Pullout from Wichita would reshape Boeing, aviation city
Seattle Times aerospace reporter
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 email@example.com.
Information from The Associated Press is included in this report.
Copyright © 2004 The Seattle Times Company