Saturday, December 17, 2016

Nicklaus: Boeing move hurts St. Louis' pride but should strengthen defense division

By David Nicklaus St. Louis Post-Dispatch 

Last year, Boeing built a big new building in Arlington, Va., directly across Interstate 395 from the Pentagon.

The symbolism was obvious: The generals and civilian paper-pushers inside the Defense Department wouldn’t be able to ignore one of their biggest contractors.

On Tuesday, Boeing added substance to that symbolism by moving the headquarters of its defense and space division, along with about a dozen top executives, from St. Louis to Arlington.

As if to confirm President Dwight Eisenhower’s warning about the emergence of a military-industrial complex, the defense industry’s top brass has become increasingly concentrated in the Washington area. Lockheed Martin is in Bethesda, Md., Northrop Grumman and General Dynamics are in Falls Church, Va., and the U.S. arm of BAE Systems, Britain’s biggest military supplier, is a neighbor of Boeing in Arlington.

It wasn’t always this way. General Dynamics pulled out of Clayton in 1991. Lockheed was based in Calabasas, Calif., until it merged with Martin Marietta in 1995. Northrop Grumman was in Los Angeles until 2011.

One by one, they gave the same reason for moving: We want to be near the customer.

It’s smart business. “Instead of having to get on a plane, Leanne Caret [who heads Boeing’s defense division] can now have an impromptu meeting in 15 minutes,” said Loren Thompson, chief operating officer at the Lexington Institute in Arlington. “There’s no way to have a quick face-to-face meeting if you’re sitting in Missouri.”

In hyperpolitical Washington, the agenda can change quickly. Take, for example, President-elect Donald Trump’s recent tweets about Boeing’s Air Force One contract and Lockheed’s F-35 fighter.

Trump called both programs “out of control” and threatened to cancel the Air Force One order. You can bet that Boeing and Lockheed quickly offered to have senior executives meet with Trump’s transition team to smooth the waters.

Boeing says its headquarters relocation had nothing to do with the presidential election, but Richard Aboulafia, an analyst at Teal Group in Fairfax, Va., says Caret picked a good time to move to Washington.

“There’s never been a time when things have been in such a state of flux and uncertainty,” Aboulafia said. “But there does seem to be an expectation that Trump will throw some more cash at the defense budget.”

Even in calmer times, Thompson argues, firms with D.C.-area headquarters have an advantage.

“If you live in Washington it’s not uncommon to run into your customers and your competitors just going into Starbucks,” he said. “You can be on Capitol Hill in less than 10 minutes, and the person you meet with can make the difference between life and death for a program. This move means Boeing can compete on an equal basis.”

That should be good for Boeing’s 14,000 workers in St. Louis.

“We want Boeing to be successful, and this is what they have to do to be successful,” said Joe Reagan, chief executive of the St. Louis Regional Chamber.

There are dangers to having the military-industrial complex concentrated in Washington. One is the centralization of power that worried Eisenhower. Another is groupthink, the tendency of people to disdain outside ideas when they move in tight social circles.

Despite those concerns, the industry has been cozying up to its customer for decades. Thompson said he wouldn’t be surprised if Boeing’s corporate headquarters, which is in Chicago, eventually moved to Arlington too.

Like it or not, politics affects every aspect of the company’s business. You can’t blame it for being drawn to the political epicenter.

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