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byline: Gary Robertson

The burning question

For most of its history, the tobacco business primarily meant one thing for Henrico County-based Altria Group Inc. — cigarettes.

Altria, the parent company of Philip Morris USA, traces its lineage to a British tobacconist who began making cigarettes in 1854. PM USA holds the lion’s share of the U.S. cigarette business, thanks to Marlboro, the best-selling brand in the world.

Through acquisitions during the past seven years, however, Altria has expanded its major tobacco products to include dipping tobacco like Skoal and Copenhagen and cigars like Black & Mild.

Now, Altria has joined a movement that is sweeping the tobacco industry: It has started producing electronic cigarettes.

Nu Mark LLC, an Altria subsidiary, will begin in June the national rollout of its MarkTen electronic cigarette, with the goal of achieving market leadership.

Some industry observers describe electronic cigarettes as a “disruptive innovation” in the tobacco industry, a game-changing development that can sink one company while lifting another to dizzying heights.

Electronic cigarette sales soared nationwide in 2013, fueled partly by smokers looking for an alternative to a habit blamed for more than 480,000 U.S. deaths a year. Sales estimates ranged from $1 billion to $1.7 billion, depending on the inclusion of Internet purchases and other factors.

“We have increased conviction that consumption of e-cigs could surpass consumption of conventional cigs within the next decade [by 2023],” Bonnie Herzog, managing director, Beverage, Tobacco & Convenience Store Research, for Wells Fargo Securities LLC in New York, says in a recent report.

But the still-emerging e-cigarette market faces many questions that could affect its growth, including: How will FDA regulation affect the industry? What health risks do the new products pose?  And are smokers really interested in making the switch?

The FDA gained the authority to regulate tobacco products in 2009. On April 24, the agency announced proposed regulations for electronic cigarettes. They include a ban on sales to minors and an end to the distribution of free samples. Manufacturers would have to disclose the ingredients of e-cigarettes and place labels on their products warning that nicotine can be addictive.

Electronic cigarette makers also would be required to obtain FDA approval within two years to keep their products on the market. Any health claims would have to be substantiated by scientific evidence.

At least for now, the restrictions do not include bans on advertising, Internet sales and the use of flavorings.

The regulations are scheduled to become final after a 75-day comment period.

MarkTen and Green Smoke
Altria officials say that 40 percent of smokers have expressed a preference for an alternative to cigarettes. MarkTen is a manifestation of that interest.

Nu Mark, a subsidiary charged with creating innovative tobacco products, developed MarkTen for the newly coined “e-vapor” category.  An electronic cigarette produces a vapor when a liquid solution containing nicotine and flavorings in the device is heated. People who use electronic cigarettes are called “vapers,” not smokers.

Altria decided to begin selling MarkTen  nationally beginning in June after test marketing the product in two states last year, Indiana and Arizona.

After product adjustments were made following the Indiana trial run, MarkTen gained a 48 percent market retail share in just seven weeks in Arizona.

The product, which resembles a traditional cigarette, has a battery, a USB connection for recharging the battery and a cartridge containing nicotine liquid.

The MarkTen website warns that it is not a smoking cessation product. The website also warns that nicotine is addictive and habit-forming and is very toxic by inhalation, in contact with the skin, or if swallowed.

In addition to developing MarkTen, Nu Mark recently acquired Green Smoke, an e-vapor company founded in 2008, for $110 million.  Green Smoke produces electronic cigarettes, but its devices are somewhat larger than a MarkTen. It makes cartridges with flavored nicotine liquids bearing names such as “vanilla dreams” and “smooth chocolate,” in addition to traditional tobacco flavorings.

David Sylvia, Altria’s senior manager, corporate communications, says Green Smoke adds more than market experience to the company. “They bring a real entrepreneurial spirit, which we are trying to bring into Nu Mark,” he says. “Some people say [the e-vapor industry] is a technology segment, not a tobacco segment. The mindset in a technology industry is very different” from the tobacco industry.

Altria is not the only major Virginia tobacco company interested in the growth potential of e-cigarettes. In August, Richmond-based Universal Corp., a global leaf tobacco supplier, announced it was creating a joint venture, AmeriNic Inc., to produce liquid nicotine for electronic cigarettes.
Universal’s joint venture partner is Merry Hill, N.C.-based Avoca Inc., which the announcement identified as a leading botanical extraction company.

FDA regulation

The potential growth of e-cigarettes has created buzz on Wall Street. Herzog, the Wells Fargo analyst, believes that, as the Big Three tobacco companies — Altria Group, Lorillard Inc. and Reynolds American Inc. — invest more in e-cigarettes, the market will mushroom.

In a report issued before the FDA announced its proposed regulations, the analyst said that federal oversight “may ac­­tually be positive since it ultimately entrenches existing e-cig players as it increases barriers to entry.”

Under  proposed regulations, the ingredients of electronic cigarette solutions would be disclosed.

The ingredients in MarkTen are listed as tobacco-derived nicotine, water, propylene glycol and glycerol, as well as additional flavoring ingredients. MarkTen also comes in menthol.

The product contains 1.5 percent nicotine by weight of the liquid solution, but the amount of nicotine consumers receive depends on how they use the product. Some people, for example, will take long puffs and others a series of short ones.

Tobacco still profitable
In announcing MarkTen’s national rollout in February, Martin Barrington, Altria’s chairman and CEO, told stock analysts attending a Florida conference that the company has produced total shareholder returns of about 137 percent during the past six years, more than three times the return of the S&P 500.

He noted that Altria’s tobacco business (including cigarettes, cigars and smokeless tobacco) earned approximately 51 percent of the total U.S. tobacco manufacturers’ profit pool of $14.5 billion last year, more than twice the percentage of its largest competitor. Cigarettes represent 80 percent of that profit pool, which has grown at a compounded annual rate of 5 percent during the last five years.

Cigarette sales ($66 billion) are by far the largest consumer product category by dollar sales in major U.S. retail channels — twice the size of beer ($30 billion), the next biggest category.

Although cigarette volume has been declining on average about 3 to 4 percent over the past six years, Barrington emphasized that the company’s premium tobacco products remain the core of Altria’s business model.

Marlboro holds nearly 44 percent of the cigarette market, while Skoal and Copenhagen together account for more than half of all smokeless tobacco retail sales. 

Growing awareness
The highly fragmented electronic cigarette market offers the company a new opportunity.

Altria estimates that 90 percent of adult smokers are aware of electronic cigarettes and about two-thirds have sampled them.

“But adoption rates are pretty low at this point in time, which would indicate that there is interest, but probably the products are not meeting the needs of people today,” says Clifford B. Fleet, the president of Philip Morris USA, which is not involved in the production and marketing of MarkTen. “And so that’s a challenge that I think we and other people in the space are struggling with and dealing with.”

Altria has signed a licensing agreement with Philip Morris International, a former division it spun off as a separate company in 2008, to sell Nu Mark’s e-vapor products abroad.

While the MarkTen device is manufactured in China, nicotine liquid used in the e-cigarette is made in Richmond.

Although nicotine can be derived from numerous sources, the nicotine used in MarkTen — and in e-vapor products, generally — is from tobacco.

Nu Mark will use Altria’s sales force and extensive tobacco distribution network to market MarkTen.

About 4,000 of Altria’s 9,000 employees are based in Virginia. It’s not clear what effect, if any, the company’s entry into the e-vapor business will have on employment in the commonwealth.

Altria officials are not saying what they have invested to date in the e-vapor category. The industry’s movement toward electronic cigarettes comes at a time when Altria and other big tobacco manufacturers expect to see substantial savings because of the phaseout of tobacco quota buyout payments to farmers.

The payments, begun under a 2004 law that ended Depression-era tobacco quotas, have been made annually for 10 years. They end after the third quarter of 2014.

For Altria, savings will total $100 million this year and $400 million in 2015.

Acreage still expanding
While cigarette consumption is declining, you wouldn’t know it by the way Virginia farmers are expanding their tobacco acreage, in response to export demand.

“The acreage has been on the uptick for the past four years,” says Todd Haymore, Virginia’s secretary of Agriculture & Forestry.

“The 2010 crop was 19,000-20,000 acres. In 2013, it was 24,000-25,000 acres … [from] increased exports of leaf tobacco.”

He pointed out that several years ago Japanese Tobacco International (JTl) invested $19.5 million in Danville to establish a tobacco processing facility.

In 2013, the company announced a $7.5 million upgrade of its Danville facility.

Haymore said the increased tobacco acreage and tobacco investments were unrelated to c-cigarettes.

Altria’s Sylvia says no one yet knows where electronic cigarettes will take the tobacco industry.

“It’s important for people to know that we see this as … an exciting opportunity within the tobacco sector. Our goal is to gain leadership in this category.

“Altria is moving where the adult tobacco consumer is moving,” he says.

 

Related Stories:

16 stores in 60 days: Avail Vapor owners are rapidly expanding their chain of shops, by Gary Robertson

Assessing the risks:  Researcher examines potential health effects of 'vaping', by Gary Robertson

Following the customer:  Interview with Clifford B. Fleet, President and CEO, Philip Morris USA Inc., by Robert Powell

The burning question: Will smokers switch to electronic cigarettes?

For most of its history, the tobacco business primarily meant one thing for Henrico County-based Altria Group Inc. — cigarettes.

Altria, the parent company of Philip Morris USA, traces its lineage to a British tobacconist who began making cigarettes in 1854. PM USA holds the lion’s share of the U.S. cigarette business, thanks to Marlboro, the best-selling brand in the world.

Through acquisitions during the past seven years, however, Altria has expanded its major tobacco products to include dipping tobacco like Skoal and Copenhagen and cigars like Black & Mild.

Now, Altria has joined a movement that is sweeping the tobacco industry: It has started producing electronic cigarettes.

Nu Mark LLC, an Altria subsidiary, will begin in June the national rollout of its MarkTen electronic cigarette, with the goal of achieving market leadership.

Some industry observers describe electronic cigarettes as a “disruptive innovation” in the tobacco industry, a game-changing development that can sink one company while lifting another to dizzying heights.

Electronic cigarette sales soared nationwide in 2013, fueled partly by smokers looking for an alternative to a habit blamed for more than 480,000 U.S. deaths a year. Sales estimates ranged from $1 billion to $1.7 billion, depending on the inclusion of Internet purchases and other factors.

“We have increased conviction that consumption of e-cigs could surpass consumption of conventional cigs within the next decade [by 2023],” Bonnie Herzog, managing director, Beverage, Tobacco & Convenience Store Research, for Wells Fargo Securities LLC in New York, says in a recent report.

But the still-emerging e-cigarette market faces many questions that could affect its growth, including: How will FDA regulation affect the industry? What health risks do the new products pose?  And are smokers really interested in making the switch?

The FDA gained the authority to regulate tobacco products in 2009. On April 24, the agency announced proposed regulations for electronic cigarettes. They include a ban on sales to minors and an end to the distribution of free samples. Manufacturers would have to disclose the ingredients of e-cigarettes and place labels on their products warning that nicotine can be addictive.

Electronic cigarette makers also would be required to obtain FDA approval within two years to keep their products on the market. Any health claims would have to be substantiated by scientific evidence.

At least for now, the restrictions do not include bans on advertising and Internet sales.

The regulations are scheduled to become final after a 75-day comment period.

MarkTen and Green Smoke

Altria officials say that 40 percent of smokers have expressed a preference for an alternative to cigarettes. MarkTen is a manifestation of that interest.

Nu Mark, a subsidiary charged with creating innovative tobacco products, developed MarkTen for the newly coined “e-vapor” category.  An electronic cigarette produces a vapor when a liquid solution containing nicotine and flavorings in the device is heated. People who use electronic cigarettes are called “vapers,” not smokers.

Altria decided to begin selling MarkTen  nationally beginning in June after test marketing the product in two states last year, Indiana and Arizona.

After product adjustments were made following the Indiana trial run, MarkTen gained a 48 percent market retail share in just seven weeks in Arizona.

The product, which resembles a traditional cigarette, has a battery, a USB connection for recharging the battery and a cartridge containing nicotine liquid.

The MarkTen website warns that it is not a smoking cessation product. The website also warns that nicotine is addictive and habit-forming and is very toxic by inhalation, in contact with the skin, or if swallowed.

In addition to developing MarkTen, Nu Mark recently acquired Green Smoke, an e-vapor company founded in 2008, for $110 million.  Green Smoke produces electronic cigarettes, but its devices are somewhat larger than a MarkTen. It makes cartridges with flavored nicotine liquids bearing names such as “vanilla dreams” and “smooth chocolate,” in addition to traditional tobacco flavorings.

David Sylvia, Altria’s senior manager, corporate communications, says Green Smoke adds more than market experience to the company. “They bring a real entrepreneurial spirit, which we are trying to bring into Nu Mark,” he says. “Some people say [the e-vapor industry] is a technology segment, not a tobacco segment. The mindset in a technology industry is very different” from the tobacco industry.

Altria is not the only major Virginia tobacco company interested in the growth potential of e-cigarettes. In August, Richmond-based Universal Corp., a global leaf tobacco supplier, announced it was creating a joint venture, AmeriNic Inc., to produce liquid nicotine for electronic cigarettes.

Universal’s joint venture partner is Merry Hill, N.C.-based Avoca Inc., which the announcement identified as a leading botanical extraction company.

FDA regulation

The potential growth of e-cigarettes has created buzz on Wall Street. Herzog, the Wells Fargo analyst, believes that, as the Big Three tobacco companies — Altria Group, Lorillard Inc. and Reynolds American Inc. — invest more in e-cigarettes, the market will mushroom.

In a report issued before the FDA announced its proposed regulations, the analyst said that federal oversight “may actually be positive since it ultimately entrenches existing e-cig players as it increases barriers to entry.”

Altria has supported extending FDA regulatory authority over cigars and e-vapor products.

In response to the proposed regulations, the company said the FDA “has an unprecedented opportunity to advance public health goals by recognizing that some types of tobacco products may have significantly lower risks compared to cigarettes.

“We believe FDA should adopt a regulatory framework that recognizes the differences in tobacco products and fosters innovation that may benefit public health. The framework must be grounded in science and evidence. FDA is in the best position to assess the science and determine how best to communicate relative risk information to consumers.”

Under federal oversight, the ingredients of electronic cigarette solutions would be disclosed.

The ingredients in MarkTen are listed as tobacco-derived nicotine, water, propylene glycol and glycerol, as well as additional flavoring ingredients. MarkTen also comes in menthol.

The product contains 1.5 percent nicotine by weight of the liquid solution, but the amount of nicotine consumers receive depends on how they use the product. Some people, for example, will take long puffs and others a series of short ones.

Tobacco still profitable

In announcing MarkTen’s national rollout in February, Martin Barrington, Altria’s chairman and CEO, told stock analysts attending a Florida conference that the company has produced total shareholder returns of about 137 percent during the past six years, more than three times the return of the S&P 500.

He noted that Altria’s tobacco business (including cigarettes, cigars and smokeless tobacco) earned approximately 51 percent of the total U.S. tobacco manufacturers’ profit pool of $14.5 billion last year, more than twice the percentage of its largest competitor. Cigarettes represent 80 percent of that profit pool, which has grown at a compounded annual rate of 5 percent during the last five years.

Cigarette sales ($66 billion) are by far the largest consumer product category by dollar sales in major U.S. retail channels — twice the size of beer ($30 billion), the next biggest category.

Although cigarette volume has been declining on average about 3 to 4 percent over the past six years, Barrington emphasized that the company’s premium tobacco products remain the core of Altria’s business model.

Marlboro holds nearly 44 percent of the cigarette market, while Skoal and Copenhagen together account for more than half of all smokeless tobacco retail sales.

Growing awareness

The highly fragmented electronic cigarette market offers the company a new opportunity.

Altria estimates that 90 percent of adult smokers are aware of electronic cigarettes and about two-thirds have sampled them.

“But adoption rates are pretty low at this point in time, which would indicate that there is interest, but probably the products are not meeting the needs of people today,” says Clifford B. Fleet, the president of Philip Morris USA, which is not involved in the production and marketing of MarkTen. “And so that’s a challenge that I think we and other people in the space are struggling with and dealing with.”

Altria has signed a licensing agreement with Philip Morris International, a former division it spun off as a separate company in 2008, to sell Nu Mark’s e-vapor products abroad.

While the MarkTen device is manufactured in China, nicotine liquid used in the e-cigarette is made in Richmond.

Although nicotine can be derived from numerous sources, the nicotine used in MarkTen — and in e-vapor products, generally — is from tobacco.

Nu Mark will use Altria’s sales force and extensive tobacco distribution network to market MarkTen.

About 4,000 of Altria’s 9,000 employees are based in Virginia. It’s not clear what effect, if any, the company’s entry into the e-vapor business will have on employment in the commonwealth.

Altria officials are not saying what they have invested to date in the e-vapor category. The industry’s movement toward electronic cigarettes comes at a time when Altria and other big tobacco manufacturers expect to see substantial savings because of the phaseout of tobacco quota buyout payments to farmers.

The payments, begun under a 2004 law that ended Depression-era tobacco quotas, have been made annually for 10 years. They end after the third quarter of 2014.

For Altria, savings will total $100 million this year and $400 million in 2015.

Acreage still expanding

While cigarette consumption is declining, you wouldn’t know it by the way Virginia farmers are expanding their tobacco acreage, in response to export demand.

“The acreage has been on the uptick for the past four years,” says Todd Haymore, Virginia’s secretary of Agriculture & Forestry.

“The 2010 crop was 19,000-20,000 acres. In 2013, it was 24,000-25,000 acres … [from] increased exports of leaf tobacco.”

He pointed out that several years ago Japanese Tobacco International (JTl) invested $19.5 million in Danville to establish a tobacco processing facility.

In 2013, the company announced a $7.5 million upgrade of its Danville facility.

Haymore said the increased tobacco acreage and tobacco investments were unrelated to c-cigarettes.

Altria’s Sylvia says no one yet knows where electronic cigarettes will take the tobacco industry.

“It’s important for people to know that we see this as … an exciting opportunity within the tobacco sector. Our goal is to gain leadership in this category.

“Altria is moving where the adult tobacco consumer is moving,” he says.

Related Stories:

16 stores in 60 days: Avail Vapor owners are rapidly expanding their chain of shops, by Gary Robertson

Assessing the risks:  Researcher examines potential health effects of 'vaping', by Gary Robertson

Following the customer:  Interview with Clifford B. Fleet, President and CEO, Philip Morris USA Inc., by Robert Powell

Ammo for the enemy

On July 28, former Gov. Robert McDonnell and former first lady Maureen McDonnell are scheduled to be tried on federal corruption charges at the U.S. District Courthouse in downtown Richmond, only a few blocks from the Executive Mansion,where they lived for four years.

In a state that has been largely free of political scandal, the trial has the potential to change the way that Virginians think about themselves and the leaders they elect.

But how will it affect business prospects weighing a move to Virginia?

“There’s no question in my mind that this situation is a setback,” says Hugh Keogh, the retired president of the Virginia Chamber of Commerce who once headed the state’s economic development agency. “The impact can’t be measured at this point in time. It will roll out over the next several months.”

Keogh believes that Virginia’s rivals in competition for business prospects will regard charges against the McDonnells as fair game in bad-mouthing the state and its business climate.

McDonnell is the only one of Virginia’s 72 governors ever to be indicted.

The government alleges in the 14-count indictment that the McDonnells received gifts and loans totaling more than $165,000 from Jonnie Williams Sr. in exchange for using the governor’s office to help the executive’s struggling dietary supplements company, Glen Allen-based Star Scientific Inc. Williams resigned as company CEO in late December.

The McDonnells have entered pleas of not guilty, and the former governor insists that he has done nothing illegal. “Not one penny of taxpayer money” went to Williams or Star Scientific during his administration, McDonnell said in a televised response to the indictment.

He maintains that the government has overreached in its interpretation of corruption laws.

The government’s case, McDonnell argues, hinges on the concept that “facilitating an introduction or a meeting, appearing at a reception or expressing support for a Virginia business is a serious federal crime if it involves a political donor or somebody who gave an official a gift.”

The trial is expected to be a media circus, covered by national and international news agencies.

Whatever the trial’s outcome, a state often proclaimed as “the best place to do business” will be in the public eye.

Greg Wingfield, president and CEO of the Greater Richmond Partnership Inc., a public-private regional economic development organization, agrees with Keogh that other states will make the most of the publicity generated by McDonnell’s indictment.

“I wouldn’t doubt that other states are using that ammunition. Depending on the issue, we have done that over time,” Wingfield says.

He recalled, for example, a time when California was having problems with providing enough electrical power.

“We sent a number of flashlights out to prospects we were dealing with,” he says. “We told them they might need them [in California].”

More recently, he made sure that prospects weighing Charleston, W.Va., against Richmond were aware of Charleston’s recent drinking water problems because of a chemical spill.

“To me, it’s not dirty tricks. It’s just informing and leveraging a situation,” Wingfield says. “We didn’t create it, but we took advantage of it.”

On the other hand, he has seen no indication from conversations with economic development teams in the field that McDonnell’s troubles are causing potential prospects to back away from Virginia.

Instead, they are getting questions concerning how a new Democratic governor and Democratic control of the state Senate will affect business.
“I tell them that in Virginia, you can’t tell a lot of difference between a Democrat and Republican when it comes to business. They’re all pro-business,” Wingfield says.

While the indictment against the McDonnells breaks new ground in Virginia, scandals involving governors in some other states are nothing new.

In Illinois, for example, four of the last seven governors were convicted of crimes and imprisoned. One of them is Democrat Rod Blagojevich, who was convicted of trying to sell Barack Obama’s Senate seat after he was elected president in 2008. The former governor is serving a 14-year sentence.

“Illinois is seen as a bad place to do business because it has a long history of corruption that goes above and beyond the norm,” observes Stephen Farnsworth, a professor and director of the Center for Leadership and Media Studies at the University of Mary Washington.

Some gubernatorial embarrassments, however, have not resulted from criminal charges. In South Carolina, Gov. Mark Sanford disappeared for a week in June 2009 for a rendezvous with his mistress in Argentina. Despite calls for his resignation and an impeachment threat, Sanford survived the scandal and served out his term as governor, which ended in 2011. He recently was elected to a congressional seat.

“It’s almost a comedy the way so many governors around the United States become embarrassed,” says C.R. “Buzz” Canup.

He is founder and president of Canup & Associates Inc., a Greenville, S.C., site location company that helps U.S. and foreign clients find the right place for their business.

On Sanford, Canup says that the governor’s policies preceding the incident with the mistress already were hurting economic development for South Carolina.
Judging from what he knows about the McDonnell case, however, Canup doesn’t believe it will have much of an impact on the commonwealth’s business reputation.

“A single incident would not hurt a state from an economic development perspective,” Canup says.

He added that if the indictment had come while McDonnell was still in office, clients might raise questions about his ability to deliver on incentives the state could offer to entice a company.

“But he’s out of office. He essentially has no authority,” Canup says.

Wingfield of the Greater Richmond Partnership says that, even when McDonnell was in office, and leaked accounts of his loans and gifts became the subject of news stories, economic development efforts went on as usual.

“We didn’t get a lot of questions or feedback, including prospects still meeting with the governor,” Wingfield says.

Stephen Fuller, director of the Center for Regional Analysis at George Mason University, also says he’s seen no hiccups in the economy related to the charges against McDonnell.

“I think there was more curiosity and some sadness,” Fuller says. “McDonnell was respected, but he got caught up in it. I don’t think it impugned his dedication to improving the state’s economy. He was viewed as a positive force.”

The revelations about the relationship between the McDonnells and Jonnie Williams will likely provide material for political scientists and historians to pore over for years to come.

Farnsworth of the University of Mary Washington already is thinking about what can be learned from this case.

“Virginia has gained from its reputation as a relatively clean state. The state is now under a bit more scrutiny. It would behoove the legislature to come up with a solution. I think it will help restore Virginia’s reputation,” Farnsworth says. “The good news for Virginia is that we live in a short attention span country.”

Keogh says the spotlight is on the General Assembly to produce ethics reform.

“The horse is out of the barn, and so any legislative treatment runs the risk of looking like window dressing,” Keogh says.

He adds that ethics reform must be a serious, long-term effort that gives the public confidence that the same kind of problems will not occur again.

Otherwise, the state might further damage its reputation.

In reaction to the scandal, ethics legislation is moving through the General Assembly.

Among other things, bills from both houses of the legislature would require lawmakers and public officials to disclose gifts to their immediate families and put a $250 cap on gifts from lobbyists.

On his first day in office in January, Gov. Terry McAuliffe signed a far-reaching executive order imposing a $100 limit on any gifts to him, his family and members of his administration.

Gifts from lobbyists are banned totally. In addition, the order established a three-member Executive Branch Ethics Commission to police possible violations, with $100,000 in startup money.

Brian Moriarty, an adjunct lecturer in management communications at the University of Virginia’s Darden School of Business and director at the Business Roundtable Institute for Corporate Ethics, talks about the Rule of 3s in ethical breeches.

“Once, it’s an aberration. If it happens twice, it’s on the radar. If it happens three times, people see a pattern,” he says.

Moriarty has seen no direct evidence that McDonnell’s missteps have had any serious impact on the state’s reputation. But the damage might not be known, he says, until the case undergoes a thorough academic study.

Still, he has reached some conclusions.

Former Gov. Bob McDonnell and his wife, Maureen, arrive at the U.S. District Court in Richmond to enter pleas of not guilty to a 14-count indictment.“The public trust in government is already pretty low. [And] for people who have a negative perception of business, it can only reinforce it,” he says.

Over there

Virginia is one of the nation’s leading recipients of federal spending, and there’s a good reason.

The state is home to more than 5,000 defense industry companies, who generate about 10 percent of the state’s economy.

Defense contracting, from shipyards in Hampton Roads to the high-technology belt in Northern Virginia, is a foundation stone of the state’s economy.

Companies based in Virginia had defense contracts worth more than $96 billion for fiscal years 2012-13, according to documents provided by the Department of Defense.

But defense contractors today are hurting.

Automatic defense budget cuts resulting from sequestration, the winding down of the war in Afghanistan and other defense spending reductions have fueled job and revenue losses.

When the sequester kicked in, the White House said that in Virginia approximately 90,000 civilian Department of Defense employees could be furloughed, reducing gross pay by about $648.4 million in total.

Moreover, all service branches — Army, Navy, Air Force, Marines — would face varying degrees of reductions.

Fortunately, the recent passage of the $1.1 trillion fiscal year 2014 Omnibus Appropriations bill has relieved some of the pressure.

Virginia’s U.S. senators, Tim Kaine and Mark Warner, said in a mid-January statement that the bill “offsets the worst effects of sequestration.”

Overall, the bill funds $486.9 billion in defense spending.

In Virginia, a portion of that money will finance ship repair, aircraft carrier maintenance, Virginia class submarine fleet construction and 14 military building projects

Downward trend
But Paul Grossman, vice president of international trade at the Virginia Economic Development Partnership (VEDP), says that passage of the appropriations bill doesn’t alter the downward trend of defense spending, which is projected to continue for years to come.

For defense contractors, he says, it’s only a reprieve.

“VEDP suggests that companies would be wise to use this reprieve to position themselves to access new revenue streams to replace what will ultimately be less defense spending in the U.S.,” Grossman says.

To raise defense contractors’ awareness that they are not alone in a changing economy, the VEDP has implemented a program that it calls “Going Global.”

The program’s goal is to aid defense companies in finding alternative markets in foreign countries for their products and services, so they can reduce their dependency on the federal government.

The “Going Global” Defense Initiative (GGDI) is working with a budget of $2 million, drawn from state and federal funding, through the fiscal year that ends June 30.

Program components

The money will be used to fund various components of the initiative, including:

  • Market research, using the VEDP’s team of in-country consultants in 57 nations.
  • Export compliance, which includes submitting the required paperwork to the Department of State to comply with International Traffic in Arms Regulations (ITAR).
  • Digital marketing, to enhance a company’s marketing presence in targeted foreign markets.
  • Export training, involving one-day sessions across the state.
  • International certification and standards, which will help companies acquire the certifications they will need to sell products and services abroad.
  • International defense events, to include trade missions and trade shows worldwide.

“Going Global” got off to a fast start when it launched in August, signing up nearly 80 defense-related companies in its first 30 days and accounting for nearly 50 percent of the total program. As of mid-January, 148 companies had signed on.

The response, the VEDP says, is a testament to the program’s significance and necessity.

Today, some components of the program are already fully subscribed and others are filling up.

As of December, market research was 84 percent subscribed; export compliance and marketing, 100 percent; and international certification, 60 percent.

In addition, three export seminars had drawn 250 participants.
Modeled after VALET

The “Going Global” program is modeled after the partnership’s VALET (Virginia Leaders in Export Trade) program, which has increased participants’ international sales by an average of 54 percent. VALET has been in place for 12 years and currently enrolls 50 companies. It has graduated 160 companies since its inception.

Martin Briley, president and CEO of the VEDP, has no difficulty pinpointing the event that made him realize Virginia’s defense companies might be facing trouble.

At the start of 2011, then-Secretary of Defense Robert Gates cancelled the Advanced Amphibious Assault Vehicle being developed by Falls Church-based

General Dynamics. Three billion dollars already had been spent on the $15 billion project.

Just like that, Briley says, 400 engineers faced potential job losses.

Such losses, he notes, are not only bad for the individuals and companies involved, but also for the commonwealth as a whole.

Briley points out defense contractors have some of the biggest payrolls in the state. “Many of those jobs are over $100,000” in annual pay, he says.

Saving those jobs is a priority. They provide a lot of tax revenues and inject a lot of dollars into the private sector. 

Groundbreaking effort
Grossman says the partnership has never before devoted so much concentrated attention to the defense industry. “We’re the first state to do any such program. Our program could be a flagship. We are teaching them a new way to do business.”

Grossman notes that plenty of potential foreign buyers are emerging for Virginia’s defense contractors. He offered one current example. “All [the conflict] going on in Iraq and Syria makes their neighbors more concerned,” he says. “That’s more customers with more money to buy from the defense industry.”

So far, the average size of the defense companies being assisted by the VEDP is 190 employees.

Grossman says defense companies do not foresee increases in federal defense spending anytime soon. “Flat is the new growth,” he says.

Brian Dearing, vice president of business development and government relations for HDT Expeditionary Systems Inc., says the “Going Global” initiative is innovative and practical. “They focus on things that have impact,” he says.

Based in Ohio, HDT Expeditionary Systems has a number of manufacturing operations in Virginia, including robotics operations in the Fredericksburg area.

The company is known for its shelters, generators, heaters, air-filtration devices and other engineered technologies.

Dearing says VEDP’s program has helped the company gain international certifications for various product lines. “If you don’t have the right certification, you can’t sell them internationally,” he says.

Dearing echoes concerns about the situation faced by the defense industry. “The money is not flowing. There’s no oxygen in the room,” he says. “It’s a tough business, but we’ll get through it.”

International expansion
George Judd, director of Cask LLC in Stafford, which provides business and technology management services, says “Going Global” has helped his firm conduct market research in foreign markets.

The connection to “Going Global” was made through the Fredericksburg Chamber of Commerce.

Judd says his company, whose biggest clients include the Navy and Marine Corps, now is expanding internationally. The company is opening an office in

Singapore and has established contacts in Europe. 

Although Judd can’t trace the company’s expanding international footprint directly to “Going Global,” he says the initiative has provided tremendous help.

Douglas Burdett, a Norfolk-based defense-marketing consultant, says not all defense companies are acknowledging what he says is a dramatic paradigm shift in their industry. “For defense contractors, a perfect storm of change is brewing — and the denial is Titanic,” he asserts.

Yet it’s a daunting leap for the defense contractors trying to move from dependence on federal contracts toward market diversification, Burdett says. “What makes them successful as defense contractors makes them more risk averse.”

He notes that defense contractors are accustomed to telling government customers, “Give us the money, and we’ll develop it.”

But in the private sector internationally, they are told, “‘You develop it and bring it to market,’” Burdett says. “It’s an enormous hurdle culturally.”

Lessons from Homer’s ‘Iliad’

At Member One University, the in-house professional development and training program at Member One Federal Credit Union in Roanoke, one of the recent topics was the American Constitutional Convention of 1787 — James Madison, Benjamin Franklin, George Washington, the whole gang.

They argued, they disagreed, they got mad and, in the end, they came together and produced a document that has withstood the test of time for more than two centuries.

“It was a case study on how to empower team members,” says Scott Crawford, the credit union’s vice president of professional development and training.
It also was another example of Member One’s award-winning program, which uses a humanities and arts-based curriculum to teach business concepts to its employees.

The innovative approach to employee training may be one reason why the company has been ranked as one of Virginia’s best workplaces for four consecutive years.

The credit union is one of 15 companies that have been named Best Places to Work in Virginia every year since 2011. That is when Virginia Business began compiling the list in cooperation with the Best Companies Group, a Pennsylvania-based firm.

In 2013, 132 companies registered to become one of Virginia’s Best Places to Work, and 100 were selected in three categories: small (15-99 U.S. employees); midsize (100-249); and large (250 or more).

 

 

 

We asked 2014 Best Places to Work Winners why their company rocked. Here’s what they said  … 

 

Best Companies Group benchmarked the companies on a list of core values: leadership and planning; corporate culture and communication; role satisfaction; work environment; relationship with supervisor; training and benefits; pay benefits; and overall employee engagement.

At Member One Federal Credit Union, using the liberal arts to teach business concepts has been a roaring success. Officials say classes typically fill up within a few hours after they’re posted.

But if you think studying the Constitutional Convention to teach team building was a mindbender , you’ll probably want to hear why Member One employees studied Homer’s “Iliad.”

From that, they got lessons in how to give feedback to a manager in a respectful way and how an individual’s excessive pride and unwillingness to listen can sabotage an organization.

Then there was the time Crawford, a former social studies coordinator for Roanoke City Public Schools and a believer in interdisciplinary studies, took Member One’s managers out for a day in the park.

The managers went out to discuss Impressionist painting — and, with colored markers in hand, to make a drawing of their own to illustrate accountability. “This is our normal way of doing business. A lot of leadership is brought in through these classes,” says Kimberley Braswell, Member One’s chief administrative officer.

Something must be working. Since 2008, the year that Frank Carter took over as president and CEO, Braswell says, the credit union has increased assets from $350 million to more than $600 million, with two record years in a row.

Besides its headquarters in Roanoke, the 189-employee credit union has 12 branches throughout Southwest Virginia, and it’s ready for more growth.
Braswell says Member One believes that well-prepared and motivated employees can help fuel that growth. “We have a very strong work-hard, play-hard culture,” she says.

To help employees reach their potential, the credit union has tried to be innovative and creative in all the ways it engages with them.

For example, instead of focusing on a menu of heavy hors d’oeuvres and a tsunami of numbers for its annual meeting, Member One has sought to bring in motivational speakers and leadership specialists to inspire its people.

In past years the roster has included the Disney Institute, the professional development arm of the Walt Disney Co., and Frank Abagnale, one of history’s most famous imposters, and now a security consultant.

His life story inspired the hit movie “Catch Me If You Can.” For Member One employees, he offered a lecture on identity theft.

Braswell says Member One also works to create a close connection with the community, from helping to build Habitat for Humanity houses, to providing school supplies for homeless children and those in poverty.  “We want those children to have all the things the other children have,” Braswell says. “It breaks your heart.”

The credit union also takes an active role in teaching financial literacy.

Every year, Member One employees go into schools to talk with students about the myths and mistakes of handling money, and the importance of budgeting and saving for what you need, not just what you want. “We’ve got a model centered on service,” Braswell says.

Balancing work and play
Every company has its own idea about group events that help build teams.

Another Best Place to Work for four years, Damuth Trane, a Chesapeake-based professional energy services company with 192 employees, has an event you’ll find at few other places: dolphin watching. Employees board a boat and sail into the waters of the Chesapeake Bay.

Then there’s the charity event for the Wounded Warriors Project  in which employees pay for an opportunity to throw shaving cream pies at their senior leaders.

Sarah Mirkle, Damuth Trane’s human resources team leader, says such activities help create a balance between work and play, between employees’ professional lives and their personal lives. “First and foremost we’re all people who want to enjoy what we’re doing,” Mirkle says.

Early in a career at Damuth Trane, she gained an insight into how much the family-owned company values work/life balance for its employees.  “My manager knew I was a workaholic. So, he would set an alarm in the office so I would go home,” Mirkle says.

Jean Williamson, the company’s marketing team leader, says Damuth Trane believes that employees who live balanced lives are happier and more productive. “Our internal tagline is, ‘We help people grow personally and professionally,’” she says.

Tailgate parties, ice cream trucks, potluck dinners and blue jean Fridays for charity also are part of the mix at the company.

In keeping with Chesapeake’s connections with the Navy, Damuth Trane employs a naval term — Bravo Zulu — meaning job “well done” as part of its employee recognition program. “The award recognizes people for going above and beyond the call of duty,” Williamson says.

The company hands out Bravo Zulu awards to employees during special ceremonies.

Of course, cold cash is a reward unto itself. The company’s Team Incentive Plan is based on the company’s profitability, and rewards can range from $200 to $1,200 per person.

Workshops, conferences, cross training and job shadowing are all part of the company’s efforts to develop a highly tuned and cohesive work force.

To help employees keep fit, Damuth Trane has a 24/7 on-site fitness center at its main offices.

A less formal fitness activity is the company’s “Green Mile,” a painted walking course in the parking lot.

But people use it for other purposes than fitness, too. “When I’m feeling cooped-up or just want to brainstorm it’s a good place to go,” Mirkle says.

Mirkle says the company’s employee-oriented reputation prompts people in the community to frequently ask her whether there are any job openings.

Damuth Trane’s statement of shared values sets out the company’s business rules and its beliefs: “Treat others with uncompromising truth, lavish trust, mentor unselfishly, give credit where it’s due.”

Close-knit and flexible
In large companies, you’ll probably get the latest company update in an email or a tweet.

But at the close-knit, 40-employee Healthcare Distribution Management Association (HDMA) in Arlington, things work a little differently.

“Our CEO, John Gray, is very accessible. He likes to manage by walking around. If you have a question about why the organization is doing something or why a policy is in place, you can ask him,” explains Linda Caporaletti-Hoyt, senior director of human resources.”

That accessibility is one reason that HDMA, like Member One and Damuth Trane, has been on the Best Places list every year since 2011.

John Parker, the association’s vice president of communications, says that, of the organizations he worked for, HDMA stands out in terms of its collegiality and transparency.

Because so much information is shared through points of contact between people, “We’re all on the same page,” Parker adds.

Caporaletti-Hoyt says the group’s small number of employees also promotes a family-friendly atmosphere that would be difficult to duplicate in a large corporation.

The association’s mission is representing primary health-care distributors who provide the link between pharmaceutical manufacturers and health-care providers.

While an office’s location may not be all that important for many companies, at HDMA it’s a strong recruiting tool. In traffic-challenged Northern Virginia, HDMA is close to a Metro station and Interstate 66.

Caporaletti-Hoyt says the central location appeals to employees — some even ride bicycles to work — who want to spend as little time as possible on a commute.

“The one thing people want is time,” she says. “They love their job, but they want personal time as well.”

Flexible work hours and an opportunity to work from home on an ad hoc basis also contribute to HDMA’s appeal.

But that’s not all.

The association offers a benefit that can be a lifesaver: employees may bring their child to work if a regular caregiver is not available.

The company says it is very flexible in this regard. “My kids requested to come in,” Parker says with a laugh. “They love to come here.”

While in-house training is part of most organizations, HDMA has a particular emphasis on public speaking.

The training extends to its administrative assistants. “Our administrative assistants are known as ‘The A-Team.’ They have a book club where they divide the book into chapters and each one has to present and discuss a section to help expand their business knowledge and improve public speaking skills,” the company says in its Best Places to Work application.

Of public speaking, Caporaletti-Hoyt says, “I think it’s a skill everyone can benefit from. It’s really just a matter of practice.”  She says it’s helped her throughout her career.

Administrative assistants also receive an extra day off for Administrative Professional’s Day, along with lunch and flowers. “They’re a big part of our team,” Caporaletti-Hoyt says.

She adds that HDMA values a sense of humor in its ranks, and promotes fun — such as a March Madness minibasketball shooting contest — to relieve stress and help everyone remain productive.

The association also encourages its employees to be of service in the community.

That can mean working with an organization supporting the homeless, such as A-Span in Arlington, or being part of the Arlington Young Professionals Program, which develops skills for engaging in the community.

“When people feel like they’re giving back to the community,” Caporaletti-Hoyt says, “they also feel good about the workplace.”

Four-time winners

Fifteen of the this year’s 100 Best Places to Work companies have made the list each year since its beginning in 2011.

  • CARFAX Vehicle History Reports, Centreville
  • Consumer Electronics Association, Arlington
  • Damuth Trane, Chesapeake
  • Edward Jones, St. Louis
  • Healthcare Distribution Management Association, Arlington
  • Kearney & Co., Alexandria
  • Kinsale Insurance, Richmond
  • Member One Federal Credit Union, Roanoke
  • Liberty Tax Service, Virginia Beach
  • Padilla/CRT (formerly CRT/tanaka), Richmond
  • Segue Technologies Inc., Arlington
  • Sheetz Inc., Altoona, Pa.
  • Vaco Richmond LLC, Richmond
  • Valkyrie Enterprises LLC, Virginia Beach
  • Virginia Society of Certified Public Accountants, Richmond

Employer Survey Results

Virginia Business Best Places to Work 2014
Top Small Employer: Defense Point Security and list of small employers

Top Midsize Employer: Knight Point Systems LLC and list of midsize employers

Top Large Employer: Ryan LLC and list of large employers

Related story: Happy unbirthday to you

Happy unbirthday to you

Taking employees out to lunch on their birthdays is a common way for employers to show their appreciation for hard work. But sometimes birthdays don’t occur on convenient workdays.

That’s no problem at Customer Magnetism, a digital marketing agency in Virginia Beach, which has “unbirthday” lunches.

Unbirthday?

That’s right. The company says that each month its team goes to a restaurant to celebrate a random team member’s unbirthday, which is any day other than his or her actual birthday. (Remember the March Hare, singing “A very merry unbirthday to me,” in “Alice in Wonderland”?)

Customer Magnetism says it’s a way to get out of the office, have lunch and a few laughs. And, of course, no one is counting candles.

That is just one example of how many of Virginia’s best workplaces focus on ways to help employees reduce stress and bond for good causes.

CustomInk, an ecommerce retailer in McLean that lets customers custom design and order apparel, has theme days in which employees wear their favorite T-shirts or dress like their supervisors.

A lot of the fun at VHQC in Richmond also seems to center on clothes. The firm is an independent, nonprofit organization that primarily focuses on health-care quality assessment services.

For example, during warm months summer casual attire is the norm and when temperatures exceed 90, employees are advised to “wear your shorts” to work.

The company also hosts pajama day and a creative flip-flop contest.

Special outings and events also help employees feel appreciated. DPR Construction in Glen Allen holds an annual Decompression Day that gives employees a day to unwind and have fun together.

In 2012, DPR treated its Virginia administrative team to a spa day at a nice hotel.

GEICO, the insurance giant with major offices in Virginia Beach and Fredericksburg, has used barbecues, skits and dunk tanks to achieve a fun atmosphere.

PIEtech Inc. of Powhatan County, which develops financial planning software for financial advisers, has a pig roast cooked on site by employees.

Payroll in Roanoke celebrates Payroll Week and Customer Service week by having theme days — ‘70s dress-up, Western day, crazy mixed-up day — and sometimes there are bingo and pie-throwing contests.

NES Associates of Alexandria, an industry leader in analyzing  network performance and cost, lets its employees gamble the night away during an annual “Casino night,” in which winnings can be used to purchase prizes.

Games and contests of all sorts also are popular.

Definitive Logic, a technology firm in Arlington, has employees playing soccer, dodge ball and broomball, a broom-based version of hockey.

Duke Realty, which has an office in Alexandria, takes off the pressure with hallway putting contests and a Grand Prix remote-control car race.

Liberty Tax Service in Virginia Beach is known for employees dressed like the Statue of Liberty waving at passing traffic. Less known is the fact that employees write their job descriptions and are not subject to strict vacation and sick leave policies.

Community service helps employees bond at FinFit, an employee financial wellness firm, also in Virginia Beach.

The company is developing a charity internally called “It’s a Surprise,” that sponsors local shelters in staging birthday parties for homeless children.

Williams Mullen, a law firm in Richmond, also ties themed activities and events to community service projects, such as casting a “vote” with a donation to the Legal Food Frenzy, an annual event supplying the state’s food banks.

The dignified attorney receiving the most votes is honored with a pie in the face.

Consolidating airline industry makes airports more competitive

The recession, combined with airline mergers and consolidation, has jolted airports in Virginia and nationwide.

A study released in May by the MIT International Center for Air Transportation found that the nation’s 29 largest airports lost 8.8 percent of their scheduled domestic flights from 2007 to 2012.

Smaller airports were hit harder, losing 21.3 percent of their flights.

One outcome is that Virginia’s airports have become more competitive. They’re improving the passenger experience and innovating at every opportunity.
From small airports to large, change is underway, with projects costing a total of more than $50 million. Here’s a rundown on the runway:
   
Shenandoah Valley Regional
At Shenandoah Valley Regional Airport in Weyers Cave, the smallest of the state’s nine commercial airports, a recent $2.2 million terminal expansion nearly doubled the preflight waiting area, and the lobby has been reoriented to face the scenic Blue Ridge Mountains.

The airport’s improvements include a new café, Wi-Fi service and places to power-up technology. It also added 100 parking spaces, bringing its total to more than 600.

The changes have had an effect. “We have increased [passenger traffic] every year since 2008,” says Greg Campbell, the airport’s executive director. “The year to date, we’re up 16 percent.”

Campbell believes that prospective passengers have increasingly seen the value of using the airport. He ticks off some advantages: free parking, shorter lines, less driving and good connections.

Through Silver Airways, operating as United Express, airport passengers fly to Washington Dulles International Airport, where they can connect to hundreds of domestic and international destinations.

The airport lost Frontier Airlines, which flew nonstop flights to Orlando, Fla., three times a week.

Washington Dulles International and Reagan National
Washington Dulles International Airport, straddling the line between Loudoun and Fairfax counties, is a key hub for airports throughout Virginia, with connections to far flung parts of the world.

Now, it’s awaiting a connection of its own — to the Silver Line, also called the Dulles Corridor Metrorail Project.

A primary goal of the 23-mile extension of the Washington Metro Rail System is linking the capital by rail to Dulles, along with the so-called “edge cities” in the region. Another goal is to make Tysons Corner, one of the region’s biggest employment hubs, accessible by train.

The Silver Line is one of the largest transportation projects in the country and is expected to cost nearly $6 billion when finished.

Phase I of the project is nearly complete, and Phase 2 is under construction. The entire project is expected to be wrapped up and running by the end of the decade.

The Silver Line is also expected to be an economic boon for Fairfax and Loudoun counties, with new development blossoming along its path.

If food and shopping are on your mind when you fly out of Dulles or Reagan, the airports have good news for you.

They recently began their most ambitious food and retail makeover in two decades. Over the next few years, nearly all of the airports’ concessions will be replaced or renovated.

“One of our goals will be to bring local iconic brands into the airports,” says Rob Yingling, a spokesman for the Metropolitan Washington Airports Authority, which operates Dulles and Reagan National airports.

Dulles has experienced a steady increase of international service every year since 2003. For example, the airport reported in early 2013 that Dulles had become the second largest gateway to the Middle East.

Reagan continues to have strong demand for domestic service. It had its most traffic ever in 2012.

Roanoke Regional
After spending millions of dollars on airfield improvements, Roanoke Regional Airport officials decided two years ago that its terminal, built in 1989, needed a facelift. 

“We had sort of made a promise to the community,” says executive director Jacqueline Shuck. “We want them to be proud of what we present. It’s our community’s front door, especially for business.” 

The airport accomplished the re-do in three stages. The first phase, which has cost about $4 million, focused on the concourse.

New escalators have been installed, carpeting has been replaced by high-grade tile, six restrooms have been rebuilt, and signage has been modernized. Finally, colors have been changed from blue and gray to earth tones with a splash of red. “It’s changed the whole look,” Shuck says.

The second phase of the overhaul will involve development of a new concession area, while the third phase will tackle the ticket and baggage claim areas.

Shuck says an airport of Roanoke’s size can’t always compete with larger airports on ticket prices, but it can offer travelers convenience and the personal attention that they might not receive elsewhere.

A new role the airport has taken on is advocate for passengers, Shuck says.

If flights are continually late on a certain airline, “We try to get to the bottom of it,” she says.

Allegiant Air’s service from Roanoke to two Florida destinations — St. Petersburg and Orlando — has become a magnet for regional passengers.

“We see people coming from an hour and a half away,” Shuck says.

Allegiant is one of four airlines that serve Roanoke.

Lynchburg Regional
Lynchburg Regional Airport is different. “We’re the only commercial airport in Virginia owned by a local government,” says Mark Courtney, the airport’s manager.

It’s also very busy because of one of its neighbors, Liberty University.

During the past decade, Liberty’s School of Aeronautics has grown from four students to more than four hundred in its FAA-certified aviation program.

The university says it has been approved to train and certify everyone from private pilots to airline transport pilots. That means a lot of flying at the local airport.

Commercially, the airport is served by U.S. Airways with connections to Charlotte, N.C.

Lynchburg Regional recently received a $4.1 million grant from the Federal Aviation Administration for rehabilitation, relocation and expansion for its taxiways and aprons.

It is part of a $5.8 million project that will also include reconstruction and realignment of several taxiways that serve general aviation.

Earlier this year, Lynchburg was told that it might lose its control tower, unless it could prove that it fulfills a compelling national interest.

So far, the tower is still in operation. But Courtney says he doesn’t know what’s ahead.

Charlottesville Albemarle 
Melinda Crawford, executive director of the Charlottesville Albemarle Airport, says one of the reasons she came to the airport in 2012 was the strong community support it enjoys.

She had been director of the Pensacola International Airport in Florida, which was named Florida’s commercial airport of the year in 2011.

“Any airport is the best economic engine any community could have,” she says. “It virtually operates without tax dollars, and it serves as the first impression of the community.”

Since 2009, the Charlottesville Albemarle Airport has enjoyed a 34 percent increase in passenger traffic, soaring from 347,000 passengers in fiscal 2009 to more than 464,000 in 2012.

Crawford says the airport is in the final stages of completing an 800-foot runway extension in the works for several years.

The airport also is redesigning its terminal to include upgrades ranging from family restrooms and mothers’ nursing stations to a second security screening lane and an in-line screening machine to move passengers and their baggage through more quickly.

Total cost of the project is estimated at $3 million to $4 million.

“We’re making sure we have good amenities, and we’re making sure the public is aware of the amenities,” Crawford said.

Norfolk International
Norfolk International Airport is adjacent to the Norfolk Botanical Garden, and the airport plays on that theme, calling the main lobby of its departure terminal, “Garden Square.”

Soon, the lobby will have a much more gardenlike setting, with a profusion of natural sunlight.

Skylights are being installed in the ceiling as part of more than $20 million in airport improvements.

Lobby improvements will include the replacement of four escalators that carry passengers from the first-level ticketing area to the second-level main lobby.

New carpet and hard-surface terrazzo flooring also will be installed, as well as additional plantings and furniture, and areas for small children.

Security checkpoints will be greatly expanded, from four to six lanes, to give passengers and security personnel more room.

New and expanded restaurants, upgraded and healthier menu choices, and renovations to retail and gift shops also are in the new mix.

“You’re going to have a different airport,” says Robert Bowen, the airport’s deputy executive director.

General aviation facilities will get upgrades, including renovation of the terminal and expanded public parking.

“It’s a very challenging time with the economy, but air travel is still a necessity,” Bowen says. “There’s no question some factors are beyond our control. But we’re in the black, and we’ve never been in the red. We’re a very low-cost facility.”
  
Newport News/Williamsburg International
In 2012, the Newport News/Williamsburg International Airport lost AirTran Airways when it was acquired by Southwest Airlines.

“It accounted for 43 percent of our market share. It was a big hit for us, and we’re still recuperating,” says Jessica Wharton, the airport’s director of marketing and public affairs.

The airport now is served by four airlines: Allegiant, Delta Air Lines, Frontier Airlines and US Airways, with nonstop service to Atlanta, Charlotte, Denver, Orlando and Philadelphia. The airport lost nonstop service to New York and Boston.

The airport anticipates a boost when Apple Vacations begins offering nonstop service to Cancun via Frontier Airlines. Flights will run from Feb. 8 through April 19.

Meanwhile, the airport is forging ahead with a list of improvements.

For example, an $11 million project to repave three taxiways is nearing completion, and one of its concourses is being refurbished with new skylights and flooring and a new escalator. The refurbishment is expected to cost about $4.2 million.

Richmond International
Richmond International Airport celebrated the arrival of Southwest Airlines in early November.

“It’s something we’ve requested for more than 15 years,” says Troy Bell, the airport’s director of marketing and air service development.

When Southwest serves an airport, Bell says, it sets the bar for pricing. “When Southwest is not in the market, prices tend to be higher.”

Southwest offers daily nonstop service to Orlando, and its merger partner, AirTran, will continue nonstop service to Atlanta.

Having secured Southwest, the airport now has trained its sights to the West.

Using a $750,000 federal grant and $150,000 in local contributions, it plans to gain more access to Western markets.

The money will offset revenue losses for airlines that establish Western routes to preferred destinations.

Currently, airport travelers have nonstop Western service to only Dallas, Houston and Minneapolis.

Richmond International suffered a setback in 2010 when discount airline JetBlue ended its popular service to New York. Since then, Richmond-to-New York fares have soared.

“There’s been a 700 percent increase in walkup fares [to New York] since then,” Bell says, reflecting how quickly things can change in the airline industry.

Single-minded

Abagail Ramey, a 21-year-old senior from Virginia Beach majoring in communications, would not trade her experience at Mary Baldwin College in Staunton for any other school.

“It’s an amazing place,” she says. “It’s small; I’m not overwhelmed; and you don’t have the distraction of males being in class. And my professors, I feel like they look after me. They know you personally.”

More women than men are attending college today. The U.S. Bureau of Labor Statistics notes that, among 2012 high school graduates, 71.3 percent of the women enrolled in college compared with 61.3 percent of the men.

Those percentages would seem to favor women’s colleges, such as Mary Baldwin, Hollins University and Sweet Briar College in Virginia. Nonetheless, less than 5 percent of female students applying to college consider women’s colleges, according to the Georgia-based Women’s College Coaltion.

Another potential recruitment hurdle is a national decline in the number of high school graduates (accompanied by a dramatic demographic shift in their profile). That cloud, however,  has a silver lining, the number of graduates in the South will continue to climb.

In the 1960s, the nation had more than 300 women’s colleges. Today, there are fewer than 50.

Meanwhile, the number of men’s colleges nationally has shrunk to only four, including Hampden-Sydney College near Farmville.

Hampden-Sydney currently enrolls 1,070 men, one of highest levels in its 238-year history. “We’re about as big as we’ve ever been,” says college President Christopher B. Howard.

Single-sex schools in Virginia were once the norm, even among state colleges and universities. Before the 1970s, James Madison University and Longwood University were women’s colleges. The University of Mary Washington was the women’s college of the University of Virginia, while Radford University was the women’s division of Virginia Tech. 

In the past 30 years, two Virginia men’s schools, Washington and Lee University and Virginia Military Institute, have admitted women. Randolph-Macon Woman’s College in Lynchburg changed its name to Randolph College when it admitted men in 2007.

Nonetheless, Virginia’s remaining single-sex schools have no plans to follow the coed trend, asserting they offer something unique to their students.

“It’s the advantage of being in an institution that’s for women, and centered on women every day,” says Mary Baldwin President Pamela Fox. “Everyone’s attention is focused on developing the outstanding qualities of women.”

Related stories:

Changing demographics of high school graduates

The flow of high school graduates in Virginia is slowing. Also, the demographics of the state’s high school graduates will change during the next 15 years.

The changes could present challenges for Virginia’s colleges and universities, especially those without strong financial aid programs.

The Wall Street Journal recently reported that enrollment rates of some smaller, lesser-known colleges and universities were down this year.

The newspaper cited years of rising tuition, the increased popularity of Internet courses and a continuing weak job market for college graduates. A big factor, however, is a shrinking pool of high school graduates.

Nationally, the number of high school graduates peaked at about 3.4 million in 2011. It was projected to gradually decline to 3.2 million this academic year before leveling off at about 3.3 million for a half dozen years.

The number of high school graduates then would begin to grow again in about 2020, but not at the rate seen in previous decades, according to a recent report by the Western Interstate Commission for Higher Education (WICHE).

WICHE data indicate that states in the Northeast and Midwest will face declines in high school graduates in the years ahead, while most states in the South and West will see modest increases.

WICHE predicts a dip in the number of high school graduates in Virginia in coming years.  The commonwealth had 87,399 diploma graduates in 2011-12, up from about 72,000 in 2003-2004, according to the Virginia Department of Education.

According to WICHE projections, the number of Virginia high school graduates will decline to 82,000 to 84,300 for several years before climbing to a new high of 93,000 by 2023-24.

In addition to changes in their total number, the demographics of the future generation of Virginia high school graduates will be remarkably different from those that preceded it. That’s also true in other parts of the country.

In Virginia, white non-Hispanic public high school graduates are projected to decline from 63 percent (49,500) of the public high school graduating class in 2008-2009 to 52 percent (43,300) in 2027-28.

Meanwhile, the proportion of Hispanic high school graduates will soar from 6 percent to 16 percent by 2023-24, before dipping to 14 percent over the next few years.

The number of Asian/Pacific Islanders will double from 6 percent of the class to 12 percent by 2027-28.

Black non-Hispanic graduates will drop from 24 percent to 21 percent during that time.

One of the biggest challenges for institutions of higher education trying to cope with these changes may be financial.

The statewide median income among working-age adults (25-64) in Virginia was $40,095, 114 percent of the national average, according to the U.S. Census Bureau’s 2006-2010 American Community Survey.

White non-Hispanics and Asian/Pacific Islanders had incomes above the statewide median.

But Hispanics and black non-Hispanics, who will make up more than a third of the 2027-28 high school graduating class, will be coming from families who currently are the least able to pay for college.

Hispanics in Virginia have a median income of $28,557, with one in four earning $17,100 or less, the Census Bureau reports.

Black non-Hispanics have a median income only slightly higher, at $30,938, with one in four earning $17,100 or less.

In late August, President Obama announced proposals to make colleges more accountable and affordable by rating them on tuition and graduation rates, as well as the percentage of lower-income students who attend and other metrics.

Those ratings would then be linked to federal financial aid. The president’s proposals would require congressional approval before they could be implemented.

Another challenge for colleges may be the lack of readiness for higher education among potential applicants.

ACT, formerly known as American College Testing, recently reported that 75 percent of U.S. high school graduates in 2013 who took the ACT college readiness exam were not fully prepared for college.

ACT officials said the results are due to a growing base of test-takers from increasingly diverse backgrounds.

On the other hand, Virginia’s 2013 public school graduates achieved significant gains on the SAT college-admissions test, scoring higher than the national average.

How all these trends will play out is yet to be seen.

Tod Massa, director of policy research at the State Council of Higher Education for Virginia, says that, even with the brief decline in the number of high school graduates, Virginia college enrollments are projected to continue going up.

Some private institutions, however, may struggle to make their classes.

“That is because, in part, they’re competing with large public institutions that have grown tremendously,” Massa says.

He says some of Virginia’s private colleges and universities might become institutions of access, providing more opportunities for first-generation college students and for high school graduates who are less college-oriented.

Women’s colleges leverage their advantages

Fifty years ago, Virginia had 14 women’s colleges. Since then, two have closed and nine are now coed.

Virginia’s three women’s colleges — Hollins University, Mary Baldwin College and Sweet Briar College — have faced financial and enrollment challenges that might have led other schools to follow the coed trend.

These three schools, however, have held to their conviction that, as women’s colleges, they can offer a better education and more supportive environment to female students at a time when women increasingly are achieving leadership roles in business and world affairs.

HOLLINS UNIVERSITY
In 2001, Hollins University in Roanoke began pondering the enrollment of undergraduate men. Enrollment was slipping, and in 2000 applications fell to their lowest point in seven years.

The university had been dipping into its endowment to meet its obligations.

By mid-2001, the president had resigned, citing philosophical differences.

Dial ahead to 2013. The endowment has grown from $93 million in 2001 to $165 million today, but enrollment is still a struggle.

In the fall of 2000, Hollins had 1,043 students, according to the Digest of Education Statistics. In 2011, the enrollment was 953, the publication says.

Today, the college website shows enrollment at 794, including 613 undergraduate women and 181 coed graduate students.

However, Stefanie Niles, Hollins’ vice president of enrollment, says the academic profile of students is improving, a development which helps retention, and the freshman class is growing. This fall 148 traditional-age freshmen showed up, compared with 128 last year.

Niles says the university’s biggest challenges are families’ concerns about the cost of college — worries that have intensified since the recession — and the demographics of its enrollment pool, which shrinks as the number of high school graduates decline.

“We draw less than half our students from Virginia,” Niles says, and the decreasing number of prospective students nationally impacts recruiting.

Whatever challenges lie ahead, Nancy Oliver Gray, who was named Hollins president in 2005, says the university’s board of trustees has reaffirmed the university’s commitment to women’s education.

“We’re in a very competitive time in America, and it’s simplistic to think that just admitting men is going to solve the problems,” Gray says.

The Hollins president has her finger on the financial pulse of the university, and her accomplishments include operating with balanced budgets for the past six years and eliminating the college’s debt.

She also led a fundraising effort that concluded in 2010 with $161 million, well over its $125 million goal.

Gray says her administration has taken notice of the national conversation about the value of a college education.

“We’ve become more intentional linking training in a liberal arts education to the world of work, and we’ve made investments in our career center,” she says.

In addition, the Hollins president says the university has mobilized its alumnae to leverage internships and career counseling.

Before her arrival at Hollins, Gray served more than five years as president of another women’s school, Converse College in Spartanburg, S.C.

Gray notes that Converse cut its tuition by 43 percent in September to make the institution more affordable.

Hollins lists its 2013-14 tuition at $32,710, with room and board at $11,660.  “We are doing all we can to control costs,” Gray says.

The university awards nearly $19 million annually in financial aid and scholarships.

University officials say that, on average, students graduate within four years, instead of the five to six years that is the norm at many institutions.

That, the college says, can trim thousands off the cost of a college education.

MARY BALDWIN COLLEGE
Mary Baldwin College, which has the smallest endowment ($36 million) of Virginia’s three women’s colleges, has used what it calls “entrepreneurial courage” not only to stay afloat, but to thrive.

The college has seen record enrollment for three straight years, but it had to play a variety of cards to achieve a winning hand.

The current breakdown shows its strategy: 753 undergraduates in the Residential College for Women; 692 adult-degree program students; and 229 graduate students. (The figures vary from previous years because the college now uses Integrated Postsecondary Education Data System standards to differentiate between full-time and part-time students.)

“We’ve never been a rich institution, but we’ve always been entrepreneurial and engaging in ideas,” says Pamela Fox, Mary Baldwin’s president.

In 1977, Mary Baldwin became the first institution in Virginia to initiate an adult degree program, aimed first only at adult women who wanted to earn a college degree but later expanded to men. It now has 10 regional locations, serving women and men, as well as its home campus in Staunton offering undergraduate and graduate degrees.

In the mid-1980s, the college established its Program for the Exceptionally Gifted (PEG), offering college courses to academically gifted girls ages 13 to 15. About 70 girls are now enrolled in the program in Staunton.

In 1995, as Virginia Military Institute attempted to remain all male in the face of a mounting legal challenge, the Virginia Women’s Institute for Leadership, the nation’s only all-female cadet corps, was established on campus.

In 2001, what is now the American Shakespeare Center opened the Blackfriars Playhouse in Staunton. Mary Baldwin quickly created a master of letters/master of fine arts program in Shakespeare and performance, which draws more than 50 students from around the world.

Most recently, the college created the Murphy Deming College of Health Sciences, which generated the largest gift ($15 million) in Mary Baldwin’s history.

The health sciences school, being built in Augusta County’s Fishersville area, will be part of a rapidly developing health corridor. It will offer doctoral degrees in physical therapy and occupational therapy and master’s programs in physician assistant studies.

Shelley Rubiani, a 30-year-old senior from Puerto Rico majoring in studio arts and communications, says the camaraderie of the Mary Baldwin community is special.

For example, upper classmen adopt freshmen and help guide them through the transition from high school. “Sista’ Squirrels,” Rubiani says. (Mary Baldwin’s athletes are called the “Fighting Squirrels.”)

She said a frequent question from freshmen — who may still have doubts about what a women’s college is all about — is this: “Do you have fun here?”

Rubiani laughs. “I say, ‘Yeah!’ We do the same thing that they do at other colleges.”

Rubiani and Abagail Ramey, a student from Virginia Beach, say they have become much more confident about themselves and their abilities because they’ve had opportunities for leadership, as well as encouragement from peers and professors to step out of their comfort zones.

Ramey cites one of the college’s slogans: “When they say ‘boldly Baldwin women,’ they mean it.”

Mary Baldwin also has been laser-focused on trying to keep costs in check.

In February, the college’s board of trustees passed a 2.5 percent tuition rate increase for the Residential College for Women, the lowest increase in more than a decade, indicating what the college says was “a desire to keep the cost of a Mary Baldwin education within the grasp of working families.”

For the 2013–14 academic year, tuition and fees total $28,720. For room and board, add $8,400.

SWEET BRIAR COLLEGE
“The priority this year starts with enrollment,” says Jo Ellen Parker, president of Sweet Briar College near Lynchburg.

“We are making some progress. But we’re not making as much progress as we had hoped on enrollment.”

Under its five-year “Plan for Sustainable Excellence,” now in its third year, Sweet Briar has a goal of 675-700 undergraduates in residence.

Adult students, students with nearby families and upper-class students living off campus, would boost enrollment to 750-800 degree-seeking undergraduates.

This year, according to the profile on the college’s website, Sweet Briar has 610 degree-seeking undergraduates, with a total enrollment of 760.

Parker says the college is looking to refine its search for students, seeking those who not only apply but who also are likely to enroll.

The college is trying to identify barriers to enrollment. “Financial aid is a huge piece of the mix,” Parker says.

Sweet Briar lists its tuition at $33,130, with room and board at $11,800.

In 2011, the last year for which data is listed on the college website, 98 percent of all degree-seeking undergraduates were awarded aid. That aid was a mix of grants, scholarships, loans and work-study. The average aid package was $19,018.

Sweet Briar has a $90 million endowment, which can be a lifeline to students. But the college’s Plan for Sustainable Excellence puts a premium on preserving the endowment and curtailing expenses.

The college also hopes to make better use of its existing assets. Sweet Briar has an asset that is staggering in its proportions. The college campus spreads out over 3,250 acres.

To take better advantage of the campus, Sweet Briar is developing courses that dovetail with its “Landscape for Learning” theme. It is trying to recruit students with interests in the outdoors and the environment.

“We also have a strong business program, and one of two engineering programs among women’s colleges,” Parker says, pointing to women who have career interests in those areas.

Attracting adult women who want to earn a college degree is also an interest of Sweet Briar, as it strives to engage with the nearby Lynchburg area and beyond.

One of Sweet Briar’s hallmarks is its equestrian program. It has a long list of students who have distinguished themselves at various equestrian events across the country.

Parker says the college is reaching out to the equestrian community as it strives to expand its own program.

Currently, the college offers more than 20 courses related to riding, jumping and training horses, as well as a certificate in equine studies.

With more than 18 miles of trails and a 130-acre on-campus riding center, Sweet Briar has few peers with the breadth and scope of its equestrian offerings and facilities.

Parker said women’s colleges are an extremely important option in the higher education ecosystem, for the families and students who prefer that model.

“What’s not clear is how many institutions in that ecosystem we need to meet the need,” she says. “It’s not clear how many dedicated to that mission will ultimately sustain themselves.”