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Valley benefits as low cost keeps offices here

Russ Wiles
The Arizona Republic
May. 20, 2005 12:00 AM

Tempe snagged the coveted corporate headquarters for the soon-to-be-merged America West Airlines because it offers lower costs and room to grow.

That announcement brought sighs of relief locally and a chance to boost Arizona's presence on the national stage.

The decision bodes well for Arizona vendors, local charities and the Valley's economy generally because corporate administrative jobs are among the highest-paying around.

Both companies employ about 600 people in their respective home offices. The firms didn't provide an estimated future head count in Tempe, saying job functions will be evaluated later.

The news was sweet relief to Tempe, which has been America West's headquarters since its first flight in 1983. Earlier, some feared that America West would move its corporate headquarters from Rio Salado Parkway to Virginia, where US Airways is based.

"This assures that America West remains in our community, remains stable and located here," Tempe Mayor Hugh Hallman said. "This demonstrates that this area is a very attractive area to have a corporate headquarters."

Top executives at both companies cited lower costs as a prime motivation.

"It's definitely less expensive to be in Arizona," said Bruce Lakefield, US Airways president and chief executive officer, in a press call. US Airways' current headquarters is in Arlington, Va., a Washington, D.C., suburb.

Doug Parker, America West's president, chairman and CEO, cited lower costs here and noted the Tempe facility has space for expansion - and a long-term lease that can't be broken.

Arizona has lost several corporate headquarters in recent years to mergers and acquisitions, from homebuilder Del Webb Corp. to electronics-parts maker Burr-Brown Corp.

But independent observers agreed Tempe held the cards over Arlington in this case.

"This is an opportunity for the merged company to redefine itself in a growing metro area," said John Boyd of the Boyd Co., a corporate-relocation specialist in Princeton, N.J. "If they had retained us to do an independent corporate headquarters analysis, our recommendation would have been metro Phoenix."

For starters, Boyd points to lower costs for housing, office rents, labor and other expenses in the Valley compared with northern Virginia, all of which makes recruiting easier.

In addition, America West's labor relations haven't been muddied to the extent US Airways was damaged by holiday-season labor strife at its Philadelphia hub and elsewhere. Staying in Arizona rather than moving East gives the firm an opportunity to improve labor-management ties, he said.

One possible advantage Arlington had over Tempe was closer proximity to federal aviation regulators in Washington, D.C., and to Wall Street firms in New York.

But neither Boyd nor Donald Schenk, president of Airline Capital Associates Inc. in New York, sees that as decisive.

"I'd think there are more reasons to have the headquarters in (metro) Phoenix than in Washington," said Schenk, whose company provides strategic planning and financial-advisory services.

America West, he noted, has held its own in Arizona against rival Southwest Airlines Co., whereas Southwest has made big inroads at US Airways hubs such as Philadelphia.

"I have trouble seeing any city in the East being a likely headquarters (for the company)," said Schenk, who thinks airlines should be based near their top operations.

Retention of the company's Tempe headquarters, and an expanded one at that, bodes well for local entities from accounting firms to charities.

America West donates roughly $3.5 million annually to more than 200 local groups, the vast majority of which are Arizona-based. Examples range from the Arizona Kidney Foundation and the Arizona Opera to the Fiesta Bowl and Valley of the Sun United Way.

"They've been an incredible partner for us for over 10 years," said Cathy Bischoff, interim assistant vice president for sales and marketing at the Phoenix Zoo. America West donates cash and offers air tickets to raffle at zoo fund-raisers.

"They are one of our main sponsors," she said. "We look forward to continuing our partnership with them."

Some critics ascribe the relative lack of high-paying jobs and cultural amenities in the Valley to a scarcity of local headquarters. Just three Arizona firms made this year's Fortune 500 list, for example.

That will change if the merged airline, as expected, nudges past Phelps Dodge Corp. and Allied Waste Industries Inc. to sit behind Avnet Inc. on the Fortune list, which measures companies in terms of revenues.

Mergers and headquarter-citing decisions offer opportunities for companies to change their images, Boyd said. "This is a great fit for both (metro) Phoenix and the airline."

Reporter Jahna Berry contributed to this article. Reach the reporter at or (602) 444-8616.

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Valley's cost advantage

The Phoenix area is a cheaper place to do business than suburban Washington, D.C., which partly explains America West's decision to stay in Tempe. Here is how the two metro areas stack up in annual expenses for a typical corporate office facility of 35,000 square feet housing 250 workers, as estimated by the Boyd Co.:

Washington, D.C., area

Labor $13.99 million Electricity $46,000 Heating/air $83,000 Office rent $945,000 Equipment $648,000 Corporate travel $189,000 Total operating costs $15.9 million Phoenix area

Labor $12.54 million Electricity $44,000 Heating/air $131,000 Office rent $875,000 Equipment $648,000 Corporate

travel $157,000 Total operating costs $14.4 million

Source: The Boyd Co.
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