Firm can void jobs vow if land deal fails but says it will honor pact

12:00 AM CDT on Monday, May 15, 2006

By DAVE MICHAELS and BRENDAN M. CASE / The Dallas Morning News

In 2004, Vought Aircraft Industries Inc. accepted a $35 million grant from the state government's Texas Enterprise Fund in exchange for a promise to double its local employment by creating 3,000 new jobs.

But a key clause in the contract may get the aviation components company off the hook from having to pay the money back, even if it fails to meet that jobs goal.

The contract allows Vought to reduce its obligations, or request more public money, if it does not gain long-term occupancy of its leased headquarters in Dallas.

Now, two years later, Vought has yet to complete the land deal, and state officials say the talks have stalled.

Vought spokeswoman Lynne Warne said the company remains committed to its obligations to Texas, pointing out that the contract gives the company until 2009 to create the promised jobs.

But the company has been moving in the opposite direction. About 600 jobs are being cut at Vought, which makes subassemblies such as wings and tails for military aircraft, commercial planes and private jets.

Vought hasn't turned a profit since its spinoff from Northrop Grumman Corp. in 2000. Although it reported a 20 percent rise in first-quarter sales to $322.8 million, Vought has seen its net loss widen 3 percent to $51.5 million.

"First and foremost, Vought Aircraft Industries is focused on streamlining and improving the company's operations so that we become profitable," Ms. Warne said in an e-mailed response to questions.

"We are also committed to honoring our Texas Enterprise Fund agreement with the state of Texas," she said.

"We will not forecast what will or won't happen between now and 2009. At that time, we anticipate working with the state to implement the terms and conditions of our contract."

Phil Wilson, deputy chief of staff to Gov. Rick Perry, said the state remains confident that Vought will live up to its commitment to create jobs. The layoffs are only a temporary setback, he said.

Mr. Wilson played down concerns that the state's contract with Vought would allow the company to wiggle out of financial penalties for not creating the promised jobs.

"The state is fully protected," he said.

Still, as previously reported, even if Vought has to pay penalties for not creating the promised jobs, the contract requires the company to repay only $33 million by 2019, not the full $35 million.

Before Mr. Perry stepped in with the grant, Vought was considering a plan to shutter its Dallas-area plants altogether and move production out of the state.

Mr. Perry and his staff touted the Vought deal as a triumph of his economic development policy.

Instead of leaving, Vought would consolidate its Tennessee and Florida operations in Texas. The consolidation would have yielded about half of the 3,000 new positions Vought pledged to create.

Many employees at other plants learned they would need to move to Dallas if they wanted to stay with Vought.

Frank Vasi came from Florida, and the assembly worker landed a supervisory job in the bargain. A burly man who likes to discuss the challenges of making aircraft subassemblies, he would arrive at work at 5 a.m., often providing coffee and doughnuts for his team.

Last month, Mr. Vasi was laid off.

"I wanted to make something of this," he said. "I tried to better myself, because I thought I had a big future here."

Moreover, Vought has said the consolidation is no longer in the works. In a federal filing late last year, Vought said it had determined that the plan did not make financial sense.

Last fall, the executive overseeing the consolidation, Bill McKenna, left the company. Mr. McKenna said he didn't know why Vought abandoned its consolidation plans.

One apparent snag was a complicated deal involving some of the land the company occupies at its headquarters near the old Dallas Naval Air Station, now known as Hensley Field.

Vought leases the land from the U.S. Navy for $8 million a year. After its 2004 grant from the state, Vought sought a deal in which it would buy the land from the Navy for an unspecified amount, then sell it to the Texas General Land Office, which offered $65 million.

The state agency, which helps fund public education with its property investments, would have leased it back to Vought through a property management firm.

But Vought's deal with the Navy appeared to stall over the value of company improvements to the property, said Bo Tanner, Texas' deputy land commissioner. The state has not discussed a purchase with Vought since last summer, he said.

"We have taken whatever funds that we would invest in Vought, and they've been invested in other areas," Mr. Tanner said. Vought's lease for its headquarters expires in July.

The company was to purchase the property two years ago, according to its lease with the Navy.

Unless three conditions are met, the contract says, Vought "will not be able to achieve the job target." The conditions are continued availability of incentives, airfield access and a successful land deal.

"That paragraph gives this crowd all sorts of options to get out of particular penalties as the case might warrant," said Robert Orr, executive director of the North Carolina Institute for Constitutional Law.

"It seems to me that they can start looking for ways to avoid any of those penalties," said Mr. Orr, a former North Carolina Supreme Court justice who reviewed the contract for The Dallas Morning News.

Vought's Ms. Warne said the company continues to work with the Navy to resolve the issue.

"If we have not reached a decision on this matter by July, we will seek a lease extension," she said.

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