Wichita’s Cautionary Tale for the AI Era

Lessons can come from the most unexpected places. This is a story of the tremendous success associated with innovation and the challenge of staying on top.

 

In the early 20^th century, a wave of life-changing technologies reshaped America. The early 19^th century brought the canals of New York and the rise of railroads, which connected the country. Autos made us mobile, and aviation connected the world. Entire cities rose around these innovations: Detroit was built for autos, and Pittsburgh was the center for steel. Being at the heart of technological innovation can be exciting, but it is seldom sustained indefinitely. What begins as a strong tailwind at some point becomes a headwind. Investing when the wind is at your back has its own risks. Wichita, Kansas, is the story of aviation.

 

Wichita: An Innovation Boomtown

Mention oil, and Texas probably comes to mind. El Dorado, Kansas, is never on the list of oil centers, but in 1915, a major strike was discovered there. Many of those wells have produced for decades, and some still do today. Oil money tends to love risk-taking, and one of the newly wealthy oilmen in those early days was Jake Moellendick. He had a fascination with the development of aviation and wanted to be in at the beginning. He successfully lured Matty Laird, a designer of the first made-for-production civilian aircraft, to Wichita. In 1919, the E.M. Laird Co. opened as the first aircraft manufacturer in the city—an industry was born.

It was easy to raise capital from the area’s oil-rich investors, and aviation entrepreneurs took full advantage of it. At its peak, “Wichita was home to 16 aircraft manufacturers, six engine factories, 11 airports, and a dozen flying schools” (from the book Wichita: Where Aviation Took Wing). Soon, there were 120 airplanes being produced a week, which was 25% of all US production. Since 1919, nearly 100 airframe plants have called Wichita home.

The city seemed destined to be another major U.S. city in the making. The population of Wichita was 72,000 in 1920, and by 1930 it had grown to 111,000. Then the real growth explosion began as the country entered World War II. In 1941, Wichita was home to Boeing’s military division, Beech, and Cessna. Wichita’s municipal airport became one of the busiest in the nation, with a takeoff or landing every 90 seconds. It was a city open 24 hours a day, and the population nearly doubled to 200,000 in just three years. Wichita became known as the Air Capital of the World, a title it still claims. All growth stories have a lesson in them, including Wichita, Detroit, Pittsburgh, and many others.

Innovation Creates Opportunity, But Not Permanence

Cessna, Beech, and Boeing (Spirit AeroSystems) are still in Wichita. Beech went bankrupt in 2012 and was acquired by Textron. Learjet, the first business jet and an iconic symbol of success through the 60s and 70s, ceased production in 2022. The city that grew for a few decades like a Kansas sunflower, sputtered. It is still considered a major aircraft manufacturing center; however, its population took another 80 years to double to about 400,000. It never became a major city.

The investing lesson here is that innovation changes the world, but it evolves unpredictably, and being early is fraught with risk. It happened with railroads, automobiles, aviation, and likely will with the AI boom. Eventually, the crowd of early players either goes bankrupt, gets merged, is acquired, or struggles to fulfill their promise. In the beginning, the stories are great, and the companies all seem to have great promise. But eventually, the reality that it is extremely hard to stay on top sets in.

You may be thinking, “Who wants to live in Wichita?” Well… Houston has stifling humidity, Pittsburgh is cloudy all the time, Buffalo receives 100 feet of snow a year (maybe a little less), and Chicago is hot, humid, windy, and cold. Why is there success in some places and not in others? You cannot know the path of the wind. Everyone knew where Wichita was in 1943. Today, many people couldn’t place it on a map.

Observations On The Market No. 408