Points to ponder in Boeing 777X site selection

Boeing last month issued Requests for Proposals from 15 states and locations for some or all of the work for its new 777X.

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Deadline for responding to the RFP is mid-December, essentially three short weeks away.

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Richard Aboulafia, a consultant with The Teal Group, marked Boeing’s shopping around the 777X assembly site appears more driven by anger at one of its unions than by economic sense.

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The RFPs were issued in the wake of the International Association of Machinists IAM District 751 rejecting the contract Boeing offered on November 13, a quid pro quo: accept deep concessions on pension, health care and wage progression in exchange for siting the 777X assembly at Everett (WA), where the 777 Classic is built.

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IAM 751 members, who provide the touch labor, rejected the contract with 67% of the vote.

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Boeing’s scouring the nation is viewed as a plan to get away from unions. However, here are some things to ponder:

  • Boeing’s Long Beach (CA) site is unionized, but it’s the UAW, not the IAM, and it has been generally easier to work with. California, however, has a worse business climate and worse regulations than Washington State and it is generally more costly to do business in. The Long Beach workforce knows how to build airplanes, with the previous McDonnell Douglas line of commercial airplanes built there (but these were discontinued in 2006). The MDC-originated Boeing C-17 is slated to be discontinued in 2015. Much of this talent has already retired or left for other jobs and there will be a gap between the C-17 and 777X production that will result in further deterioration of this knowledge base.
  • Boeing’s St. Louis workforce is IAM, though a different District. St. Louis builds only military fighter planes.
  • Boeing moved out of Wichita (KS), having closed down its military operation. Although a Right-to-Work state, the old Boeing commercial facility, which is now Spirit Aerosystem, is unionized with the IAM and SPEEA. Any effort to establish a 777X line there will be an automatic target for organizing by unions right next door.
  • Boeing’s Huntsville (AL) site will be a greenfield choice for commercial airliners. It’s primarily a military location today.
  • Boeing’s San Antonio (TX) site maintains Boeing KC-135 tankers and C-17s for the USAF and provides finishing work on the 787s. But it doesn’t have assembly experience, so there is the greenfield concern. Texas is a  RTW state, but it’s also home to strong unions in the airline business. American Airlines (pre-merger) has long been a Transportation Workers Union stronghold and the flight attendants and pilots are unionized. Over at Southwest Airlines, which is 85% unionized, the reservationists are represented by the IAM. If Boeing were to select Texas as the site, the TWU and IAM would be Johnny-on-the-spot to organize workers right away.
  • Boeing’s Charleston site still has trouble coming up to production rate on the 787 and there are persistent reports of quality issues, high employee turnover and industrial issues. South Carolina has publicly expressed interest in the 777X, but according to published reports and market intelligence, it’s not seriously being considered by Boeing.
  • Boeing’s Utah operation makes some key components on the 787 but a full assembly site would be a greenfield operation.
  • Japan’s Mitsubishi said it wants to build the 777X wings and offered to construct roll-on, roll-off ships on which to transport them, according to published reports. This logically suggests an assembly site should be in close proximity to a West Coast port: Everett or Long Beach. But the transfer from the port to the factory would still be a challenge,  by rail or by road.

We spoke with a supplier recently who told us that even before the IAM vote, Boeing was in touch about suppliers building the 777X (rather than Boeing’s own facilities in Washington State).

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With a planned entry-into-service in 2020, Boeing has 6- 6 1/2 years to select a side, build facilities, get the tooling and if a greenfield site, hire and train employees. The risk factors of a derivative airplane have been well demonstrated with Boeing’s 747-8 program, and while the 787 debacle had a major impact on the 747-8, it is worth noting that the 748 was not at a greenfield location, which in all likelihood would have made things worse.

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To meet customer requirements and minimize risk, Everett (WA) is the logical and best location–new IAM contract or not.

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Washington State swiftly approved a set of incentives, including tax breaks to 2040 worth $8.7bn. A transportation package valued at $10bn wasn’t approved but may be soon. Other states will be challenged to meet or exceed the tax breaks, but Washington merely extended those granted in 2003 for the 787 program. The trouble is that these were found to be illegal by the World Trade Organization in the international trade dispute between the US and Europe over subsidies to Boeing and Airbus. Other states weren’t involved in the dispute and can offer tax breaks that won’t have a cloud over them. Whether Washington uses this time to tweak the tax breaks or continues with the risk that the US appeal of the finding will be upheld or rejected remains to be seen.

20 comments on “Points to ponder in Boeing 777X site selection

  1. Is Boeing trying to copy the Apple model of product realisation?
    “Have an idea, outsource the complete design and production process and then bring these items to market. Get stinking rich from selling to the unwashed public.”

    • Apple doesn’t outsource any industrial or software design work. In places where they have in the past (processor design, for example), they’ve spent large amounts of money to bring expertise in-house.

      And characterising their market as the ‘unwashed public’ undermines your argument. Apple’s core demographic approximates “middle class with disposable income, willing to pay extra for quality.”

      • And characterising their market as the ‘unwashed public’ undermines your argument. Apple’s core demographic approximates “middle class with disposable income, willing to pay extra for quality.”

        Perceived quality, it should be added.
        Who says that “middle class with disposable income, willing to pay extra for quality” isn’t the same as, or largely overlaps with, “unwashed public”?
        Apple is basically turning into what Volkswagen is in Europe – if you don’t know a lot about cars, you still know that if you buy a VW, you’re not doing anything totally wrong. You mightn’t get the very latest in innovation and technology, nor the best value for money, but you get a dependable, predictable product.
        Which, actually, is a much better strategy for sustainable market share than always trying to create the next big thing IMHO.
        Which almost brings us back to aviation industry, where all OEMs are constantly trying to balance innovation and risk. Witness the 737MAX and 777X for instance, as well as the A350 Mk.I.

    • ‘Outsourcing’ anything you can’t do better than others is not Apple specific Uwe. It is the way almost all businesses and people operate. Apple mk 2 had the insight to recognise their strengths were UI, integration and brand, not ‘tin bashing’, and put this into action very well. Boeing similarly are under pressure to get away from ‘tin bashing’ but suffer from the much slower rate of new product introduction and vastly greater risks from each new product. Got the 787 very badly wrong, but at least they recognised what needs to happen and tried to do something about it.

      • The counter-argument being the Thorn/EMI CAT Scanner case. Thorn convinced itself that its strength was primary R&D and outsourced most of the production of its 2nd generation scanner – leaving GE and others to incorporate lessons learned in the applied labs and factory floor and surpass the “high-value” innovator. Also the Kelly Johnson/Ben Rich ’10 steps’ rule – which Boeing was forced back to during the 787 project recovery period.

    • Apple has a range of good products that differentiate from forex Microsoft by being reasonably bugfree and having high useability.
      None the less Apples market penetration is fed by “me too” people with high available income. ( ~= inefficient use of money ;-)
      compare to Aboulafia : “drug like rush”.
      Boeing got the campaign part right but all other partial aspects of essence fell by the wayside. Were Apple performed well Boeing does not reach beyond a potemkin fascade. Most activity in reaction to shortfalls apears to taket cosmetic repair to that fascade.

  2. Boeing would have another choice in Texas. Fort Worth has the kinds of skills to build airplane. LM builds the F-35 in Fort Worth, although it is unionized (IAM?), and Bell builds helicopters in Fort Worth.

  3. Given the size of fuselage components built in Japan I doubt that any site more than a few miles from a port is a serious contender for final assembly. The largest shipping containers that go to the Everett site today are 35′x35′x140′, but I’m not sure if these are 777 or 747. (This leaves Long Beach, Everet and Charleston omong the sites listed as the only real viable options). I’m curious why Houston isn’t being discussed. It has proximity to a port and a large and increasingly under-utilized aerospase workforce although mostly engineering disciplines. I don’t see boeing trading washington for California where they will spend billions on cancer warning labels on every piece of plastic…

    • I’m from Houston, and I don’t see any signs that the local economic development agencies are interested in pursuing aircraft manufacturing. The City of Houston has been trying to develop Ellington Field near NASA for a long time. I remember when they tried to get the so-called McDonnell Douglas 12-x (?) which of course did not move forward. This summer the City of Houston unveiled a crazy plan for a spaceport and spent $718,000 for a plan

      http://www.fly2houston.com/Spaceport
      http://www.bizjournals.com/houston/blog/nuts-and-bolts/2013/09/houston-we-have-your-spaceport.html?page=all

      “Should the required licensing be secured, the Houston Airport System (HAS) would move forward in establishing the required infrastructure and support facilities needed to accommodate enterprises such as, component and
      composite fabrication, space vehicle assembly, launching of micro-satellites, Astronaut training, zero gravity experimentation and space tourism.”
      NOT going to happen, but they spent a lot of money developing a plan.

      Ellington field is about 7 miles away from the nearest deep water pier (and maybe 5 miles from shallow water). Wages are above-average in Houston because the energy industry pays well. I often hear that machinists are in short supply in Houston (I don’t know if that is true right now) since the energy industry manufacturing creates a lot of demand. Houston has had one of the strongest economies since the recession began – probably the number one strongest – and there’s no compelling reason to sell out with incentives to get this facility. Plus, the local workforce does not have any experience with assembly aircraft.

      So that’s why Houston isn’t even mentioned as a candidate.

      My expectation is that Boeing will get most of what it wants in terms of the contract with the IAM (they will need to increase raises but will get pension relief and lower entry level wages) and final assembly will remain in Puget Sound. The wing will be made in Japan.

  4. RE BA doing the ‘ right’ thing from the BOD point of view with supppsedly fiduciary responsibllity- the following link sort of blows that game. When the big flap over the 7 late 7 and South Carolina game happend- not because it was a no no to move- but because an executive voiced the reason being to avoid strikes- the NLRB got involved. As part of that issue- subpoenas were issued, and like it or not BA had to comply. A few days ago- the seattle times online ran an article by a local Danny westneat – in that article was a link. – Pages 9 thru 22 were supplied by Boeing . . .

    http://seattletimes.com/html/localnews/2022370516_westneat01xml.html ( which may not work )

    ..” Boeing has no such gauzy feelings. When it was mulling putting a commercial jet-making plant elsewhere for the first time, into South Carolina, internal documents showed doing so would cost the company years in delays and billions in money. But — and this “but” apparently was priceless — leaving would give the company “leverage” over its Puget Sound workforce and political leadership. . .”

    http://www.iam751.org/nlrb/Gemini.pdf pages 9 thru 22

    So BA KNEW the risks- but since it was only a billion or so – go 4 it !!!

    for those who still believe BA has not yet made a decision- I’ve got a great deal for you on waterfront property in Tulsa Oaklahoma for the still secret Aircraft Carrier overhaul facility. get in on the deal of the Century.. send money to ‘ gotcha at nomail ”

    By the way- there is a rail line from a port facility to Boeing plant- owned by boeing. It may NOT have sufficient alignment for a long 100 foot or so wing section..

    • Nope, billion, statewide. If it were $10m it wouldn’t be controversial (or at least, not so much). A project here is easily $1m a mile and skyrockets if there are environmentally sensitive areas to mitigate, which is typical in Washington State. The State Route 520 bridge replacement alone is $4bn, though it is partially funded but the remaining part would be included in the $10bn transportation package.

  5. About Wichita – in the early 2000′s even though Wichita was in a misnomered ” Right to Work ” state, it was the most heavily unionized by percentage of any boeing facility. then by 2006- 2007, efforts were made by ??? to destabilize the union presence. One of the first to fall for the game was SPEEA, with the result was most ( but not all ) of the SPEEA union was de-certified in may 2007 ( about 900 SPEEA techs). That was also a watershed in that the then executive Director was released shortly afterwords ( Summer of 2007). However he went to work as a contractor -somehow tied into boeing, – and is now back at boeing full time in a non union position.
    Strange . .

  6. kc – Forth Worth would have the same issues as St Louis: the assembly of small military airplanes is nothing like assembling very large FAA-certified transport aircraft. Neither location has any experience with multiple airline customers [no they are not the same as multiple air forces]. They know nothing about handling and installing airline-selected buyer-furnished equipment from multiple suppliers: avionics, seats, galleys, and emergency equipment, plus the unending complexities of ever-changing inflight entertainment equipment

    Scott – thanks for the reminder [in today's other post] of Boeing’s duplicity in 2009: http://leehamnews.wordpress.com/2009/10/31/boeing-talks-a-sham-newspaper/#more-2290.
    One can only wonder if a similar effort is happening now.

    Scott, there is one other very important intangible: institutional knowledge. This is especially significant when dealing with an airplane derived from a 1994 design. “It’s all in our data base”, but there will be many times when the best and only way to quickly and accurately settle an issue will be to ask the multi-decade veteran working with you in the factory, or sitting at a nearby desk. Or walk over to the next line position, or down the hall. Or pick up the phone.

    Most of the employees at a greenfield site won’t even know what they don’t know. If they do realize what they don’t know they won’t have a clue where and how to find answers. By the time they decide to ask Everett the answer will very likely be “retired last week” or “laid off ” or “quit to take a better job elsewhere”. Ultimately, all the answers will be “beeeeep. The number you have reached has been disconnected” or “email delivery failure”.

    Once again it will be “save a buck at any cost”. Look how well that worked for the 787.

  7. If Boeing doesn’t change its management style it will end up with the same apalling labor relations sooner rather than later no matter where they move to.

  8. The transport of wings from Japan to Everett shouldn’t be too difficult. MHI already has facilities on the waterfront for 787 wings as well as other facilities. The 787 sections are carried by barge across the Nagoya harbor to the airport for shipping by the Dreamlifters. A shallow draft ship could load at the MHI pier and travel directly to the Mulkilteo dock below the Everett plant. Ironically the pier was refurbished as a condition for winning the 787 work; which fly in. Bringing a full wing up the existing rail spur shouldn’t be a major issue. A 777 wing would likely be too large to ship on a Dreamliner.

    Even if the wings were built in Everett the logistics issues for moving the 777 fuselage components currently built by MHI, FHI and KHI to another location would need to be addressed. These are oversized height and width containers that would not likely fit on any roads or rail lines of any distance.

    Seattle/Tacomat is the nearest US port to Japan, so any other alternate adds time on the ocean. A shallow, or partially submerging roll-on ship, perhaps a catamaran, would provide dock to dock service without intermediate port facilities. If the cruising speed was increased over current container ships, sections could be delivered in as little as a week. Going through the Panama canal would likely double the time.

  9. Concentration of a company’s manufacturing in one location ultimately creates problems for the company, and problems for the location. Concentration of an industry’s manufacturing in one location ultimately creates problems for the industry, and dramatic problems for the location.

    It is good to spread out manufacturing labor, for the same reason concentration of banking, capital, etc.creates problems. Too big to fail is too big to fail if it is a bank, a company, a manufacturing facility, or a labor union.

  10. I think that Alabama will offer more than any other State in incentives to acquire the 777X facility. Also there are additional large facilities available for warehouse and production floor space without additional construction near the Jetport. Additionally too all that there has been and still are a number of aircraft mod and maintenance facilities in and around Alabama. So finding skilled and talented labor will not be a problem. If the wings are manufactured in Japan they can be delivered by Sea and water (river barge) to that facility also. All in all it makes a very nice package, will worth looking at very closely as the cost of labor and living is low in North Alabama.

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