$891 billion is on hold, but Alabama’s economy will stand again

$891 billion is on hold, but Alabama’s economy will stand again
Alabama's economy can and will stand again. (Source: SOURCE: GRAY TV)

(WAFF) -In the weeks leading up to the COVID-19 outbreak, Alabama was fiscally strong, boasting the best labor situation in state history with an unemployment rate below 3 percent.

Then, COVID-19 made landfall.

Within the last month, COVID-19 has forced corporate leaders to announce delays and press pause on three major Alabama investments in the state’s most powerful cities.

These delays include the postponement of the 2021 World Games in Birmingham, Airbus idling production of planes at its Mobile plant and the delay of the Toyota-Mazda project in Huntsville.

The three delays put more than $891 billion in investments on hold.

To ensure these delays are just delays and not divorce, Alabama’s political, economic and corporate leaders must pivot their focus.

Businesses may reopen in 8 days, but Alabama’s economy is looking at a minimum of a year-long quarantine.

“Alabama leaders must ‘Look Up and Forward to 2021’ with critical ‘what if’ thinking” to plug the coming 2020 economic holes,” says Director or Research and Corporate Engagement, at the Alabama Center for Real Estate (ACRE) and CCIM Chief Economist, KC Conway.

Announcement #1 – World Games 2021 postponed to Summer 2022

Economic Significance: $20.5 million

The World Games have been moved to 2022.
The World Games have been moved to 2022. (Source: WBRC)

Birmingham took the first blow.

On April 1, the World Games 2021 board of directors voted to postpone the summer 2021 international sports event originally slated for Birmingham, Alabama, July 15-25, 2021, to July 7-17, 2022.

Officials expected around 100,000 people to attend the 2021 World Games.

Conservative estimates forecasted the games would likely generate $20.5 million in revenue for the state and $5.1 million of revenue locally.

The postponement was prompted by the International Olympic Committee’s (IOC) decision in March to move the Tokyo Olympics from July 24 - August 9, 2020, to July 23 - August 8, 2021, due to COVID-19.

Conway says there are several silver linings that can be found in the postponement.

For example, some key venues that are currently under construction will now be completed by 2022 and available to ease the burden on Legion Field for the original summer 2021 date.

“Postponing the World Games for a year means the Legacy Arena renovation will be complete and Protective Stadium will presumably be available for the opening and/or closing ceremonies. Both ceremonies were previously to be held at Legion Field,” says Conway.

The postponement also provides organizers with more time to shore up financing for the games.

World Games 2021 CEO, Nick Sellers revealed in March that Sellers was about halfway towards raising the $50 million budgeted cost to produce the event.

“The challenge for Birmingham political, economic and corporate leaders is plugging the tourism holes for 2021 that retailers, hoteliers, etc. were planning on,” says Conway.

Announcement #2 – Airbus plant in Mobile idles production through April 2020 (likely longer)

Economic Significance: $1 billion

The second hit came to Mobile.

On April 6, 2020, Airbus announced it was temporarily pausing its production of airplanes in Mobile, Alabama, due to the coronavirus pandemic.

Since it first stepped foot in Mobile in 2007, the French company has invested more than $1 billion.

The most significant investment was made in 2012 when the aerospace company announced it would open a $600 manufacturing facility where the Airbus AS230 family is manufactured.

The plant was officially opened in September of 2015.

Airbus cited “high inventory levels” and “various government recommendations and requirements which impact different stages of the overall industrial production flow" as reasons for the stoppage.

Conway says he remains hopeful for Airbus and its plant in Mobile, but the reality is longer production delays are likely.

Numbers bolster his belief.

Boeing reported a record number of order cancellations on April 14, 2020, and demand for new planes has been grounded with passenger airline travel collapsing from 2.3 million passengers per day pre-coronavirus to less than 100,000 per day in April (Source: TSA Passenger Count and latest April 14, 2020, count was a mere 87,534).

“The states of Washington and South Carolina (that each manufacture Boeing aircraft) and Alabama (Airbus plant in Mobile and 3D additive manufacturing to support Airbus and GE in Auburn) need to be doing the “what if” thinking now as to airplane manufacturing being idled months or production capacity cut by 25 - 50% for one, two, or more years,” says Conway.

Airbus has also paused production and assembly work in France and Spain to implement stringent health and safety measures during the COVID-19 pandemic.

“What is not baked into either Boeing or Airbus’s production plans is the impact from reduced plane demand by commercial airlines that either do not see the travel demand recover or financially will be forced to renegotiate or outright cancel orders,” says Conway.

The airline industry is experiencing a demand shock.

Announcement #3 – Toyota-Mazda plant nearing completion in Huntsville delays production later in 2021

Economic Significance: $890 billion

(Source: WAFF)

Huntsville isn’t going unscathed either.

On April 9, 2020, Toni Eberhart with Toyota Mazda Manufacturing informed Alabama state and local government officials, along with key suppliers with facilities also underway near Huntsville, how the COVID-19 pandemic was impacting its ability to maintain critical equipment delivery schedules, creating labor shortages and slowing construction.

As a result, Toyota announced that the start of production at the Huntsville joint-venture Toyota-Mazda assembly plant will be delayed until later in 2021.

Automotive News reported the $890 billion project will be delayed by a minimum of 5.5 months.

However, Toyota has declined to comment on a specific new date in which production will now start.

Toyota and Mazda began construction on the $1.6 billion plant in 2019, which is expected to create 4,000 jobs.

“Given that Toyota is the largest automobile manufacturer in the world and this plant’s significance and new model to be built, this plant will open but the anticipated jobs and economic impact will be delayed at least half a year,” says Conway.

What do these announcements mean moving forward for Alabama’s economy?

“Alabama’s economy can and will likely stand back up, again,” says Conway.

He cites PEW Trusts March research on states’ fiscal reserves as evidence.

Alabama compared quite well with 68.5 days “Total Balance/Reserves.
Alabama compared quite well with 68.5 days “Total Balance/Reserves. (Source: PEW TRUSTS)

“Alabama compared quite well with 68.5 days “Total Balance/Reserves. Only five other states had higher Total Balances/Reserves (include “Rainy Day” funds), and those were: Wyoming (398 days), Oregon (137). North Dakota (120), Texas (103), and South Carolina (77 days). The national average is 48 days. Alabama’s 68 days compares well against Florida, Georgia and Tennessee - which all have less than 45 days of reserves,” says Conway.

How should Alabama’s leaders think moving forward?

Alabama Gov. Kay Ivey speaks at the state Capitol.
Alabama Gov. Kay Ivey speaks at the state Capitol. (Source: WSFA 12 News)

In order to move forward Conway says, “Collectively, we must engage in the necessary “Look Up & Forward with ‘what if’ thinking” to bridge 2020 to 2021 when the new Alabama economy will once again be standing up. The foundation is laid to build the bridge. Now we just need to connect the pieces and use our 68 days of built up reserves prudently and think about the pieces that might be at risk – airline schedule to Alabama airports, support for our colleges and universities, and not losing our skilled workforce that the Alabama labor secretary and the governor have worked so hard to recruit and train.

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