WICHITA, Kan. -A tumbleweed rolled over the tarmac at the Wichita airport last week, its scraggly, dry branches blowing in the hot Kansas wind. Lest the reference to the Dirty Thirties goes too far in these Depression-obessesed times, the tumbleweed is an actual plant that grows in Kansas.
Still, anxiety levels in this stoic Midwestern city have shot higher as the financial crisis rages around it and economic indicators show a sharp deterioration in U. S. and global growth.
For global growth has been the lifeblood of Wichita, which has leveraged a weak greenback to sell a stream of grains, business jets, navigation equipment and conveyor belts to a hungry and prosperous world. Exports, the silent strength of the U. S. economy in recent years, are also now at risk as this made-in-America crisis circles round to bite the domestic economy in the back.
"Leading up to the August/September time frame everything had been business as usual and the news within the economy hadn't been directly impacting the aviation industry," said Jack Pelton, chief executive of Cessna Aircraft Co., one of the world's largest makers of corporate jets. "We were still taking lots of orders, and we have the strongest and biggest backlog in our entire company's history and production rates that are the highest in our company's history."
The subprime mess may have been rumbling in the background for months but the freeze in the credit system and the meltdown in the stock markets came at lightning speed, Mr. Pelton said.
"If I try to look back and see if I missed anything ... we knew the subprime issue was problematic, but that subprime issue had been really contained to the mortgage industry and not really manufacturers here in the U. S.," Mr. Pelton said during an interview at Cessna headquarters near the Wichita airport.
Now Mr. Pelton expects an inevitable slowing in orders, even possible cancellations, if the credit issues do not sort themselves out quickly.
"The big unknown is, will people be able to get their financing and how will that manifest itself?" said Mr. Pelton. "Will it be where we can work with customers and have enough lead time to react to that? Or will it come time for delivery and they just don't show up and say 'Sorry, what I thought I had in the way of financing went away.' That can be very serious."
Across town, where manufacturing companies had been working up a head of steam in recent years, events have been moving far too quickly for Leon Trammell as well.
"It's in the territory I can't get my arms around," says the chief executive of Tramco, a conveyor-belt manufacturer, which sells its products in 53 countries. Mr. Trammell, 75, was dumbfounded by the government's move to wade heavily into the U. S. banking system. Like many in this conservative city, he lives, breathes and dreams the American free-enterprise system. "I don't know anything the government has been involved in that they haven't screwed up."
While the U. S. housing bust has been hogging all the attention, the U. S. export sector here and in other cities around the United States has been quietly flexing its muscles, aided by a near-40% decline in the U. S. dollar on a trade-weighted basis since 2001. In August, exports hit the second-highest mark on record at US$164.7-billion, more than a 100% increase since early 2001.
Ever so slowly, the United States' giant trade deficit has begun to decline, dropping to US$59-billion in August, almost 12% better than the low hit in October, 2005.
Wichita, with its huge aerospace industry, and Kansas have gone along for the ride, with state exports hitting a new record of US$10.3-billion in 2007 for the third year in a row.
The biggest problem faced by Mayor Carl Brewer was finding the staff to fill the thousands of new positions at companies such as Hawker Beechcraft Corp., Bombardier Inc.'s Learjet and Spirit AeroSystems (part-owned by Canada's Onex), which ring the city's airport.
Some 6,800 jobs have been created this year, driving the city's unemployment rate down to between 3% and 4%.
Stephanie Kaiser, a waitress at the Whiskey Creek Wood Fire Grill in Wichita's Old Town, where the steak knives are as big as axes and the wines have names like Wild Horse Cabernet Sauvignon, is one of the beneficiaries of the jobs boom.
The tips she has earned from the aerospace workers who have filled the steak house nightly have been helping put her through university.
Next year, Mayor Brewer says he needs to find about 10,000 new workers for products set to come on stream and 1,000 every year after that until 2015.
"Currently, we can't find enough engineers," he said in an interview at Wichita City Hall.
For Cessna, owned by Textron Inc., markets such as Europe, Russia and Brazil have been driving demand. Some 68% of its orders have come from outside the United States in recent years.
Its order backlog stands at a record US$15.6-billion, after 770 orders last year and 387 business-jet deliveries, including the Citation X, the world's fastest non-military jet on the market. It nudges the sound barrier at Mach .92.
But with once-booming emerging markets being sideswiped by the U. S. credit crisis and the plunge in commodity prices -- not to mention a 15% recent rebound in the greenback -- the outlook is far from rosy for U. S. exporters.
Mr. Trammell has already begun to feel the slowdown. His banner year for exports was 2003, when 66% of his manufacturing capacity was shipped outside the United States, a big chunk to China. Sales then doubled from 2006 to 2007 as the agricultural boom boosted domestic sales for his conveyor belts.
But business began to fade through the end of the summer and Mr. Trammell had to cut back staff hours. "Business is 40 hours, which is something we've never done before," he said. "It's always been 45-plus in the factory."
Still, Cessna is ploughing ahead with its plans. The company is set to start construction on a new 600,000-square-foot production facility at the end of the month and is on track to raise business-jet deliveries to 470 this year and 535 in 2009.
The long cycle of aircraft development can be both a beast and a boon for the aerospace industry. Orders can dry up mighty fast but a company that continues to invest will be prepared when the business cycle picks up.
Mr. Pelton says there is one major emerging market where the private jet has yet to make inroads and holds enticing possibilities for the future --China.
So far, Cessna sales to China have been to government agencies and training facilities as the country's airways are still not open to the public.
"Once that starts occurring there certainly is enough individual wealth out there to create demand," Mr. Pelton said.
Like many in San Diego, though, faith in the U. S. government is fading fast in Wichita.
"I have real concerns and [they are] not with either one of the [presidential candidates]," said Mr. Pelton. "The real issue of how government works is [my concern]. Can the parties come together with some agendas they both agree on and work to the common good to get those agendas to move forward? That's what we are not doing today as a nation. It's so bipartisan that nothing is happening in Washington, D. C. Hopefully, whoever is elected will provide the leadership to cause both sides to come together."
Financial Post Published: Saturday, October 18, 2008 www.financialpost.com
US EXPORT COUNCIL PROVIDES ASSISTANCE TO US COMPANIES SEEKING ACCESS TO HIGH GROWTH MARKETS OVERSEAS. http://usexportcouncil.com/
