Boeing last month issued Requests for Proposals from 15 states and locations for some or all of the work for its new 777X.
Deadline for responding to the RFP is mid-December, essentially three short weeks away.
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.
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.
IAM 751 members, who provide the touch labor, rejected the contract with 67% of the vote.
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).
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.
To meet customer requirements and minimize risk, Everett (WA) is the logical and best location–new IAM contract or not.
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.