Behind Boeing's Sweet 7e7 Deal


By Stanley Holmes To persuade Boeing (BA) not to move production of its new 7e7 jetliner out of Washington State, a big-league consultant urged Governor Gary Locke to do something "extraordinary." So, the governor followed the consultant's advice and last year gave the Chicago-based aerospace giant tax breaks worth about $3.2 billion over 20 years. Who recommended that deal? It turns out that the state paid the consulting division of Boeing's longtime auditor, Deloitte & Touche, $715,000 for the advice.

The details of Deloitte's report became public on Mar. 5, in response to a public-records request by the Evergreen Freedom Foundation, an Olympia (Wash.) taxpayers' watchdog group, which had also sued on Feb. 6 to unseal details of the state's agreement with Boeing. "If this isn't a conflict of interest, then what is?" asks Jason Mercier, an Evergreen analyst. Boeing officials insist that there was no conflict. Deloitte officials declined to comment.

JOB-EXPORT CENTER? Deloitte & Touche has audited Boeing's books since 1932. Its consulting business also used to rake in millions of dollars in annual fees from the aircraft maker until the accounting-reform movement frowned on the idea of companies buying consulting and auditing services from the same firm. So, three years ago, Boeing's board decided to wind down its consulting relationship with Deloitte. In 2001, Boeing paid Deloitte Consulting $4.6 million. Last year, the consulting arm took in just $300,000 from Boeing, according to the most recent information Boeing filed with the Securities & Exchange Commission. Deloitte's auditing arm took in $23.6 million from Boeing in 2001 and $21.4 million last year.

Three days before the hearing on the Evergreen Foundation's suit before a superior court judge, Boeing and the state released seven pages of additional details (with portions blacked out) about a state-financed training center for Boeing. Boeing had originally claimed those pages contained trade secrets. Prior to the release of those seven pages of documents, few of the details concerning a $24 million, 40,000-square-foot "employment resource center" were known. The building will be built adjacent to Boeing's Everett factory.

With out-of-state and foreign suppliers signed up to build the majority of Boeing's latest, all-composite jetliner, Mercier of the Evergreen Foundation suspects that Boeing plans to use the new center to train foreign workers. The "irony is that state taxpayers will be paying Boeing to outsource potential Washington/Boeing jobs," he says.

"UNPRECEDENTED." Robin Pollard, the Washington State project manager for the 7e7, insists that's not true. The employment center is "designed to meet the training needs of Boeing and its suppliers," Pollard says. Whatever Boeing's intentions, the state and the public will have little power to interfere. Locke, a lame-duck governor at the time the agreement was made, gave Boeing exclusive use of the facility for five years and first-refusal rights after that. Locke agreed that the state would cover "all costs and expenses" associated with the design, construction, and maintenance of the building.

"It was unprecedented -- never been done for any company by any state," Tom Captain, Deloitte's local team leader told the weekly Mercer Island Reporter on Feb. 5, apparently taking credit for the massive tax breaks. "It was unbelievable. Not only did they [the state] do all we asked them to do, they also fixed the other things," including unemployment insurance, workers' compensation, traffic congestion, and the training center.

Deloitte's advice may have been instrumental in helping Boeing compete against rival jetmaker Airbus. And state officials insist that the Deloitte-Boeing relationship with Washington doesn't raise questions of ethical or financial conduct. Pollard says the state's attorney general gave Deloitte Consultants the green light to get involved because it's a "separate business operation" from Deloitte's auditing side -- and because Boeing expressed no concerns about the arrangement. You don't have to be a rocket scientist to figure out why. Holmes is Seattle correspondent for BusinessWeek


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