TFHO1: MAQUILA MANAGER ON MEDIOCRE MARKET

UNCLAS TEGUCIGALPA 001167

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EIND ETRD PGOV KTEX KDEM BBSR HO
SUBJECT: TFHO1: MAQUILA MANAGER ON MEDIOCRE MARKET

REF: TEGUCIGALPA 776


1. (SBU) SUMMARY: Don Allen, the manager of American sewing
contracting company Pinehurst Manufacturing, told EMBOFF that
plant orders had decreased by approximately 40 percent in the
first quarter of 2009, a result of the global economic
downturn. Orders began rebounding in May, but the recovery
slowed after the June 28 coup. Recent figures indicate that
by year-end business will be down only 25 percent versus the
previously estimated 40 percent. Allen said that Pinehurst
has also experienced some effects of the political crisis,
including slowed growth rates in orders following June 28,
the temporary imposition of a daytime curfew following
Zelaya's unexpected return, and one U.S. customer canceling a
routine plant visit. The impacts on Pinehurst Manufacturing
of the crises are representative of what U.S. apparel
manufacturers in Honduras are experiencing. Although the
political crisis is not the primary culprit of decreased
revenues for the maquilas, anecdotal evidence indicates that
is slowing local businesses' recovery from the global
economic crisis. END SUMMARY.


2. (SBU) EconOff spoke with AmCit Don Allen, manager of the
Pinehurst Manufacturing Plant in October regarding the impact
of the political and economic crises on plant operations and
business. Pinehurst Manufacturing is a sewing contracting
company based in North Carolina and sells to nine U.S.-based
customers. The company currently employs 786 workers in
Honduras.


3. (SBU) Pinehurst plant orders decreased by approximately
40 percent in the first quarter of 2009, a result of the
global economic downturn. Consequently, the company reduced
its workforce from 1200 to the current 786. Orders began
rebounding in May, but the recovery slowed after the June 28
coup. Current third-quarter figures show plant production at
75 percent of 2008 levels. If this trend continues, business
for the year will be down only 25 percent versus the
previously estimated 40 percent. Although the total volume
of orders is recovering, orders are smaller with shorter
delivery timelines since Pinehurst's customers want to
decrease their risk exposure by maintaining smaller
inventories. Despite the recent increase in business,
Pinehurst did not rehire previously laid-off workers; rather,
it implemented measures to improve employee efficiency.


4. (SBU) Allen attributed reduced plant productivity
primarily to the global economic crisis but said that the
Pinehurst plant has seen some impacts resulting from the
political crisis. Growth rates in orders slowed following
June 28, and the temporary imposition of a daytime curfew
following Zelaya's unexpected return to Honduras on September
25 affected production. (His plant was not affected by any
nighttime curfews as it only has day shifts). Additionally,
one U.S. customer canceled a routine plant visit in light of
the political events (and possibly the Department's Travel
Alert). Pinehurst conducted "preventative maintenance" with
its customers and assured them that the plant would fill all
orders on time barring further daytime curfews. Allen
believes this assurance mitigated further potential losses
resulting from the political crisis.


5. (SBU) COMMENT: The impacts on Pinehurst Manufacturing of
the global economic downturn and the Honduran political
crises are representative of what U.S. apparel manufacturers
in Honduras are experiencing. Although the political crisis
is not the primary cause of the maquilas' decreased revenue,
anecdotal evidence indicates that it has slowed local
businesses' recovery from the global economic crisis.
LLORENS