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From Site Selection magazine, May 2015

The Multiplier Effect

The Phoenix East Valley awaits the implications of landing Apple’s $2-billion command center; Boeing uses cost competitiveness to thread the sequestration needle.

Photo courtesy of Boeing

s the third time a charm? It sure looks that way for the 1.3 million-sq.-ft. (121,000-sq.-m.) facility now occupied by Apple Computer in the Phoenix East Valley — the communities east of Phoenix to the Superstition Mountains — in Mesa, specifically, near the Phoenix-Mesa Gateway Airport. The building was constructed as a First Solar manufacturing facility until manufacturing there was no longer feasible. Next it was a scratch-resistant sapphire plant for Apple partner GT Advanced Technologies until that venture collapsed in late 2014. Long story short, Apple’s there now with big plans for the giant facility — the first to be located in Mesa’s Elliot Road Technology Corridor, a zone complete with foreign trade zone status for which Mesa has high hopes. The area is packed with new infrastructure, available and affordable land as far as the eye can see and proximity to the Greater Phoenix area’s growing pool of high-tech talent, not to mention two commercial airports and new highways.

“What I like about this deal is that they are here with both feet. It’s the second worldwide Apple headquarters in the world, and they’re here to stay.”
— Mesa Mayor John Giles

Mesa’s new mayor, John Giles, is looking forward to the multiplier effect of Apple’s new digs in Mesa and in the East Valley.

“When they came to tell us what their plans were, what they led with was that there is one worldwide headquarters for the Apple Corporation, and their proposal was for there now to be a second — a second worldwide command center for Apple,” the mayor told Site Selection in an interview in his office on April 16th. “This was not our spin, but the way they were describing the project. They said it would be a $2-billion investment over the next five years, there would be 150 badged Apple employees — highly compensated people — and from 300 to 500 contract employees there making it work. These were the department heads from Apple. They said, ‘These are the minimums we’re telling you we will do, but that’s not the way we normally operate. In Austin, we started with 150 jobs, and there are now 6,000.’ ”

‘They Are Going To Expand’

Mayor Giles is more than confident that it’s only a matter of time before Apple expands. “What I like about this deal is that they are here with both feet. It’s the second worldwide Apple headquarters in the world, and they’re here to stay. They are going to expand. Right around this huge, 1.3-million-square-foot building is nothing but opportunity to expand. The Elliot Road Technology Corridor that we created has more infrastructure than you can imagine — you could fire up 10 aircraft carriers from the capacity that’s right in that neighborhood. It’s ripe for development. I believe Apple will have a long and even larger footprint than they have right now.

“There is synergy involved when companies like Apple follow each other around,” notes Giles before correcting himself: “I don’t think Apple follows anybody, but others follow Apple. The phone is ringing. Every time there is an Apple story in the paper about Mesa, the phone rings. That absolutely is happening. Very soon, we hope to be making an announcement about another well-known, national high-tech manufacturer [locating] not far from Apple. Mesa will be referenced fairly frequently in business publications over the next few months,” he predicts.

Mesa’s HEAT initiative, focusing on the healthcare, education, aerospace and technology sectors, is bearing fruit. Several universities occupy renovated space in downtown Mesa, and Banner Health alone now operates three hospitals in the town. Boeing, Able Engineering and MD Helicopters make for a strong aerospace sector, and Apple will likely be the tech magnet, Giles predicts. “These are areas we want to double down on and do more of. We’d like to see the Elliot Road Technology Corridor branded as a Silicon Valley destination for high-tech folks attracted by the infrastructure — the fiber and electricity and proximity to like-minded, worldwide corporations. We’d like to have a who’s who of the tech industry right along that corridor.”

Who’s Who in Helicopters

Not far from that corridor is Boeing’s sixth largest site for employment — its 2-million-sq.-ft. (185,800-sq.-m.) helicopter assembly facility, where more than 4,000 Arizonans work. They build, test and support Apache AH-64 and AH-6 attack and reconnaissance helicopters for the US Army and a dozen foreign militaries. But several other functions are under way at the facility supporting the aerospace giant’s defense and commercial aircraft businesses. It’s a Boeing Strategic Manufacturing Center for electrical products, a Composite Strategic Fabrication Center and the primary global services and support center for Boeing’s rotorcraft, to name three. These business units cushion the effect of defense budget cuts in the age of sequestration, particularly as the Apache line is not currently procured by the US Dept. of Defense with a multiyear contract.

Boeing explains in a statement to Site Selection: “The Apache Program has previously worked two different multi-year contracts – producing AH-64D Apache Longbow helicopters for the United States Army (1st MY signed in 1996 for 232 aircraft; 2nd MY signed in 2000). The MY contract agreements resulted in substantial savings for the US government. In today’s uncertain fiscal environment, it’s essential to have stable funding (achieved through a MY) and production rate so that the supply base can confirm longer range order quantities and better pricing. A MY agreement for AH-64E Apache production will positively impact domestic (US Army) and international customers as well as serve to enhance competitive affordability across the product lines at work in the Boeing facility in Mesa, Arizona.”

“In this business environment with a downturn in the defense market, this commercial work helps the Mesa site be cost-competitive,” says Toni Beutel, director, attack helicopters finance at Boeing. “Our customer every day is fighting for their dollars in Congress. We continue to support the customer, part of which is to remain competitive. Our customer is looking for best value — the most technically compliant, but best value. Their focus has shifted from the most technically advanced to best value for the dollar. We’re working really hard with the customer and their independent cost analysis group to make sure that as we move through the cycle of proposing our multiyear contract we are ensuring that we meet the recommended or suggested savings for that.” Supplier-generated cost savings will play an important role in securing the longer-term contract, Beutel points out. “It’s still early in the process.”

Reauthorization — or not — of the Export-Import Bank is another matter weighing on the minds of Boeing managers and those at its more than 400 suppliers and vendors in Arizona.

How Strong Communities Happen

Meanwhile, Boeing is not letting up on its investment in its employees and future workforce. In 2014, it paid $4.9 million in tuition reimbursement via the Boeing Learning Together Program to 1,005 workers attending colleges and universities. The company also contributed $285,000 to Arizona university programs and scholarships.

Boeing also supports STEM education initiatives and other programs on the public school level, “making sure we’re in strong communities,” says Mary Baldwin, Boeing’s community investor for Arizona. “Each year in Arizona, between our employees and our company contribution, we contribute $2.3 million into the community and more than 9,000 employee volunteer hours.”

In addition to supporting early learning programs, Boeing invests in teacher development in math and science, health and human services programs, arts education and environmental stewardship programs. In conjunction with the Mesa Public Schools, Boeing has operated Flight Centers for students and teachers since 1998 that cater to different levels of flight education. “To date, this program has impacted 600 teachers and more than 64,000 students,” says Baldwin. “In our space integration module, our students learn about space missions, teamwork and the science of space. We have impacted 400 teachers in training with that program and 12,000 students.” One student who participated in the Flight Centers program later interned at Boeing and worked at NASA — she just recently passed the test required for piloting the International Space Station.

Saguaro Lake is part of the Salt River watershed, a water reclamation project managed by SRP that ensures an abundant supply of water for current and future development in the Phoenix metro.
Photo by Mark Arend

Engineering Is Elementary is Boeing’s newest education outreach program, says Baldwin. “We’ve implemented that into the curriculum of the Mesa school district to show teachers and students more about engineering so they understand those concepts. About 530 teachers have been trained in that program, which has impacted more than 16,875 students in 66 schools.”

Boeing is not the only helicopter builder in the Phoenix East Valley — the combined communities east of the city of Phoenix stretching to the Superstition Mountains. MD Helicopters, Inc., a leading manufacturer, marketer and distributor of high-performance commercial, military, law enforcement and air-rescue helicopters, is also based in Mesa.

The MD Helicopters family includes the twin-engine MD 902 Explorer, and a single engine fleet that is comprised of the MD 600N, MD 520N, MD 500E, MD 530F, MD 530G and MD 540A. The company originally was Hughes Helicopters prior to being sold to McDonnell Douglas, which merged with Boeing in 1997.

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