Bustling Defense

0614JCI

Manufacturing resources realign for area defense contractors as military build up slows

Story by Jeffrey Decker

Wars end. So do the jobs that defied a recession by building machines of war. Peace has a price, too. Businesses and families don’t necessarily want to pay it.

Short and long-term help for workers and companies aims to diversify local industry while finding new work for the 760 employees Oshkosh Corp. plans to lay off in June and July. Attrition and retirement will lower that number, but cutbacks along the supply chain lead to more layoffs.

“Suppliers and others have realized that it’s coming to an end,” said John Daggett, spokesman for Oshkosh Corp., recalling how almost 1,000 jobs were added in 2008 to meet a U.S. military order for Mine-Resistant All-Terrain Vehicles.

Oshkosh Defense’s 2011 revenues reached $4.3 billion.

“In 2012 it went down to $3.9 billion and last year, in 2013 it went down to $3 billion,” explained Daggett. “Our sales to the government for fiscal 2014 will be somewhere between $1.725 billion and $1.75 billion.”

The story isn’t as dire for Marinette Marine Corp., which is building littoral combat ships, those which operate in shallow water, for the U.S Navy. The company has built two ships and four more are under construction, which has the company hiring at its busy shipyard.

“We currently employ 1,400 employees, and are in the process of hiring an additional 200,” said Bethany Skorik, a company spokeswoman.

She said normal attrition means between 100 and 150 new employees will be hired each year.

“With a mix of employees, contractors, visitors and suppliers, we estimate that roughly 2,000 individuals enter our gates daily,” she added.

Marinette Marine in 2012 had 1,146 employees but is projected to increase its workforce 36 percent to 1,560 by 2020, said Ann Hartnell, executive director for the Marinette County Association for Business & Industry Inc.

“The average wage is $65,224 at MMC,” she said. “The impact of the Marinette Marine portion of the LCS program on the local economy is projected to be $4.3 billion.”

Hartnell said the total for goods and services purchased by Fincantieri Marine Group shipyards from businesses based in Wisconsin increased from approximately $45 million in 2008 to $60 million in 2012.

Fincantieri also owns Bay Shipbuilding Co. in Sturgeon Bay, where construction has begun on an order for three oil and chemical barges announced in April. That Moran Towing Co. order is steady work for two years and has applications leading to jobs today.

Oshkosh Corp. continues building medium and heavy trucks and trailers in 22 varieties after the 750th M-ATV was delivered five months ago, ending that model’s production until a new order is placed by Congress or a U.S. ally. Of the 760 planned layoffs, 60 may be office staff.

Daggett said the company’s defense business will retain around 1,850 employees in Oshkosh following the layoffs, and more than 12,000 worldwide.

“Last year we saw $7.6 billion in sales for the company as a whole,” he said. “People forget how big we are.”

But suppliers don’t.

“We have several hundred defense contractors in the Fox Valley region and around 400 in the state of Wisconsin,” Daggett said. Bulletproof glass and steel armor isn’t made in Wisconsin, and it’s hard for him to foresee which suppliers will be hit hardest because a single order sends tires and sparkplugs to all four divisions  to snow plows and concrete mixers as well as personnel carriers.

“At its height we buy $1 billion worth of goods and services from Wisconsin suppliers annually,” he said.

How much less this year isn’t known and isn’t likely to be shared.

Far-reaching community impact

Suppliers weren’t eager to talk about what seems to be bad news at Oshkosh Corp.

In fact, all of the requests for interviews to Oshkosh Corp. vendors for this article were respectfully denied.

Small and mid-size manufacturers who share too much information about their customers put themselves at risk.

“I think that’ll be one of our challenges as well, because a lot of this information is proprietary,” said Katherine Ahlquist, economic development planner with the East Central Wisconsin Regional Planning Commission.

The Defense Industry Supply Chain Mapping & Web Portal is one of six projects under the Oshkosh Region Defense Industry Diversification Initiative made possible by an $837,000 U.S. Defense Department Grant the regional planning commission was granted.

New North Inc. is leading creation of the portal which, Ahlquist said, will map out the defense contractors within the region with “very general information about the company, like their basic certifications, that the Wisconsin Manufacturing Extension Partnership can use to figure out who’s in a supply chain, who’s most impacted, and what kind of skills they already have.”

The portal will be a resource for economic development professionals and employers who need to know the current landscape as they plan for the future. As many as 20 people will join the supply chain advisory committee before its kick off meeting in June.

“August 2015 is when we’re expecting all this work to be done,” Ahlquist said. “It’s really more of a long-term tool and we don’t expect that it will assist the companies in need right away.”

Immediate help from that grant comes through the Defense Industry Supply Chain Direct Assistance program. At least 10 suppliers will receive diagnostic and change readiness assessments as part of a larger package to expand capabilities and find new opportunities.

More help comes from the Wisconsin Economic Development Corp., which Alan Davis, City of Oshkosh community cevelopment cirector, credits with taking the lead under a program that lends up to $250,000 to companies for projects or expenditures that may not be eligible for traditional financing.

WEDC originally had a July 1 launch date, but on April 23 its board of directors announced an earlier start as a pilot program framed around Oshkosh Defense suppliers.

“It’s imperative for Wisconsin companies that have relied primarily on defense contracts to diversify,” said Reed Hall, secretary and CEO of WEDC. Loan amounts range from $50,000 to $250,000, with a 6 percent interest rate. Loans require a 50 percent match by the recipient and optional loan guarantees require a 20 percent match.

Help for workers

Affected Oshkosh Corp. workers seeking a job will fill the Oshkosh Corp. Resource Fair June 11. Fox Valley Technical College will be one of many community partners offering resources and options.

Denise Martinez , director of student affairs at FVTC, said the college will take notes on what workers want before deciding what special classes or programs to offer.

“We try to meet the workers where their needs are,” she said. “We’re pretty nimble. Our response is generally based on need. Are they thinking about retraining or looking for new employment?”

Steve Straub, dean of manufacturing and agriculture technologies at FVTC, points to its Automated Manufacturing Systems program, which “offers a 12-credit certificate targeted toward people who have been working in industry as an engineer and want training on the latest technology.”

Last year, Oshkosh Corp. held a job fair at the Oshkosh Convention Center. Daggett said that job fair had as many as 16 businesses with 550 available jobs.

In October 2012 and in April 2013, Oshkosh Corp. announced layoffs of more than 1,200 defense employees.

Daggett said by July attrition, retirements and transfers led the planned 900 layoffs to total only 540. He added that recall rights under the current union contract gives laid off employees a significant advantage over new applicants for any jobs that re-open within three years.

Rob Kleman, senior vice president of economic development at the Oshkosh Chamber of Commerce, said impacts are far-reaching and compounding. Disposable incomes and discretionary dollars will circulate less.

“We were probably a little spoiled having Oshkosh Corp. here through the recession,” he said. “Thankfully we have a diverse economy in the Fox Valley and the New North region.”

A recently completed targeted industry analysis for the Oshkosh region recommended economic development efforts focus on information technology, advanced manufacturing, aviation and second-stage growth companies.

Moving forward

Aviation infrastructure is front and center under a $2 million grant awarded in September by the U.S. Economic Development Administration.

The 34,212 people working in the city of Oshkosh as of March 31 are 449 more than a year earlier. The current 6.8 percent unemployment rate was 7.7 percent then.

Now it’s going to increase at least a little, and Kleman is taking calls from colleagues in Fond du Lac, Door County and the Lake Michigan lakeshore. Industries there are hiring. Ariens in Brillion just had a job fair to help find 200 workers who can build lawn mowers, he added.

The good times were great, remembers Daggett, but business has always been cyclical over the 97 years the company has been making trucks.

“In the depths of the 2008-2009 recession when everyone was laying off, our Defense Division was actually very robust. We were hiring new employees where other big name companies like Mercury Marine were laying off folks,” he said.

It’s hard to expect an M-ATV order equal to that in 2008, but smaller orders are always being sought internationally and could be signed any day.

Hiring would get an immediate jump if Oshkosh Defense wins the contract to build Joint Light Tactical Vehicles.

“We are one of three finalists who are battling for the only major contract on the horizon,” Daggett said. “It’s ourselves, along with Lockheed Martin and AM General.” AM General is the original manufacturer of Humvees. The manufacturer that wins the JLTV contract could begin production in 2016 and reach full production in 2018.

John Petek, president of Marvel Manufacturing Co. Inc. in Oshkosh, is monitoring that deal. His firm rarely does business with Oshkosh Corp. and it doesn’t compete with the defense contractor, except when it comes to hiring workers.

“I never have to make a decision about health insurance,” he said. “I have 90 employees. Oshkosh Corp. has about 2,000. I have to compete with them. Whatever they offer, I have to offer to get the good employees.”

Petek said his firm benefits from the layoffs because many skilled workers are suddenly for hire.

“You kind of do (get the pick of the litter), but a lot of times it’s temporary because they go back at the nearest opportunity,” he said. “The economy is so strong. Most of these people should probably get absorbed in – if they’re quality people.”

Jeffrey Decker is a business journalist and father based in Oshkosh.