September 30, 2014 / 12:07 AM / 5 years ago

Boeing to shift most defense work out of Washington state

WASHINGTON (Reuters) - Boeing Co (BA.N) on Monday said it would move the majority of its defense services and support work out of Washington state to other U.S. cities, affecting the jobs of about 2,000 of its 5,200 defense employees in the Puget Sound region.

The Boeing logo is seen at their headquarters in Chicago, April 24, 2013. REUTERS/Jim Young

The changes, first reported by Reuters earlier Monday, are part of ongoing efforts by Boeing to streamline its defense business, and will not affect its P-8A spy plane or KC-46 aerial refueling tanker programs. Both of those programs are based on commercial jetliners made in the area.

Boeing said the transition could take three years to complete and that it would shift as many affected workers as possible to the company’s growing commercial jetliner operations.

Chris Chadwick, chief executive officer of Boeing Defense, Space and Security, said the decision was difficult but necessary to improve the company’s competitiveness.

“This is necessary if we are going to differentiate ourselves from competitors and stay ahead of a rapidly changing global defense environment,” Chadwick said.

Union officials said the company has scheduled meetings with defense workers at key sites in the Puget Sound region on Tuesday and that managers and workers expect the company to announce work will be transferred to other parts of the country.

The state said the blow would be softened by its efforts to help its hundreds of defense suppliers adapt to declining U.S. defense spending.

“It’s disappointing but we’ve done a lot to mitigate the impact,” said Alex Pietsch, director of the state office of aerospace.

“It shows how lucky we are to have Boeing Commercial Airplanes in the state,” he added, referring to the state’s dominant share of Boeing’s jetliner business.

Last week the state got a $4.3 million grant to help defense suppliers transition to other industries. Last month, Washington established an alliance to help its military bases respond to budget cuts.

The job moves at Boeing are a symptom of reduced U.S. defense spending and “have nothing to do with the business climate in Washington state,” Pietsch said.

Boeing said most of the work would be relocated to Oklahoma City and St. Louis, where similar activities are done already, with a smaller share of the work to go to Jacksonville, Florida, and Patuxent River, Maryland.

In all, Oklahoma City could add about 900 jobs, while St. Louis could add 500 jobs, the company said.

Among the programs shifting to other cities are services and support work for the Airborne Warning and Control Systems (AWACS) program, as well as the F-22 fighter jet, which Boeing built together with Lockheed Martin Corp (LMT.N).

Jim O’Neill, who heads Boeing’s global services business, said shifting the work would allow the company to use its resources more efficiently.

Boeing is moving to cut $2 billion in costs from its defense business, in addition to the $4 billion in reductions announced in recent years in response to dwindling U.S. defense spending and increasing competition.

Defense analyst Loren Thompson said Boeing’s plan to move as many of the defense jobs as possible to its booming commercial operations would reduce the overall impact to the Washington state workforce. “The net job loss will be less than 1 percent,” Thompson said.

“Boeing’s commercial business is growing while its defense business is shrinking, so it’s logical that you would make these sorts of shifts as a way of using the workforce as efficiently as possible,” said Thompson, chief operating officer of the Virginia-based Lexington Institute.

Boeing has sought to cut overhead costs in its defense business to help offset revenue dragged lower by declining military spending.

The company is also trying to pump up arms exports.

Editing by Matthew Lewis, Steve Orlofsky and Lisa Shumaker

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