ECONOMY
Aircraft plant
raises S.C. hopes Are officials'
expectations for factory too high? By Kerry Hall and Gillian Wee Knight Ridder
BY THE NUMBERS
S.C. officials cheered last month when Global Aeronautica picked
North Charleston as the site where it will build a major part of
Boeing Co.'s newest aircraft, the 7E7 Dreamliner.
The $560 million plant will hire 645 people and pump more than
$32 million in pay into the economy. But for all the excitement,
officials envision much more.
They say the plant's impact some day might rival that of the BMW
plant 220 miles away in Greer.
There, BMW has hired 4,700 workers: more than double its original
pledge. It also lured nearly 40 automotive suppliers to the region,
creating an additional 7,200 jobs.
That complex hub of suppliers and related businesses is what S.C.
officials hope the aircraft plant will replicate in North
Charleston.
"We're obviously hopeful this is the start of a new aviation
cluster for our state, " S.C. Governor Mark Sanford said in an
interview.
To win the plant, South Carolina promised at least $116 million
in incentives and beat out Mobile, Ala.; Tulsa, Okla.; and the
Eastern North Carolina town of Kinston.
But high hopes aside, repeating BMW's economic success in the
Lowcountry won't be so easy, analysts say.
To understand why, it helps to examine the differences between
building cars and planes.
In Greer, BMW builds each car from scratch. Its assembly plant
can churn out an X5 sport utility vehicle or Z4 roadster in 24
hours.
BMW keeps little of the inventory it needs on hand, instead
relying on its tight network of suppliers to provide everything,
including tires and headlights, says spokeswoman Bunny Richardson.
To minimize costs, the auto giant encourages suppliers to locate
nearby.
Lear Seating in Duncan, for example, set up shop one exit away on
Interstate 85. The company averages three deliveries daily to the
BMW plant.
The North Charleston aircraft plant, in contrast, won't need as
many suppliers nearby, aviation analysts say.
Global Aeronautica will assemble the plane's fuselage in North
Charleston. The tail end will be made there.
The rest of the fuselage will be flown in from Italy.
Other sections of the plane will be built in plants around the
globe, from Japan to Australia to Canada.
All the parts ultimately will be flown to a Boeing plant in
Everett, Wash., for final assembly.
Because of the fragmented assembly process, suppliers locating
near North Charleston would be "relatively small operations," says
Paul Nisbet, an aerospace analyst at JSA Research in Newport,
R.I.
Global Aeronautica itself says it's unlikely suppliers will flock
to North Charleston.
The company is a joint venture between Vought Aircraft Industries
Inc. of Dallas and Alenia North America, the U.S. unit of Rome's
Alenia Aeronautica.
To gauge the possible impact of the North Charleston plant, one
might look toward Dallas, where Vought is headquartered.
There, Vought builds and assembles airframe systems, such as
wings, tail sections and doors, for a variety of aircraft makers,
including Boeing and Airbus SAS.
Vought has been in Dallas for more than 50 years, yet few
suppliers have followed, says spokeswoman Lynne Warne. Much of the
supplies Vought uses are flown in from companies in other states or
countries.
The Dallas plant employs about 3,000 people.
"It's not a prerequisite that [suppliers] locate with us," says
Warne, the Vought spokeswoman. "It's a leap to say they will be
co-located or have to move."
Just as S.C. officials are pinning their hopes on the North
Charleston plant, Boeing needs the high-tech Dreamliner to capture
lost market share. Once the industry leader, Boeing now trails
Airbus, which is building a competing craft, the A350. Airbus also
recently launched the A380, a super jumbo passenger plane that
Boeing has no plans to match.
Boeing says the Dreamliner's main selling point will be fuel
efficiency.
It also will need 30 percent less maintenance, Boeing says.
Fuselage production in North Charleston could start early next
year, with delivery of the finished plane scheduled to begin in the
first quarter of 2007.
If the Dreamliner is a hit, aircraft suppliers and related
companies may be more likely to relocate to North Charleston, says
Bob Toomey, aerospace analyst at RBC Capital Markets in Seattle.
So far, Boeing has taken 126 orders, including 56 under firm
contract from eight airlines, including Japan Airlines, Vietnam
Airlines and Continental Airlines Inc.
John Kasarda, a professor at the Kenan-Flagler Business School at
UNC Chapel Hill, called demand sluggish.
"Airlines are not jumping to it," he says.
S.C. Department of Commerce Secretary Robert Faith said he has
talked with suppliers interested in opening plants in the North
Charleston area. He said he will announce a list of those companies
later this year.
If suppliers do come, it would be welcome news to economic
developers, who are eager to diversify Charleston's economy.
Once home to a bustling Naval base and a thriving ship-building
industry, Charleston's economy suffered after the base closed in the
mid-1990s and shipyards were shuttered.
Today, the region depends heavily on tourism, which grew steadily
last year and helped push the area's unemployment rate down to 4.5
percent in November. That compares with a 6.6 percent statewide
average and a 5.4 percent national average.
But tourism can fluctuate wildly with the economy and lingering
terrorism concerns.
To attract new industry, S.C. officials recently adopted a
strategy to build economic "clusters," or hubs of related
businesses. The BMW cluster is the state's most noted example.
Officials say clusters of related companies will enhance
productivity and add value to a manufacturer's product. With S.C.
wages well below the national average, officials are keen to attract
higher-paying jobs.
Of the 645 jobs created at the plant, about half will go to
manufacturing. The rest will be related to technical support,
administration and maintenance. Charleston officials hope the plant
will seed a cluster that ultimately creates an additional 1,198
aviation-related jobs with an annual payroll of $49.2 million.
The Dreamliner jobs will pay $50,000 a year on average. A travel
guide in Charleston, in contrast, earned an average $35,440 last
year.
Winning the fuselage plant already is a victory for the state,
officials say, even if it doesn't create the economic ripples they
hope for.
"This is a wonderful thing for the Lowcountry and South Carolina
if we just have the fuselage facility," Faith says. "The story's
going to be written 10 years from now.
"It doesn't have to be the home run that BMW was, or is still to
be, to be a great thing for our economy."
BMW's economic
incentives $404 million | Amount of investment2,000 | Number of jobs
promised $120 million | Amount awarded in incentives, or $60,000 per
job
$560 million | Amount of investment645 | Number of jobs
promised$116 million | Amount awarded in incentives, or
In today's dollars, adjusted for inflation | The state can
increase the incentives to $160 million if the company employs 1,400
workers.
Source: S.C. Department of
Commerce
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