Posted on Sun, Jan. 30, 2005
ECONOMY

Aircraft plant raises S.C. hopes
Are officials' expectations for factory too high?

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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