Louisiana’s bid to reel in airplane manufacturer Hawker Beechcraft from its current home in Wichita, Kansas is still awaiting a decision from the company. But the gambit has already produced results, if perhaps not the ones Louisiana Economic Development secretary Stephen Moret was looking for when he put together a $400 million incentive package to steal the company from the Midwest.
Namely, the International Association of Machinists and Aerospace Workers has fired off a letter to U.S. Attorney General Eric Holder demanding an investigation into whether the state has used federal disaster relief money in putting together its bid for Hawker Beechcraft.
“The IAM believes your Office should be concerned where Louisiana got $400 million to game our economy in this way,” said union president Tom Buffenbarger in the letter. “It seems clear that the state is using federal development assistance, including ‘supplemental Katrina’ funds through the U.S. Department of Housing and Urban Development (HUD) Community Development Block Grant (CDBG) program.”
Buffenbarger noted the “Aerospace Alliance” formed in October of 2009 by the governors of Louisiana, Alabama and Mississippi to bring aerospace manufacturing jobs to their three states. Local development corporations advertised the development of aerospace parks for new facilities, public infrastructure to support them and whatever else would be needed for a company to move – including federal money, specifically touting special federal Katrina funds authorized by the Gulf Opportunity Zone Act of 2005.
One could, of course, make the argument that the resources contained in programs like the GO Zone are in place to do precisely what Buffenbarger is complaining about – namely, make the areas set forth as beneficiaries of them more competitive to business and industry. But Buffenbarger says the use of GO Zone funds is illegal.
“We believe that Louisiana’s gambit violates the law,” declared Buffenbarger, who cited a Congressional prohibition on the use of Katrina Supplemental funds, “to assist directly in the relocation of any industrial or commercial plant, facility, or operation, from one area to another area, if the relocation is likely to result in a significant loss of employment in the labor market area from which the relocation occurs.” [42 USC § 5305(h)].
“Such inter-state raiding, successful or not, only drags on our national economy, because moving jobs between states adds nothing to national employment,” said Buffenbarger. “It is not activity that the American taxpayer should be subsidizing.”
The letter doesn’t offer much proof that Louisiana is misusing federal dollars. Its direct accusation is that Louisiana is using Community Development Block Grant money for the package, without proof of that being the case, and then IAM offers an indirect accusation which charges past the line of insult without even slowing down…
Another indication that Federal money supports Louisiana’s offer is simple common sense. Louisiana is one of the poorest states in the Union, still suffering the devastating effects of Katrina and other hurricanes. It could not come up with nearly half a billion dollars on its own. While the state has not detailed its package, common sense says it is based on Federal sources, either directly or by offsetting their normal budgetary commitments with Federal disaster relief funds.
In other words, Buffenbarger – who in 2008 verbally assaulted candidate Barack Obama on behalf of his union’s choice Hillary Clinton for the Democrat presidential nominee and has hardly sought to endear himself to the president since the election – wants to use Holder’s office to conduct a fishing expedition in order to intimidate Louisiana to withdraw its offer. He has no proof of that which he accuses – he merely assumes that the poor coonasses in a state with a $25 billion annual budget couldn’t find $400 million for economic development and neglects the fact that Louisiana successfully lured a much larger facility in Nucor Steel earlier this year with a similar offer.
Buffenbarger further offers a justification for a Justice Department witch hunt by asserting that “Economic warfare between the states also violates principles imbedded in the Commerce Clause,” and asserts that a “domant” Commerce Clause violation can be found when a state offers tax breaks to lure businesses from another state. He doesn’t cite case law to advance this novel concept, surprisingly enough.
Of course, Buffenbarger’s economic analysis is self-serving. If Hawker Beechcraft were to make what ultimately proved to be a good economic decision to move to Louisiana – or somewhere else – and retooled their operation to be leaner, more productive and more profitable, the national economy would indeed benefit even if the economy of Kansas would not.
The prospect of Hawker saving on labor costs in Louisiana, as the company’s relocation would likely allow it to shed its current unproductive relationship with IAM, might well contribute to creating a more economically viable operation. As things currently stand, Hawker Beechcraft CEO Bill Boisture seems concerned that his company won’t survive without major changes…
“The business and general aviation segment continues to operate in a very challenged market,” Boisture said in the conference call.
And that challenged market, with jet sales seemingly grounded, is forcing changes at Wichita-based Hawker Beechcraft. “This is a very difficult market,” he continued.
Hawker delivered 49 aircraft in this recent third quarter compared to 64 in 2009’s third quarter. The decline was mostly in jet products. Because of that, Boisture says Hawker will stop producing the Hawker 400 XP light business jet for two years beginning in January 2011.
“We made a decision, we think, that puts the future of that product out beyond the current economic problem,” Boisture said.
But the question remains whether that jet production, and other lines, will remain in Wichita when the recovery returns. Boisture used the conference call to talk about recent stories KAKE and others have reported concerning possible manufacturing moves to other states.
For example, Boisture talked candidly about the Louisiana offer. “We did receive an offer of incentives from the state of Louisiana to move substantially all of our manufacturing facilities,” he said.
One of the key points in Louisiana, he said, is offering incentives for substantially all of Hawker’s manufacturing facilities. “Substantially all” doesn’t sound like small shop work. “We also received an offer of incentives from the state of Kansas to keep the majority of our production here in Wichita,” he added.
A relocation is only in the picture, it might be remembered, because in October the IAM local shocked everyone in Kansas by rejecting that incentive offer to stay in Wichita. The Kansas offer was contingent on union approval, which wasn’t given. If Boisture ultimately chooses Baton Rouge over Wichita, it could be argued the union members brought the company’s departure (and that of their jobs) on themselves.
Moret was unimpressed with the union’s complaint. “The only thing that an audit or investigation would show is that Louisiana has made an incredible commitment to economic development,” he retorted, “which is one of the reasons why our economy has significantly outperformed the South and U.S. since the beginning of the national recession.”
Several factors are in play here – first being the question whether Hawker isn’t a bad bet for an incentive package given the sad state of the aerospace industry in the current economy and the soft demand for the company’s products. One might question whether Louisiana’s workforce can produce enough qualified machinists to staff an airplane manufacturer, though with the proliferation of industrial plants along the Mississippi and the endangered manufacturing facilities at Avondale and Michoud perhaps offering professionals qualified in related industries and capable of retraining the state can tell a good story. And one could apply the traditional argument that a $400 million incentive package to attract an out-of-state company will do less to produce economic growth than tax relief for the business community already here – not to mention that while Gov. Jindal has been applying every fiscal bandage he can to the state’s budget in order to stop the bleeding from a bad national economy, that $400 million could cover 25 percent of next year’s deficit.
That said, if Jindal and Moret can land Hawker Beechcraft it would represent a terrific skin on the economic development wall in an industry with what should be a good long-term future. The world will need airplanes for the foreseeable future, even if the demand projects to be slow until the economy picks up. And as a predominantly non-union yet blue-collar state, Louisiana should be poised to grow its manufacturing and industrial sectors in the future – a goal this acquisition would serve.
And either way, freeing the manufacturer from the death grip of a union whose clown boss sees fit to take time away from bashing the president in order to demand that the Justice Department play the role of heavy in preventing the exercise of Hawker’s ability to engage in commercial contracts almost seems like a moral imperative.