing is on. The announcement set off a frenzy in Denver, Chicago and Dallas/Fort Worth where officials are drooling over the cachet Boeing will bring to its new home - and the 500 jobs that go with it.
Boeing's departure reduces the number of big companies here, but the region still is home to others.
Microsoft, the most obvious of those, even issued its own statement reacting to the Boeing news, affirming its plans to stay in the region.
"Boeing is a great partner and customer," said President and Chief Operating Officer Rick Belluzzo. "We wish Phil and Boeing well as they do what is best for their company, customers and shareholders. Microsoft has been fortunate to be a part of the Northwest for the last 25 years, and we look forward to our continued operations as a company based in Redmond."