Lockheed layoffs come while it's in line for Kentucky tax incentives

State OK'd tax breaks on plan to create more bluegrass jobs

jpatton1@herald-leader.comSeptember 4, 2011 

Lockheed Martin workers at Bluegrass Station in Lexington work on helicopters such as this MH-60M Blackhawk for the 160th Special Operations Aviation Regiment at Fort Campbell. Army helicopter pilots from the unit took part in the successful Osama bid Laden raid earlier this year.

In May, after the world learned that U.S. military Special Forces had found and killed Osama bin Laden in Pakistan, workers at Bluegrass Station in Lexington celebrated.

"Many folks contributed to the success of this strategic mission in addition to those who carried it out," Howard Yellen, a Lockheed Martin vice president, wrote in a monthly newsletter. "Some included our colleagues in SOF CLSS!"

Yellen would know: His job since October has been to head SOF CLSS, or Special Operations Forces Contractor Logistics Support Services, at the Lexington facility, where Lockheed is doing work that is part of a 10-year, $5 billion contract awarded last year to modify a variety of equipment for Special Forces.

The contract, along with Lockheed's promise to invest $26 million in Bluegrass Station, convinced Kentucky economic development officials to approve $15 million in potential tax credits and $415,000 in other incentives on the promise of 224 more jobs at the facility.

But now, three months later, hundreds of workers at Bluegrass Station have learned they might be let go at the end of September.

Lockheed Martin says it has decided to in-source work that was being done by DS2, a subcontractor that it co-owned but now has divested itself of, according to Lockheed spokesman Ken Ross. Bringing the jobs in-house will save money for Lockheed customers, the company says.

As of Monday, Lockheed Martin said 499 workers have been affected by the change but as many as 422 might be hired back. At least 77 will be laid off, but that number could rise because workers will be competing against outsiders for the jobs.

Lockheed has not disclosed exactly how many employees were not rehired; it says hiring is ongoing.

At the plant in eastern Fayette County, members of the "Lockheed Martin Team" work behind the scenes on hel icopters for the 160th Special Operations Aviation Regiment at Fort Campbell, which ferried in Navy SEAL Team Six for the assault on bin Laden's compound and took his body out. They felt a special pride at the successful raid in May.

But even as workers were celebrating, they also apparently were worried about their jobs.

In the same May newsletter in which he talked about the bin Laden raid, Yellen, the Lockheed vice president, tried to reassure them. "There is NO large-scale reduction in force planned or envisioned that would put hundreds of our teammates out of work," he said.

Ross, the company spokesman, said last week that Yellen's comment was meant to address widespread rumors at the time that 300 to 500 people would be laid off.

"At that time, there was no plan," Ross said.

To workers like Shelby Thompson, in-sourcing seems a lot like being shown the door. Thompson, 60, has been an aircraft mechanic at Bluegrass Station for 17 years and has worked there for more than 25 years. First for E-Systems, then its subsidiary Serv-Air, then Raytheon, then L3, and finally Lockheed Martin's DS2. Sometimes the company would change hands, sometimes the contract would.

"Different employers, same address," Thompson said. "It's a brutal business. Change is always going on."

Each time, experienced and skilled workers like Thompson would get a new name tag and keep on working.

But this time has been different, at least for him.

Thompson applied for one of the Lockheed jobs working on helicopters but was offered a lower-paying position instead. He turned it down. He and his wife, Jackie, plan to continue living in Richmond, but he isn't sure what they'll do next.

"I'll have to get unemployment. The wife is signing up for her Medicare, and I'll have to get COBRA or some supplemental insurance," he said. "That's going to wipe out a whole lot of my unemployment, and now I'll be looking for another job."

Last week, Thompson sent a personal plea to Gov. Steve Beshear.

"What's a 60-year-old man with a disabled wife supposed to do for insurance now?" he asked the governor.

"Maybe the tax incentive needs to be revisited. I am pretty sure our customer, 'The War Fighter,' has not been happy with the high costs that Lockheed charges. There hasn't been any new work since early 2010," Thompson wrote. "I just want to convey that they are letting a lot of the older employees go. Is there anything you can do to help get our jobs back?"

Beshear spokeswoman Kerri Richardson released this statement: "In this fragile economy, it is always disappointing to hear of a person losing a job. Families are continuing to struggle, and that's why Governor Beshear has made job creation his top priority. These incentive programs are designed to attract new investment as well as encourage existing businesses to re-invest in their facilities to create or retain jobs. Governor Beshear will continue to aggressively pursue economic development opportunities for every corner of the state."

Lexington Mayor Jim Gray's office was likewise sympathetic. "This is another example of the tough times we're in," said Susan Straub, Gray's spokeswoman. "Both government and private business are continuing to make unfortunate but necessary reductions."

At Bluegrass Station, rumors continued to fly that other subcontractors, including AGM, also were being told to trim back. Ross, the Lockheed spokesman, said that AGM's contract has been renewed and that "we haven't directed them to do any reduction and we're not aware of any reduction."

Meanwhile, the federal government is investigating DS2 at Bluegrass Station related to wages and hours, confirmed Mike D'Aquino of the U.S. Department of Labor. He could not give any specifics but said the investigation would continue even after the changeover.

All of this raises questions about Lockheed Martin's ability to generate the kind of economic development touted at a news conference with Beshear and Gray in March, when Lockheed announced it would add 224 jobs to Bluegrass Station during the next few years.

At the time, Beshear called the deal a "tremendous vote of confidence in Kentucky's work force."

"It will mean 224 new jobs for 224 Kentucky families who will be able to go to bed at night much more secure," he said.

But Ross indicated that isn't going to happen any time soon.

"We have a number of years to achieve those goals and incentives," he said. "It's not going to happen all at once."

In March, Lockheed executives said tax credits of up to $1.5 million a year for 10 years helped sway them to bring those jobs to Kentucky.

But to qualify for the credits, Lockheed has to maintain base employment of 1,705 full-time Kentucky residents.

With the layoffs related to in-sourcing, it's uncertain whether Lockheed will be above that threshold.

"After this transition ... we're going to be in that ballpark. Maybe a little above, maybe a little below," Ross said. "Our intent is to continue to grow the business."

To get the incentives, it will have to.

Mandy Lambert, spokeswoman for the Kentucky Cabinet for Economic Development, said Lockheed Martin has until February to go for final approval of the incentives, and then two years to activate its project.

"It is at the point of activation that a company begins to be eligible to receive an incentive benefit. Therefore, Lockheed Martin is not currently receiving an incentive benefit," Lambert said.

Once Lockheed's benefits kick in, the company will be monitored annually to see whether it is meeting job targets.

"These job targets must be above the baseline employees that existed at the time of approval," Lambert said. "Therefore, to receive the full benefit they must have created at least 90 percent of the 224 new jobs outlined in their job targets each year of the agreement, above the 1,705 employment base. Additionally, Lockheed Martin must maintain 90 percent of its full-time Kentucky resident jobs employed at other Kentucky facilities as of the preliminary approval date. ...

"The incentive program is performance-based, so if the company does not create the jobs or make the investment it committed to, it will not receive the full incentive benefit."

So why is Lockheed Martin laying off if it needs to hire?

The jobs promised in the economic incentives package are tied to a different contract than the one laying off workers, Ross said.

"The value that Lockheed Martin brings to the region is that we are operating and we are employing folks," Ross said. "There are lots of factors such as the federal budget that dictate how much money we can bring in there."

Reach Janet Patton at (859) 231-3264 or 1-800-950-6397, Ext. 3264.

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