Bloomberg News

Boeing Tantalizes Governors Bidding to Host 777X Production (2)

December 04, 2013

A Model of Boeing's 777X Aircraft

Etihad Airways ordered 25 Boeing Co. 777X models, including 17 777-9Xs and eight 777-8Xs, the companies said today at the Dubai Air Show. Photographer: Duncan Chard/Bloomberg

Governors of more than a dozen states are rushing to offer incentives such as subsidized training and infrastructure to convince Boeing Co. (BA:US) to move production of its new 777X jetliner out of Washington, where union members rejected a labor contract that froze pensions.

Missouri Governor Jay Nixon and Alabama Governor Robert Bentley are joining leaders pulling together packages to lure thousands of jobs away from Everett, Washington, ahead of a Dec. 10 deadline for proposals set by the Chicago-based planemaker.

Nixon, a Democrat, called a special session of the general assembly this week with the goal of pushing through $150 million in annual economic-development sweeteners targeted at Boeing. Bentley met with Boeing representatives in Birmingham last month about the prospect of producing its 777X passenger jet in Huntsville and expanding the company’s presence there.

“I am not saying we are going to get it, but let me tell you, they do like Alabama,” Bentley, a 70-year-old Republican, said in a speech after the meeting.

States are lavishing attention on Boeing in hopes of securing the thousands of highly skilled jobs that would accompany production of the company’s first jet designed for the 2020s.

Union machinists in Washington voted 67 percent against an eight-year contract extension that would have cut benefits while keeping 777X work in Everett, home to the company’s production line for the 777, the earlier version of the twin-engine model. Production of the 777X is to begin in 2017, according to the company’s website.

Offering Incentives

States vying for the work are lining up incentives. In Missouri, Nixon called the General Assembly into a special session Dec. 2 to consider adding as much as $150 million a year for large-scale aerospace projects under Missouri’s existing economic-development programs. The funds would go toward worker training, infrastructure development and job-creation incentives, according to the governor’s office.

Nixon yesterday announced an agreement among St. Louis-area labor organizations to work a 24-hour schedule and forgo overtime to speed completion of Boeing’s facilities by at least a year.

His administration is also putting together a consortium of community colleges to train students in aerospace and manufacturing. Boeing’s defense business is headquartered in Missouri, where the aerospace manufacturer already employs 15,210 people, according to its website.

New Opportunities

Winning the 777X bid would potentially provide opportunities for Boeing workers there who risk losing their jobs as the company ends production of its C-17 military transport jets in late 2015, Dennis Muilenburg, chief executive officer of Boeing Defense, Space and Security, said at a conference today.

Boeing declined 0.4 percent to $131.50 at the close in New York. The shares have risen 74 percent this year, the biggest advance among stocks in the Dow Jones Industrial Average.

Alabama’s lawmakers touted the aerospace engineering program at the University of Alabama in Huntsville, the state’s low cost of living, “rational” regulations, right-to-work laws and low taxes in a Nov. 22 letter to Boeing Chairman and CEO James McNerney. Boeing rival Airbus SAS is building its first U.S. assembly line in Alabama.

A Bentley spokeswoman, Jennifer Ardis, declined to provide specifics on the Boeing 777X project.

Tax Breaks

Washington state lawmakers last month sped through $8.7 billion in tax breaks to help land 777X production at Boeing’s Everett plant.

State officials are pushing to keep production there. Washington Governor Jay Inslee, a Democrat, is talking to the machinists union and Boeing “to try to bring the parties back together to see if a deal can’t be resurrected,” Alex Pietsch, the state’s aerospace director, said in an interview.

Washington is responding to Boeing’s request for proposals, he said. About 56,000 jobs are directly or indirectly tied to the 777 program, along with about $20 billion in economic activity, Pietsch said.

Considering Options

Boeing started considering its options in producing the newest 777, including moving some or all assembly out of state, after its proposed contract amendments were rejected by machinists in Washington and Oregon, Doug Alder, a Boeing spokesman, said in a telephone interview.

After the state proposals are received next week, Boeing “will look all things over and make our decision early next year,” Alder said. The planemaker hasn’t resumed talks with its machinists union, he said. “Neither side has initiated further discussions,” Alder said.

Boeing is looking for a location for parts fabrication, fuselage build, join, assembly, paint and delivery of the 777X airplane, Alder said in a Nov. 23 statement. It will also look for a site to make and assemble the plane’s composite wing, he said.

Potential sites for 777X production include Long Beach, California, where Boeing is winding down assembly of C-17 military transport planes; Salt Lake City, Utah, where Boeing manufactures composites; San Antonio, Texas, where it overhauls aircraft like the Air Force One fleet; and Charleston, South Carolina, where Boeing established the first commercial jet assembly line outside of the Seattle area, said Howard Rubel, a New York-based aerospace analyst for Jefferies LLC.

‘Big Benefit’

“In our view, it would have been a big benefit for the company to continue the 777 line in Everett,” Rubel wrote in a Nov. 15 report. “And it still might, given certification and capital demands. We expect the wing will not be built there.”

The 777X wing will be the largest ever built by Boeing, posing transportation difficulties, he said. “Long Beach or Salt Lake City have reasonable appeal,” Rubel said. He rates Boeing a buy.

Alabama and Missouri governors have said publicly they met last month with Boeing officials, while some other states are declining to discuss their efforts at courting the aerospace giant. The two states had an unemployment rate of 6.5 percent in October, according to the Bureau of Labor Statistics.

November Meeting

Missouri’s Nixon, who met with Boeing executives on Nov. 21, said in a Nov. 29 statement that he was pressing for the economic-development incentives to allow his state “to compete for this type of massive aerospace project.”

Alabama’s Bentley told company executives in their meeting that “Alabama is extremely interested in having the Boeing 777X production in our state,” Ardis, Bentley’s spokeswoman, said in a statement. “Alabama will aggressively pursue the Boeing 777X project.”

The company employs about 2,600 people in Huntsville, Alabama, where it’s developing NASA’s new heavy-lift launch vehicle, according to the Alabama Department of Commerce.

Other states declined to say whether they’re in talks with Boeing.

“The California Governor’s Office of Business and Economic Development maintains a strong relationship with Boeing and we are actively working to expand all facets of their operations in California,” said Brook Taylor, the agency’s spokesman.

California Employees

Boeing employs 19,361 workers in California, second only to Washington, according to the agency.

The Texas governor’s office doesn’t discuss the specifics of talks with companies, Josh Havens, a spokesman for Governor Rick Perry, a Republican, said in an e-mail.

“We talk to Boeing on a fairly regular basis on the merits and advantages of expanding their footprint in Texas,” Havens said.

“Texas is a right-to-work state w/low taxes, smart regulations & skilled workers - perfect for @Boeing 777x manu!,” Perry said in a Nov. 8 Twitter message ahead of the union vote.

The machinists’ labor agreement expires in 2016. About 20,000 Boeing employees work either directly or indirectly on the 777 jets.

“The politicians want to preserve jobs in Washington, and they want us to keep talking with Boeing,” Tom Wroblewski, president of Machinists Union District Lodge 751, said in a Nov. 27 statement posted on the union’s website.

‘Further Conversations’

“I’ve told them that’s what you want too, but any further conversations with Boeing must be based on the idea that we’re building on the contract we have today, not tearing down decades of progress,” he said.

The twin-aisle, twin-engine 777X offers 12 percent lower fuel consumption than the competition, larger windows, a wider cabin and new lighting, according to the company’s website.

It was unveiled last month with 259 orders worth about $95 billion at list prices from customers including Emirates, the largest long-haul carrier in the world. It took the original 777 models, which debuted in the 1990s, six years to accumulate as many orders, Randy Tinseth, Boeing vice president for marketing, wrote in a Nov. 26 blog post.

United Continental Holdings Inc. (UAL:US) has expressed interest in the planes to bolster long-range flying as it braces for increased competition from Middle Eastern carriers, Chief Financial Officer John Rainey said last month.

Boeing’s hourly workers earn an average of about $85,000 a year, according to spokesman Chaz Bickers.

New Hires

New Boeing hires in Everett and North Charleston, South Carolina, start with comparable wages, though the gap in pay becomes more marked as they gain experience. Boeing’s starting pay is $15 an hour for unionized machinists in Washington and a dollar less per hour for non-union workers in South Carolina, said Bryan Corliss, a spokesman for District 751, which represents Boeing machinists in Washington and Portland.

Workers represented by the Machinists union get better benefits than counterparts building 787 Dreamliners in the southeastern U.S., including annual cost-of-living adjustments and a career path that allows them to earn top wage after six years on the job.

Boeing is in fierce competition with other companies and its executives have determined that their employee costs aren’t sustainable, said Pietsch, Washington state’s aerospace director.

“They’re going out and testing the waters,” Pietsch said. “I don’t blame them for that. Is it frustrating for me personally? Sure, because we’ve been working really hard on this deal for a long time.”

To contact the reporters on this story: Alison Vekshin in San Francisco at avekshin@bloomberg.net; Julie Johnsson in Chicago at jjohnsson@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net


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