Port San Antonio layoffs part of transition
San Antonio Express-News
The Defense Department's tightened purse strings and cutthroat competition for commercial airline work has made for turbulent times for aerospace at Port San Antonio. The Oct. 14 layoff of 11 port staffers — the first in the former Kelly Air Force Base's history — came amid tensions that have been brewing for months.
This for a 1,900-acre property that had been considered a model for redeveloping a shuttered military base.
In July, Mayor Julián Castro sent a letter pledging cooperation to the local leadership of the port's largest commercial tenant: Chicago-based Boeing Co. He set up a task force that has been meeting behind closed doors to work out a “shared strategy regarding current challenges and future expansion opportunities for the aerospace industry at Port San Antonio.”
The letter in itself was an unusual step, considering the port was set up to run autonomously, County Commissioner Kevin Wolff said.
“They're not feeling the love,” Wolff said of Boeing. A local official who spoke on condition of anonymity said grievances of port tenants centered on port charges during times of corporate belt-tightening and dwindling government work. Common area maintenance fees were a particular sore point.
“What I keep hearing... is that their fees keep increasing,” the official said. “It keeps going up, and they're not getting (improvements) in their buildings. They're seeing that their fund is used to tear down old structures and make improvements to court other clients.”
During a Sept. 19 aerospace vendor fair here, Boeing site leader Kevin Devine spoke candidly about changes in the industry, which is increasingly relying on commercial work as military spending declines.
Engine maintenance, repair and overhaul work, or MRO, the port's specialty, is a $17 billion business globally. But commercial profit margins are comparatively thin, competition is stiff and the contracts lack the long-term stability of military work.
“Every facet of our costs we have to reduce,” Devine said.
The good news was that labor costs in developing countries are climbing, eroding a key advantage to sending work outside the United States.
At the time of the trade show, Boeing had announced a $35 million expansion of its manufacturing site in Helena, Mont.
“We just had a press conference in Montana this week where jobs were coming back into the United States, and I think we have the opportunity to do the same thing (in San Antonio),” Devine said.
But the next day, Boeing issued pink slips to 50 of its Port San Antonio employees, citing a lapse in 787 Dreamliner work.
Wait and see
Lockheed Martin, another prized port tenant, is waiting the results of a renewal bid of its MRO contract for the T-56 engine, which powers the Air Force's C-130 Hercules fleet.
Its current contract ends in February. The Greater San Antonio Chamber of Commerce estimates the agreement accounts for more than 1,000 high-paying jobs and an annual economic impact of $250 million.
The award would be a two-year contract, with five one-year renewal options and a six-month transition period should the work be transferred to Tinker Air Force Base in Oklahoma City.
“If you read between the lines, that would say they're setting up to in-source,” said Will Garrett, the chamber's vice president of economic development.
In other words, the Defense Department is moving toward doing its own aircraft maintenance rather than contracting the work out.
Private-sector contractors are competing with the military for what had been a lucrative workload, and they've charged their congressional representatives with talking up their work quality and job-creation advantages.
U.S. Rep Henry Cuellar, D- Laredo, said Lockheed Martin is expected to get the two-year contract, with the fight now being to keep it going after that. “Our position is that Lockheed is producing an engine that's highly effective at good cost to the DOD, and the engine supports jobs in San Antonio,” Cuellar said.
The port traces its origins to the 1997 creation of the Greater Kelly Development Corp., which allowed the organization to take legal ownership of the property from the Air Force.
While the Base Realignment and Closure Commission voted to close Kelly in 1995, the base didn't entirely close until 2001. The port was rebranded Port San Antonio in 2006.
Its 11-member board of directors is made up of business leaders appointed by the City Council and mayor.
It's a public entity, but a stand-alone political subdivision under state law. It's not owned by the city. As such, it's run as a business, with its management responsible for running and developing the property with revenue from rents and services.
Losing military work to the military itself is a constant threat, said Bruce Miller, the port's president and CEO.
“There's continuous effort to move the work out of here and move it to a place like Tinker (AFB),” Miller said. While the Air Force has been a customer for port tenants, he said, the Air Force now is sometimes the competitor — as evidenced by the current bid for the MRO work for the T-56.
“We will jointly market the company, but there's not a lot we can do to, say, help Boeing and Lockheed to bring in work,” he said. “We can help fight to keep the government work here with the congressional delegation, and we do that.”
Miller wouldn't discuss conversations with present tenants or of conversations with potential clients.
But he said the port was at about the midpoint of its development into a hub for truck and rail shipping, manufacturing, aerospace, military office space and job training.
The Eagle Ford Shale boom has helped nearly double the port's rail business.
There's been a lot of work recasting the port's 13 million square feet of facilities, much of which was unfit for commercial occupancy. So far, about 3 million square feet of that unusable building space has been torn down.
New construction is ongoing, and the 7.9 million square feet of leasable space is at about 97 percent occupancy.
The recently dedicated 36th Street extension, meanwhile, opens some 400 acres of space adjacent to Kelly Air Field. The target use for that space is aerospace MRO.
All about jobs
The reason aerospace is so crucial is the jobs, which pay well above the city average.
But sequestration — the automatic federal budget cuts that took effect March 1 — and the drawdown of military forces in Iraq and Afghanistan mean that much of the future work will have to be commercial.
And commercial work is largely about keeping costs down.
City Councilman Rey Saldaña said the mayor's task force was formed at a time when Boeing “wanted to talk about discussions they were having with Port San Antonio and how Port San Antonio could be aided by the city.”
“They wanted to get a sounding board as to whether there was support from the city to invest in its own asset,” Saldaña said.
“We said, 'Look, Boeing, let us understand you as a company more broadly.'”
David Marquez, executive director of Bexar County's Economic Development Department, said the port, city, county and community colleges that train workers all have a stake in adapting to commercial industry demands.
“In that kind of environment, parties don't always agree 100 percent. And I think that's kind of where we are,” Marquez said. “For the company, they need it yesterday. I think that's where some of this perceived frustration comes from.”
Jim Perschbach, former chairman of the Greater San Antonio Chamber of Commerce's aerospace committee and member of the mayor's task force, said San Antonio's approach to its aerospace industry has fallen behind.
While the port's autonomy limits what the city can do, Perschbach said San Antonio can do more to make the overall community more attractive to the industry.
One industry need has been workers with FAA certification to work on planes — something that wasn't required for military work.
Guaranteeing there are plenty of well-trained, FAA-certified aerospace workers would be huge, he said.
“To date, we really haven't had a big win,” he said. “We've been challenged a bit in terms of getting to that price point, and one of the reasons we've been challenged is we haven't — and I'm speaking very candidly — addressed this as strategically as some communities have.”
Alabama, for example, is “approaching this not as one little authority going out and competing for the work but the entire community, the entire state,” Perschbach said.
Alabama, Mississippi, Louisiana and Florida are members of a four-state alliance that's been very aggressive in courting the work.
“It's not fair to say to the Port San Antonio, 'You guys need to go compete with a four-state alliance,'” Perschbach said. “You can't. That's just not going into a fair fight.”