Are U.S. Defense Contractors Abandoning California?

U.S. Defense Contractors Shifting Operations East The Oklahoma City press has been having fun with the news that Boeing (BA) plans to relocate two major defense programs from Long Beach, Calif., to their town -- calling it a reverse Grapes of Wrath, a reference to the Depression-era exodus of "Okies" to hopefully better jobs and futures in the Golden State. But last month's announcement could also signal the start of a major shift in the locations of U.S. defense contractors, and how they work.

"This may just be the beginning of a lot of production decisions by those companies, across the entire aerospace defense industry," says Andrew Sherbo, a lecturer on finance at the University of Denver's Daniels College of Business who also spent decades with the Air Force. "It's a good example of it."

Boeing's C-130 Avionics Modernization and B-1 Lancer Bomber programs currently employ about 800 people in southern California. The company says it is moving about 550 positions from Long Beach, with other jobs posted and hired locally in Oklahoma City. Boeing already has about 900 people in Oklahoma.

In a press statement, Boeing Vice President Mark Bass said the relocation is about remaining competitive. "[A]s we reviewed anticipated operating costs over the next several years, it became clear that Boeing needs to take major actions on these programs in order to remain affordable for our customers," he said.

Lower Costs Lure Companies Away From the Coast

Sherbo says the move makes sense for Boeing's bottom line. "There's a lot of pressure with defense budgets starting to go down," he says. "Companies want to keep their profit margins, and they want to keep business with with the Department of Defense. Long Beach is expensive. If you look at your average wage and manufacturing in California, versus an area like Oklahoma City, it's about 20% higher in Long Beach."

Boeing will also relocating its C-130 and B-1 programs down the road from Tinker Air Force Base - whose Oklahoma City Air Logistics Center provides maintenance to a variety of Air Force weapons systems, including the C-130 and B-1 Lancer.

Oklahoma has also gone out of its way to welcome Boeing with economic incentive packages. Along with what the state offers to companies, Oklahoma City Mayor Mick Cornett says his city has its own pool of funds "that the voters gave us control of in 2007 through a bond issue. And it's totally performance-based, and it's based on creating jobs -- and the higher the income, the greater the incentive."

Mayor Cornett is aware his city has an image problem to counter.

"If you're an engineer in Long Beach, you have no reason to wake up one morning and to think you're life is going be better if you were to move to Oklahoma City," Cornett says. "I think once they're exposed to what we have to offer, they'll have a much different opinion." Quality of life in Oklahoma City, he notes, is very high -- with affordable housing, higher-than-average incomes and a cost of living rate below the national average. "[W]e're creating a city that people want to live in," he says, "and the job creators and entrepreneurs are going to be successful in Oklahoma City because highly educated young people are moving here -- and the secret to building jobs in the future is creating a city where they want to be."

Boeing's move is just the latest in a trend of West Coast-based contractors shifting east, This past January, Northrop Grumman, which was founded in California in the 1930s, announced plans to move its corporate office from Los Angeles to Washington, D.C., by next year.

"It's not going to be just Boeing," says Andrew Sherbo, "it's going to be the rest of them, having to take a look at some of these [economic] issues."

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etaffairs

Just to keep it real ..  - Northrop's decision to move its HQ to DC is entirely different from Boeing's decision to move workers to OKC. Literally "eastward" is all they have in common. Northrop is positioning executives in a very expensive city to network with government. Boeing is moving workers to the cheapest city it can find. - Boeing isn't moving 550 people. They're laying off 750 in Long Beach, moving 50 (mostly managers), and hiring 500 locals in OKC. - The B-1 is maintained at Tinker. The C-130 is maintained at Warner Robins AFB, Georgia. C-130 is bundled with the B-1 move for internal political reasons and the OKC $ incentives, not because of Tinker. - Yes, unions do NOT have anything to do with it.  Boeing is not moving any production work or workers on C-130. That's already done in San Antonio and not moving. It's all engineering and administration that are being replaced in OKC. It will lower the cost but kill the program by removing all knowledgable staff.

September 08 2010 at 6:18 PM Report abuse rate up rate down Reply
mvanblarcu

gee, i am sure unoins have nothing to do w/ it. that along w/ tax rates, good bye business

September 07 2010 at 7:10 PM Report abuse rate up rate down Reply
BUFFALO

California is the most exspensive state in the country to do business in so yea there going to leave. If the employees have the option to leave with them they would be crazy not to. Just be glad there not going to another country.

September 07 2010 at 6:03 PM Report abuse +3 rate up rate down Reply
bob9inv

After reading the comments, there is nothing to add. CA has created its bed and will have to sleep in it.

September 07 2010 at 5:38 PM Report abuse +3 rate up rate down Reply
zattico

why anyone would stay in california when they could leave is beyound me

September 07 2010 at 5:38 PM Report abuse +2 rate up rate down Reply
Mingo

There is also a lot of talk in Oklahoma about leaving the the United states

September 07 2010 at 4:37 PM Report abuse +3 rate up rate down Reply
pat hill

COULD IT BE THAT THE ILLEGALS HAVE DROVE THE FINAL NAIL IN THE " FREEBIES " THAT CALIFORNIA KEPT TAXING ALL FOR THEIR SANCTUARY CITIES..THANKS FROM A OAKIE

September 07 2010 at 4:24 PM Report abuse +4 rate up rate down Reply
1 reply to pat hill's comment
tarracing

Illegals? thats California's and any other welfare states best kept secret! Its been said that only about 25% of every welfare dollar collected reaches the bottom line needy, the rest you ask? goes to "ADMIN" costs, just another way our government creates programs to support other programs and create multi-billion dollar industries to manage welfare and the illegals, If you take the illegals out of the equation there will be a lot of unhappy politicians looking for a job! Why do you think the boarders are open? Just my opinion!

September 07 2010 at 6:15 PM Report abuse +1 rate up rate down Reply
joethightwad

A successful company requires technology, a skilled workforce, access to raw materials and, of course, a market for its products. Technology is highly transferable and can be brought to wherever the other three are located. The early aerospace industry found the laborers and its major raw material, aluminum, on the west coast. Smelting aluminum requires enormous amounts of bauxite and electricity. The former came from Canada and Chile, the latter from the Grand Coulee and Hoover dams. The infant commercial airlines supplied the initial market, but military contracts during WW II turned the likes of Boeing, Grumann and Lockheed-Martin into massive companies. Times have changed. All those essential ingredients for success can now be found elsewhere at lower cost.

September 07 2010 at 4:17 PM Report abuse +4 rate up rate down Reply
Mingo

Glad to see the move .California these days is hostile to their own defense . The cost of doing business there is way to high and its about time these businesses moved to a place where they are welcomed and the P C cost are not that high.

September 07 2010 at 1:47 PM Report abuse +12 rate up rate down Reply
some1do

Much of the work is also going to overseas. Most of the manufacturing is done in other countries in Europe.

September 07 2010 at 1:47 PM Report abuse -2 rate up rate down Reply