POSTED ON AUGUST 22, 2012:
Green Shoots in Aerospace
No More Ghosts in the Machine, Industry Flies High
The old joke used to go: Why does Oklahoma produce more astronauts than any other state? So they can get as far away from Oklahoma as possible.
The real reason, perhaps, is that Oklahoma has a culture that lends itself to aerospace. Tulsa has been a leader in this industry for a long time. Both in the metro area and state-wide, one worker in 10 is directly or indirectly employed in aerospace. That includes 50,000 indirect and 20,000 direct workers in Tulsa.
This month's ratification of a new union contract by American Airlines mechanic and related work groups (M&R) reduced a lot of the uncertainty surrounding the Tulsa economy -- especially in the all-important aerospace industry. The Tulsa World reports that rather than the 2,100 M&R layoffs proposed by management (and rejected by unions) in May, the new agreement calls for 770 layoffs, to be phased in over the next six to nine months. The new contract also includes 90 layoffs, instead of the original 160, for stock clerks.
In a sense, the new agreement is a relief. Tulsa's largest employer isn't going to fold up shop. Retirements and buyouts may be able to further reduce the number of layoffs. Still, that will be cold comfort for those who lose well-paying jobs in the coming months.
The cultural change is significant. With the new agreement, including the reduction of medical coverage for retirees, according to the World, it will be much less likely that a mechanic will start work at American, stay 40 years, and retire. The incentive may become to work a job for a time, wait for a better position, and move on. The result may mean less stability for skilled workers in Tulsa.
Still, that may not be all bad. There are numerous mom-and-pop aerospace manufacturing companies in town. There are also larger companies -- some of them well-established -- that may be able to compete for Tulsa's skilled workers. A mobile workforce may be better for a changing industry.
Dennis Hall, president of the Northeast Oklahoma Labor Council, and a member of the Transport Workers Union, called the new contract a "bitter pill" to swallow. "It's only second best to allowing the legal process of bankruptcy to run its course," he said. Still, he voted yes on the new contract.
"What they've taken away from us will be hard to regain," referring to changes to defined pensions and retiree insurance, as well as changes to the seniority system.
He voted yes because at a certain point he cared about members being able to earn a living. "We believe, at this point in time, we save jobs. Here in Tulsa and elsewhere."
There has been talk among union members of moving to other jobs, and those jobs have been available. "I'll put it to you this way. Some of our members who didn't have the seniority have gone out and have been working two jobs for the last couple of months," he said.
That doesn't mean that aerospace workers aren't worried or that jobs at their skill level will automatically be available. "Some companies, including Spirit AeroSystems, have already gone public and said they're going to be adding three or four hundred jobs this year. And that's good. But in terms of highly skilled jobs, we're still waiting on those to come down the pike," Hall said.
Spirit AeroSystems did not respond to several requests for comment.
Those who are working two jobs at the moment may be part of the larger trend of what's being called the "gig economy," in which skilled workers have to work multiple part-time jobs with fewer or no benefits. On the one hand, this can instill a sense of entrepreneurship, which ultimately can lead some workers to start their own companies. On the other hand, the new normal will remove the sense of stability that for so long had been a major advantage of working in this industry.
Despite recent setbacks, Mary Smith, executive director of the Oklahoma Aerospace and Defense Alliance (OADA), said that Tulsa's aerospace small businesses give it a competitive advantage even over Oklahoma City. "And frankly, Oklahoma City has Tinker, but other than that they don't have the small and medium sized businesses in the industry that we have in Tulsa. We have a wonderful base of manufacturing companies in Tulsa, some with 15-20 people," she said.
When Smith was interviewed, American Airlines unions had not yet voted on a new contract ("We thought by now we'd know everything. ... We don't know yet," she said). It was assumed that the agreement would include layoffs. Nevertheless, she expressed optimism about Tulsa's ability to absorb workers. She said the number of aerospace employees has remained more or less constant over the past 10 years.
While it's impossible to say to what extent skills at one company will translate to the needs of another company, aerospace jobs in Tulsa have held up overall because companies do well or poorly in different cycles; that is, not every company is on the same cycle. "A lot of our aerospace companies, especially in Tulsa, are pretty diverse. When one goes up, another comes down. So it balances out," Smith said.
That makes it easier for the industry as a whole to survive, preserving local jobs. "Never having their eggs in one basket makes them a little more bullet proof," she said.
The OADA, Smith's organization, encourages Oklahoma aerospace companies to collaborate in areas in which they are not directly competing. It provides an "opportunity for companies that have similar challenges or opportunities or product lines to talk about common issues," Smith said. A fair amount of this amounts to letting executives get together once in a while to bellyache about common problems in the industry. However, it has led to a degree of collegiality among aerospace companies.
For example, FlightSafety International, an aviation training company, recently moved its flight simulation center in Broken Arrow to a larger facility. It was a long and tough process that sometimes involved hiring drivers to transfer employees between facilities out of insurance concerns. "When you move a house, it's usually quite an ordeal. Imagine hundreds of workers and all of that equipment without interrupting operations," Smith said.
After FlightSafety finished its move, it became known that L-3 Aeromet, an aerospace engineering firm that Smith said employs 150 of the highest-paid engineers in the state, wished to move its operations from Jones-Riverside Airport to Tulsa International Airport. Thanks to the collegiality encouraged by the OADA, FlightSafety consulted with L-3 Aeromet on what to do and what to avoid in order to make major moves go as smoothly as possible. The technical term for this sort of collaboration is outcome based networking. "But really they become allies," Smith said. "When they're not competing they're helping each other."
Nor is this collaboration limited to promoting efficiency. It has had a direct impact on saving jobs, something that may help American Airlines workers in the next few months. Smith recalled a time several years ago when American Airlines was about to lay off 700 workers. An American executive was speaking with a NORDAM executive about how upset he was that he would have to take such a drastic step. The NORDAM executive said he would hire some of those workers on the spot to help ease the difficulty. Smith, who was present for the conversation, was amazed at the ability of the industry to absorb workers. "I watched American Airlines swapping NORDAM 75 people," she said.
It remains to be seen whether a similar "swap" can be accomplished with the hundreds of workers set to lose their jobs in the near future.
Even though Smith said the industry is "up and down, just like airplanes," she remains confident in Oklahoma aerospace's ability to endure. She said some companies are "steadily climbing out [of the Great Recession] ... [they're seeing] pretty good times." Hopefully this will translate into the absorption of American Airlines M&R workers and others.
Smith may have good reason for confidence. Alexis Higgins, marketing director for the Tulsa Airport Authority (TAA), said Tulsa International Airport is making strides to bring new businesses to town and to retain current ones. While the TAA itself employs only 157 people (down from about 175 five years ago), it owns an enormous amount of land, some of it undeveloped. It leases this land to local aerospace and manufacturing companies, with development or re-development of their areas in conjunction with the TAA. "People are sometimes confused because they think an airport employee is an airport employee," Higgins said. But the workers on airport land vastly outnumber direct airport employees. Collectively, the tenants on airport property employed 13,650 in May 2011, the last date for which exact figures are available.
Higgins, who was also interviewed before the American Airlines contract was ratified, said neither the company's bankruptcy nor the uncertainty had affected airport operations. "As far as a passenger can tell there have been no changes," she said.
Nor have there been any changes requested to the lease agreement American has with the airport. "But there may be changes," Higgins said.
What has changed is the way the TAA develops its land. Previously, the airport only developed its land when requested, but now it has decided to become more proactive. "[We are] developing parcels for the site plans that we have," Higgins said.
This change is "definitely a long term vision," Higgins said. While the policy formally changed only last year, the general approach has been in the works for about a decade. The basic idea remains as it always has been. "We own the land but they'll have to come in and build the buildings," Higgins said. What has changed is the willingness of the airport to seek out new tenants -- and the jobs they bring.
These policy changes are intended to attract new companies in Tulsa. And it may be coming to fruition soon. "Hopefully in the next few months, perhaps September, we'll be signing our first agreement [leasing] a property on Mingo to an industrial developer," Higgins said. She did not say who the developer was or how many jobs would be created, but was hopeful that it could be the first of several such agreements.
The airport's goal with this policy change is to "develop our property to pursue more non-airline revenue," Higgins said. More tenants on airport property means more revenue for the airport, which can be reinvested to improve the infrastructure for Tulsa aerospace, leading to further job creation. "Improve that supply chain," Higgins said.
To that end, the airport is halfway through a redesign. This summer, Tulsa International finished a refurbishment of its B concourse. "We completely gutted the concourse and brought up all the mechanical, electrical, and plumbing...We raised the ceilings. We added natural light. [It has a] more modern look and feel," Higgins said.
The next project is to do a similar redesign for A concourse. It is expected to be finished in the fall of 2014.
The project also includes changes to the parking structure at the airport. The garage structure will be enlarged so more parking is available. Rental car customers will also be able to walk to their rentals; that is, they will not have to take a shuttle. This greater efficiency means more traffic should be able to come in and out of Tulsa International more easily.
A major difficulty Tulsa consumers (along with the rest of the country) have faced has been higher fuel costs, which drive up airline ticket prices. Higgins pointed out that many airlines -- with the obvious exception of American -- are doing well financially at the moment. "Airlines are actually making profits now...The way they've done that is reducing capacity. They reduce flights or change aircraft so there are fewer seats," she said. This means that consumers are paying more and getting less.
Higgins said this has had an especially negative impact on mid-sized markets like Tulsa, for which it is not efficient to have large planes coming in and out all the time. Unfortunately, many airlines do not have enough medium-sized planes to fit the demand, holding back cities like Tulsa.
Over the next few years, however, there should be more flights to and from mid-sized markets like Tulsa. "Airlines are looking for airplanes that are the right size for their market...There hasn't been much by way of 90-seat aircraft, the right size for our market. As soon as airlines take ownership of those planes there will be more opportunity for markets our size," Higgins said. "We will benefit when airlines take ownership of airplanes that are more mid-size, 90 to 120 seats."
When asked when this would happen, Higgins said, "By 2015 or so."
Tulsa's resources have helped both the airport and the aerospace industry manage difficult times in the past. "I think we're doing a good job of competing nationally and internationally now," Higgins said. "We have NORDAM. We have the nation's largest commercial maintenance base in American." Despite what may come, patience and doing what we've been doing is the key to Tulsa's aerospace success.
Higgins pointed out that even in this difficult economic climate, aerospace is growing. She said that Lufthansa Technik, an aircraft repair company, announced on August 1 that in the next several years it will hire upwards of 90 additional employees.
It is not known to what extent the hiring will coincide with American layoffs.
Glimmers of hope abound, even if they are just out of reach. NORDAM, an aircraft repair and manufacture corporation, has been a staple in Tulsa for decades. It also has seen good times in the last few years. According to CEO Meredith Siegfried, NORDAM has added about 12 percent to its workforce in the last year alone, currently employing 1,851 people in the metro area.
The company has recently signed contracts for long-term projects that are set to begin soon. "One, for our Repair Group, is with a major freight carrier. The other is with a major aircraft manufacturer," said Siegfried. "Both will strengthen our business significantly."
Still, Siegfried may be described as cautiously optimistic. She said that her company must prepare itself for "the inevitable next downturn," but is still positioning itself to become "the premier family-owned aerospace company."
Family is important to Siegfried, as is NORDAM's commitment to the Tulsa community. A part of NORDAM's restructuring in response to the Great Recession has been "a rebirth of the 'serving leader' culture originally espoused by my father, NORDAM founder Ray H. Siegfried II."
While the younger Siegfried was also interviewed before the union contract was announced, this may be good news for American workers facing layoffs. NORDAM's track record of helping other companies find a spot for laid off employees may speak for itself.
Another bright spot in the Tulsa market has been FlightSafety. "FlightSafety has been a constant success story. ... It's been growing steadily and in some cases by leaps and bounds," said Smith, the executive director at the OADA.
There are hopes for American Airlines employees. The union agreement saved upwards of 1,300 jobs locally, and it's possible other companies may pick up the slack.
The green shoots seem to indicate that the aerospace industry is viable, despite the uncertainty surrounding American Airlines. "If we can continue to build on the assets we have now, there's a lot of opportunity there. That's what we're doing at the airport. We're looking at our existing tenants and asking how can we capitalize on your operations and improve your productivity...That can introduce new companies to Tulsa," said Higgins, the TAA marketing director.
Introducing new companies is one thing. Long term, the key to Tulsa's growth will be a skilled workforce. That's something that Smith is banking on. "It's easy to retain people who are already here," Smith said. "TU, OU, even ORU produce great engineers who want to stay in Tulsa."
It has been more difficult to attract talent from other states, though Tulsa employs a fair number of engineers from overseas. "We compete for high-end employees, like engineers. It's harder to attract people here...but once they get here, it's like, 'Oh my gosh, I like this.'"
The future may be rosy for engineers, and skilled workers can be optimistic even in the uncertainty. Ultimately, aerospace in Tulsa boils down its ability to employ both blue-collar and white-collar workers while encouraging entrepreneurship. The proliferation of small businesses and the expansion of larger companies like NORDAM are encouraging signs.
The difficulty lies in the ability to absorb shocks like the layoffs of nearly 800 hard-working employees. Fortunately in American's case, the layoffs will be phased in. Ideally, this would give other companies that are expanding the opportunity to hire as many people as possible without glutting the market. More importantly, it can keep more people at work longer.
American Airlines for now remains Tulsa's largest employer. Even with the layoffs it will remain a player in the industry. Unfortunately, those who are keeping their jobs will have less incentive to stay longer.
Everyone interviewed for this story conveyed a sense of waiting and seeing. Optimistic analysts, like Higgins and Smith, implied that things will be better in a few years than they are now. Those who've just endured a big blow, like Hall, don't know what's coming in the future. Executives like Siegfried enjoy the expansion they've seen, but are openly cautious.
It's not known what they industry will look like five or 10 years from now. But Tulsa is preparing for the future by producing engineers and skilled workers for the companies that are expanding and relocating here. It appears that, overall, the aerospace industry is growing and that growth will be good for Tulsa.
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