Monday, November 5, 2001

Uncertainty hung over Eleanor Holmes Norton as she walked into the US Airways terminal at Ronald Reagan Washington National Airport one pre-dawn morning recently.

On the same morning, the nation moved into a war footing and the local economy stumbled from layoffs of airline and hospitality workers. Many Washington-bound tourists decided to make other plans as images of airliners slamming into the World Trade Center played on television daily.

While debris from the September 11 terrorist attack still littered the nearby Pentagon, Mrs. Norton was among those who wondered what the changing fortunes of war would bring.

“D.C. in particular has been devastated economically,” said Mrs. Norton, the District’s nonvoting congressional delegate.

War, however, can be both very cruel and very kind to the Washington region and its economic engine. As industry realigns for a military buildup, she expects the local economy to recover “some” of its lost revenue.

“There will be some shifts,” Mrs. Norton said. Among the shifts will be new opportunities for the government contractors that ring the Beltway. However, only a few employees can qualify for those jobs, she said.

“The war industry is likely to be a high-tech industry,” she said. “The people who work in hotels and restaurants are not likely to work in that industry. This is not World War II.”

Mrs. Norton was guardedly hopeful minutes before she boarded the first airplane to leave the airport since federal officials closed it for national security reasons.

“We have a lot of work ahead of us,” she said.

No one disputes the economic damage suffered by Washington and the nation. Last week, Mrs. Norton convened a congressional hearing to determine how Washington can recoup its losses.

Federal Reserve Chairman Alan Greenspan described how the national economy was shifting during congressional testimony Oct. 17. Economic growth is expected to slow during the conflict with Afghanistan’s ruling Taliban because of higher costs for security, insurance, travel and other necessities, he said.

“We in the United States have assumed ourselves to be fairly well-insulated from terrorism,” Mr. Greenspan told the Joint Economic Committee. “The shock of the tragedies at the World Trade Center and the Pentagon has reshaped those assessments of risk and required an abrupt realignment of prices in many markets to reflect the expected costs of operating in what we now recognize as a more hostile world.”

Winners and losers

The question that prompts as many opinions as a political campaign is who will win and who will lose in the new economy.

By some economic forecasts, the Washington region is poised for an economic rebound next year.

A multibillion-dollar jump in military and security spending is opening the doors to reward government contractors and protective services, both of which have large corporate presence in the Washington region.

“If there is a positive impact on a local economy, the odds that positive impact would occur here are greater than for other cities in the U.S.,” said Tom Morr, managing partner of the Greater Washington Initiative, a group that markets Washington to businesses.

At Fairfax-based SRA International, an information technology company with defense contracts, the September 11 attacks are keeping employees busy.

“We are seeing increased interest in critical infrastructure protection, disaster recovery planning, information security and technology solutions for extracting information from very large databases,” said Renny DiPentima, SRA International’s president of consulting and system integration.

So far, both the local and national economies are still hurting from the September 11 attacks. The airline industry alone is expected to suffer losses of about $4.4 billion in the next year, according to Wall Street analysts. Mrs. Norton says Washington will lose 25 million tourists in the upcoming year, dealing a serious blow to hotels, restaurants and other hospitality services that make up the region’s second-biggest industry.

The local economy lost at least $5.5 million per day while Reagan Airport was closed until Oct. 4.

War’s uncertainty

George Mason University economist Stephen Fuller says there is another risk: Osama bin Laden might decide what happens with Washington’s economy.

“The Washington area always benefits from these kinds of events,” Mr. Fuller says. “War is good for the economy.”

However, he says, “It all changes if there is another big attack of some sort, something akin to what happened on September 11. That could devastate the national economy.”

Already, Mr. bin Laden has decided what happens to the tourism and airline industries with the September 11 attack. More recently, suspicion focuses on him as the one who decided when and where Capitol Hill employees work with the anthrax attacks that led to closing of some House and Senate buildings. The anthrax attacks also are raising the cost of delivering mail to the region because of new bioterrorism inspections being done in post offices.

Nevertheless, the economic downturn is less likely to linger in Washington than many cities, according to Mr. Fuller and business groups.

Federal spending in the Washington region in 2002 is expected to more than double, from about $4 billion to as much as $8.5 billion, Mr. Fuller says.

“That could very well generate 20,000 new jobs next year, and most of those will end up in Northern Virginia,” he says.

The Employment Policy Foundation (EPF), a Washington-based group that studies employment trends, describes a similar scenario.

“Disruptions in New York and Washington, as well as the effects on the airline industry, may lead to a brief economic contraction,” the EPF says in a Sept. 26 economic forecast. “However, the magnitude of fiscal and monetary stimulus proposals and the impact of reconstruction are likely to result in stronger expansion and more rapid recovery in 2002 than had previously been expected.

“Job losses arising from the attacks on Washington and New York City are likely to be offset by job gains as resources are mobilized to recover and rebuild,” the report says.

Poised for rebound

Wall Street makes the same kind of predictions.

“We’re going to be in a mild recession for the next two months then rebounding,” says Ray Neidl, an industry analyst for the Wall Street financial firm ABN AMRO. “Basically all the aid that’s going to pour in and the military buildup will be good for the economy next year.”

Mr. Morr, from the Greater Washington Initiative, says Washington’s industries are well positioned to benefit during military campaigns.

“If you take the Gulf war experience, government spending increased here substantially,” he says.

After September 11, Congress raised the annual military budget from $343 billion to $400 billion.

“Some companies in this region could do well,” Mr. Morr says.

But he cautioned against too much optimism over the spoils of war.

“This is different,” he says. “This is not fighting a traditional war where you’re fighting over territory. I’m not sure that what we’ve seen in the past will apply in the future. We’ll have to watch and see how things go.”

Already, some Washington area firms are benefiting from the economy’s sudden change in direction.

Security guards for many Washington-area government buildings and private corporations have been working 12-hour shifts to keep up with demand for their services since September 11.

“As a result of increased attention to security, we have more requests than we can fulfill,” says Patrick Cannan, spokesman for the Wackenhut Corp., whose employees provide security for many Washington-area buildings. “We’re aggressively trying to hire more people but it’s hard to find them.”

Other government contractors tell similar stories.

“We’re going to have to hire more people in the moving and storage business,” says John Kane, president of the Kane Co., an office services business based in Richmond. “The activity level has increased significantly since September 11.”

The Kane Co. is a contractor for office services at military installations throughout the Washington area, including the Pentagon. In recent weeks, the company’s employees have relocated equipment salvaged from the damaged building, as well as new furniture, to offices throughout the region.

Law firms expand

Some Washington law firms are planning to expand their practices that help government contractors win or defend contractual rights.

“I think long term, with bigger contracts and more contractors, you’re going to see litigation increasing,” says Carl Vacketta, head of government contracts practice for the Washington law firm of Piper, Marbury, Rudnick and Wolfe.

Firms that contract with the Defense Department, the Federal Aviation Administration, the National Security Agency, the Immigration and Naturalization Service and the Central Intelligence Agency will have the greatest contracting opportunities, he says. Most of the contracts will result from the government’s new military ventures.

Among contractors who appear to be benefiting from the military buildup is Bethesda-based Lockheed Martin Corp., the nation’s largest defense contractor. The company designs and manufactures aircraft, satellites, missiles, information and energy management systems.

Two weeks ago, Lockheed Martin won a $200 billion contract to make the Joint Strike Fighter airplanes for the U.S. and British militaries the largest military contract in history.

On Sept. 10, the day before the terrorist attacks, Lockheed Martin’s stock market shares were valued at $38.32 per share. On Sept. 17, the first day the stock market reopened after the attack, the company’s shares jumped to $43.95 per share. Meanwhile, the rest of the stock market was suffering huge losses.

Last week, Lockheed Martin’s stock was trading for $46.80 per share.

Lockheed Martin officials refuse to comment on their new business prospects, saying it would be “crass and unseemly” because of the loss of life.

Although the September 11 terrorist attack crimped commercial airline service, it has been a boon to the charter airplane business as the wealthiest airline customers search for other travel alternatives.

The number of customer inquiries about chartering airplanes “is up about 300 percent,” says Monty Lilley, owner of Congressional Air Charters, based in Gaithersburg.

Normally, customers’ first questions are about the cost of charter airplanes, Mr. Lilley says. Now, their first questions are about security procedures the company follows.

MartinAir Inc., which operates charter flights out of Washington Dulles International Airport, and airfields in Manassas, Baltimore, and Richmond, has started reserving the right to search customers and their baggage. Before September 11, MartinAir rarely conducted such searches.

Bob Hawthorne, general manager, says the new security procedures are in response to a noticeable concern among customers since the terrorist attacks.

“In the short term, we had a lot of cancellations among customers,” Mr. Hawthorne says. “But that business has come back. We have several major corporations we fly for and those corporations are flying more to catch up. Our business has increased.”

Since September 11, customers seem more willing to spend $60,000 to hire a Gulfstream or Challenger jet for 10 to 13 of them to ride back and forth between the coasts for a couple of days, he says.

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