- The Washington Times - Monday, September 17, 2001

Last Tuesday's terrorist attacks on the World Trade Center and the Pentagon had far-reaching effects in every sector of society. And as a fresh work week begins today some of the impact on the local economy and business community is becoming apparent.

For the most part, companies in the region have resumed operations as normal, even if it means working through a lingering fog of disbelief. While defense contractors in the region are poised to capitalize on an almost inevitable increase in defense spending, smaller businesses are looking to recoup lost sales brought on by evacuations near the Pentagon, the Capitol and the White House.

Some companies lost employees in the planes that went down. Others are struggling to assess and rebuild after satellite offices or headquarters were obliterated when the World Trade Center towers came crashing down, killing thousands.

Many companies are struggling to fill orders, as air traffic throughout the country remains grounded or limited.

The nation's economy was struggling even before the attack. Locally, technology employers were confronting declining demand, retailers were trying to encourage uneasy consumers, and some commercial real estate brokers were confronting declining demand for office space.

While companies pick up the pieces, there is uncertainty about how the attacks will reshape the economic landscape here, and around the country.

There was one common question among businesses in the region: how can we help?

For some, it was keeping business open around the clock to provide service to agencies that needed it. For others, it was contributing to a disaster relief fund, urging customers to give blood or even collecting donations at the front counter.

Most businesses agreed that temporary hiccups in business plans, lost customers and lost sales became relatively insignificant problems in the past week.

The following is a roundup of how many of the economic sectors around Washington are coping in the wake of the nation's worst-ever terrorist assault.

Back to work

Many companies in the region returned fully to work as early as last Wednesday, just a day after the tragedy. Most say business will go on with some hiccups along the way. Such a mood was apparent from technology startups, many of whom are staffed with young people, who aren't used to a slowing work schedule.

"It might just slow our appointments down for a week or two," says Denise Partlow, vice president of marketing for Agari Mediaware, a McLean software firm. "I don't expect any of our customers to be affected."

Miss Partlow says several company employees were scheduled to leave for a major conference in Amsterdam last Tuesday night. The conference went on overseas, with mostly Europeans represented.

Another local company delayed major plans as a result of last week's attacks. XM Satellite Radio Inc. officials decided the day of the terrorist strikes that it would delay indefinitely activating its radio service.

The 9-year-old company, in the District, had planned to begin a limited roll-out of the service last Wednesday in Dallas, San Diego and Fort Worth, Texas.

It planned to activate service in all other U.S. cities by November.

XM Chief Executive Hugh Panero says the "national tragedy" convinced the company to postpone its plans. It has also postponed all of its marketing efforts.

One analyst says XM may wait until mid-October to begin its subscription radio service.

The company says it hasn't set a date for beginning radio service. However, John Stone, an analyst at investment bank Ladenburg Thalmann & Co. in New York, says XM plans a regional activation of its service in southwestern U.S. cities on Oct. 18.

At least one company in the region has yet to even pause operations since last Tuesday's attack. GSTI, a Chantilly company that offers technology services to the government, began providing 24-hour access and support for all its customers. The company went so far as to accept verbal orders for all its products, and gave priority deliveries to the Departments of Defense and Justice, National Guard and Federal Emergency Management Agency.

"We want to help in any way we can and our thoughts are on supporting you in your efforts to serve the American people," the company said in a memo to all its customers.

Meanwhile, scores of companies have started raising money to help, including Giant Foods, which on Friday initiated the American Heroes program, with a goal of $1 million toward the Red Cross Disaster Relief Fund.

Retailers right now are not focused on sales," says Scott Krugman, a spokesman for the National Retail Federation. "They are focused on what they can do to help."

Riggs Bank, the oldest and largest D.C.-based bank, established a relief fund to assist area families affected by Tuesday's terrorist attacks.

It opened its 50 local branches so that people could make donations in person, as well as by mail and phone.

Retail

Around the region, retail outlets say it will likely take a while to get inventories and sales back to normal.

"We need to see what will happen in the next two weeks," Mr. Krugman says. "The long term, it is just too early to tell."

With planes unable to take off for the better part of two days, and uncertainty about when full service will begin, many stores struggled to make do as shipments sat in the cargo bays of grounded planes. Arlington flower shops are anticipating a busy week or two ahead of them, but are resigned to the possibility that they may not be able to provide fresh floral arrangements for funerals and memorial services. Carol Dielman, manager for the Fort Myer Flower Shop, says there were more visitors to the store last Thursday because it was closed the day before.

She says a number of people have come to her store requesting memorial bouquets to lay at the Pentagon. Her supply of fresh flowers was almost nonexistent, as airlines were forced to keep their cargo and passenger planes on the ground for two days last week.

"I talked with my wholesaler in Maryland, who told me the flowers coming from Holland couldn't be flown in," Ms. Dielman says. "Growers are also refusing to send trucks up from Miami." These trucks from Miami normally provide South American flowers.

Ms. Dielman said she has three weddings to prepare for next week, and she has told the brides that they may not receive the floral arrangements they previously requested.

"I've been doing this for 35 years I'll make do," she says, noting that any flowers that do arrive will be in bad shape. "Everything that will come up will be awful they've been sitting on the tarmac for two days."

Chad Harvey, a manager at Crystal City Florists in Arlington, says business has been slow for his shop.

"I think it's because everything is still crazy over at the Pentagon. People are still in shock and unable to go to the Pentagon," he says.

Mr. Harvey says he, too, is experiencing a dwindling flower supply, but thinks the store has enough flowers to last for a few days.

After that, he says he's not sure what will happen.

"We've been able to get a few flowers in from California, but nothing from Ecuador or Holland," he says. "It's really up to the airlines. Right now, all these growers are just sitting on flowers."

In the District, observers say things appear to be getting back on track, retail-wise.

"Our overall impression is things got back to normal fairly quickly," says Richard Bradley, director of the Downtown Business Improvement District.

The concern, he says, is the uncertainty over upcoming conventions and meetings scheduled to take place in the District.

The hotel industry has taken a hit, as visits into the District have slowed to a near-standstill and nervous travelers canceled reservations. The head of one local hotel reservation service says she spent eight hours accepting cancellations last Wednesday.

"People have been open about their fear of coming to Washington," says Marilyn Matthews, co-owner of Washington, D.C. Accommodations. "This could have a dramatic effect on hotel occupancy for the next month or so. We hope October and November reservations that have already been booked will stay in place. So far that's been the case."

Banking

Banks proved to be beacons of resilience during last week's crisis. Only a few bank branches close to the Pentagon were closed last week, and automated teller machines were generally unaffected.

"As far as tech systems and ATMs and things like that, we were unaffected," says Brad Russell, spokesman for Bank of America, which has 30 local branches. "[Last] Tuesday we closed several banking centers in and around the Pentagon, but other than that, there was little impact in the Washington area."

The industry operated so smoothly last week in the face of national disaster because of its complex backup systems and numerous contingency plans for cases of emergency, says Catherine Pulley, spokeswoman for the American Bankers Association.

"The effect is emotional more than economic," says Bob Pincus, regional president of BB&T;, which has 32 local branches.

"It would be ludicrous to say it's business as usual after such a terrible tragedy, but we're here to support the needs of our customers."

Philip Hosmer, spokesman for Allfirst, says the bank did not experience any unusual activity last week no break-ins or unusually large ATM withdrawals.

He says all but one of the bank's 48 local branches opened last Wednesday.

"People wanted to move on and get on with business to show, as a country and company, that we're not going to shut down because of this," he says.

"I think you really sensed a determination in people to go on with business and life."

Defense

While few businesses were willing to even think about the positive effects last week's attacks might produce, there is one sector of the economy that will likely see a boost in sales and production. Analysts say that budgets for defense spending are likely to increase, thus spurring increased benefits for contractors like Lockheed Martin Co., Boeing and Raytheon.

The tragedy will likely strengthen the case for $329 billion defense-spending budget now being considered by Congress. One analyst says that number would be a low estimate of what will actually be passed. And observers says debates over budget surpluses and social security "lock boxes" are out the window.

"As a nation we're going to quit worrying about the budget surplus and I think we will see an increase in defense spending across the board," says Jack Spencer, a defense and national security policy analyst with the Heritage Group.

Those companies involved in missile defense, particularly Lockheed Martin and Boeing, could benefit the most. But other companies, including shipbuilders like Northrop Grumman, would benefit from increased production in Navy ships.

Paul Nisbet, an analyst with JSA Research in Newport, R.I., says increased production in F-18 planes, or even new productions of the B-2 bomber would mean increased revenues for Boeing and Northrop Grumman.

"I think it's all going to be very widespread," Mr. Nisbet says.

Meanwhile, the destruction of part of the Pentagon could boost Washington's office market, with the Defense Department likely to lease a huge chunk of space to use while the building is repaired.

The department is quietly scouting for 1 million to 1.5 million square feet of office space to use while the Pentagon is rebuilt, according to local real estate brokers.

Brokers say the department is looking at two buildings in Arlington: the Zachary Taylor Building at 2531 Jefferson Davis Highway, and the James K. Polk Building at 2521 Jefferson Davis Highway.

The hijacked airliner that plowed into the Pentagon last Tuesday wiped out one section of the five-section building. The section that was destroyed had recently undergone renovation, part of a $1.2 billion project to update the massive, 1940s-era compound.

The Defense Department has leased about 900,000 square feet in buildings around Northern Virginia since the late 1990s, which it has used while the Pentagon underwent its renovation, brokers say.

The department signed five-year leases for the space, and has the option to renew the deals for another five years, says one knowledgeable real estate executive who asked to not be named.

Scott C. Price, an analyst for real estate research firm Delta Associates, says the Defense Department may want to move many of the Pentagon workers displaced by the attacks into space it already leases.

"I would assume they're going to want to absorb those people in space they already control," he says.

Analysts say Washington's office market could also get a big boost from defense contractors, who may need more space if their business begins increasing.

"The contractors have always been some of the biggest users of space, particularly in Northern Virginia. They have leased considerable amounts of space in the past," says Mary S. Petersen, senior vice president for Cassidy and Pinkard, a commercial real estate firm in the District.

In addition, the Federal Emergency Management Agency has signed a 60-day lease for 20,000 square feet in Arlington, where it will set up an office to monitor the rescue effort at the Pentagon. The lease can be extended if needed, brokers say.

• Staff writers Chris Baker, Donna DeMarco, Bill Glanz, Tim Lemke, Kate Royce and Kristina Stefano

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