Washington State lags competitively

Update, 3:25 PM: Gov. Gregoire announced the new aerospace council, as reported by the mainstream media, and she also announced a plan to increase aerospace training. But her plan calls for coordinating community college aerospace training programs and the aerospace programs of the senior colleges.

All well and good, but this misses the mark. We’ll be talking about this at our speech to the Economic Development Council of Snohomish County on April 22.

Also missing the mark: Gregoire made the point several times about building airplanes in Washington vs. other states. Washington officials and all the stakeholders, including the unions, need to convince Boeing to bring work back to Washington from other countries and commit future work for future airplane programs right here in Washington. Nothing was said about this.

Update, 1:55PM: The Associated Press reports, via The Seattle Post Intelligencer, that the Governor is going to announce the establishment of an aerospace commission–one of the recommendations of the Deloitte report. The AP said it got a copy of the report through a Public Records request. The report, of course, was here first. Andrea James of The P-I is updating her blog with new information. It may be linked here. Dominic Gates of The Seattle Times has this report in advance of the Governor’s press conference.

Update, 1:45 PM: Gov. Gregoire will hold a press conference at 2:45 PM PDT April 9 to discuss this study. It will be carried live by the Washington State TVW public information network, which also streams on the Internet. The link to the main TV page is here; you’ll have to scroll to the event itself.

Update, 9:30 AM: We were just told by a member of the Washington State Legislature who was briefed on this report that no copies were going to be distributed to the Legislature:

We had the briefing from Deloitte on Monday night and the Gov. was briefed on Tuesday morning. We were told we could not have copies and the presentation Powerpoint would be erased because circulation would be “devastating” to the state’s competitive posture.  From my reading of the materials, it was fairly common sense and not necessarily profound on issues we have known for quite sometime, at least from an insider’s perspective.

We find the plan to keep this report from the Legislature, which would be asked to make any changes to laws and compensation, to be very troubling. It’s also very stupid. Anytime someone tries to keep key documents from key stakeholders and decision-makers, someone is going to leak it. There is no greater resource than a pissed off one.

Additional Note: We are making a speech April 22 on the topic of retaining the anticipated second 787 production line in Washington before the Economic Development Council of Snohomish County and are addressing some of the issues in this report.

Original Post:

A new study by Deloitte performed for the Economic Development Council of Snohomish County (where Boeing’s Everett wide-body plant is located) concludes that Washington State is uncompetitive in attracting new aerospace business.

The report, which has not been released publicly and is to be used by the Governor to make a case for changes in state laws to ease business costs for Boeing and other firms, was obtained by us.

The Aerospace Industry Competitive Study may be downloaded. It is a 38 page PDF file.

Among the conclusions:

  • Washington has advantages to offer aerospace companies but disadvantages outweigh advantages;
  • Advantages include the aerospace footprint, skilled labor force, a competitive tax environment (this point will be a surprise to the overall perception and Boeing complaints), access to leading R&D and quality of life;
  • Disadvantages are labor rates, labor relations, training, cost of living and real estate/utility costs;
  • Gaps compared with other states are unemployment tax rates, R&D funding and the lack of a state agency dedicated to aerospace development;
  • Washington has more aerospace engineers than any of the other key competitive states: 10,590 vs. 8,230 in Texas, 2,560 in Kansas and 480 in North Carolina;
  • Washington aerospace employers has more stringent standards for engineers than other states;
  • Washington’s aerospace wages, and those within the state (Puget Sound vs. Moses Lake, WA), are significantly higher than anywhere else in the nation;
  • Washington taxes are higher than elsewhere;
  • Washington’s workman’s compensation costs are the third highest in the country, and the highest among the competitive aerospace states;
  • For all the beefing about Washington’s Business and Occupation tax system, on aerospace Deloitte concludes it is comparable to other aerospace competitors. Local incentives help offset Washington’s odd taxing system. (Known locally as the B&O tax, this taxes gross receipts rather than income, regardless of whether the company makes a profit. Washington state does not have an income tax.)
  • Washington offers Boeing lower property tax rates than other states, but other states offer greater exemptions, offsetting Washington’s lower property tax rate;
  • Other aerospace states offer better aerospace training and a better employee pipeline than Washington;
  • Washington has a strong R&D support program, other states are more aggressive in certain specific aerospace applications;
  • San Antonio, Texas, the site of growing Boeing 787 work (when 787 production finally gets underway), has better rail and highway access than does Everett;
  • Construction and operating costs are higher in Everett than elsewhere and Moses Lake is also at the top end;
  • Washington ranks higher than other states for quality of life measures;
  • Cost of living factors are highest in Washington compared with other aerospace states;
  • A particularly interesting conclusion is that Airbus is more efficient than Boeing, using few employees to deliver more airplanes. The Deloitte chart (Page 10) isn’t detailed enough to be precise but the employee gap appears to be at least 50 employees per airplane;
  • Labor relations, as could be expected, are shown to be the most challenging issue for Boeing.

14 Comments on “Washington State lags competitively

  1. Not to be flip, but a “no strike” agreement for 10-15 years might be an inducement.

  2. This “study” seems to be a crying towel for the governor, and little else.

    She will then take that damp towel, and try to use it to snap the state legislature in the rear for more money for BA, which is fine with shareholders.(me).

    But the study refers to attracting “NEW” aerospace business, not keping Boeing here, and makes no distinctions between the costs of producing aircraft here, vs starting from scratch elsewhere.

    The statistic I find most intersting is the 50 employee per AP gap.

    One one hand, I find that number credible only for the reason of design. Boeing employs more complex design features in their airframes vs airbus, so it wouldn’t surprise me. On the other hand, the number is simply BS unless Deloitte has contacts inside Airbus and all partners involved familiar with thoso numbers (unlikely).

    Neither do they state who those extra 50 heads are or what they do.

    What this report is is a dumbed down, skewed and biased summary of a very complex business situation, leaving out significant facts. It lacks insight.

    And if I’m not mistaken, unless there is another Deloitte somewhere, this firm has done significant work for Boeing, and has a lot of Boeing money in it’s coffers.

    The organization who commissioned the study, is NOT, I repeat *NOT* a governmental agency, and Boeing itself is a major contributor to it. In fact, it’s “investors” are a great collection of business lobbying and pressure groups who don’t really always have the public interests as their prime goal:


  3. How can they keep copies from legislators? Its on the internet!

    You are correct in pointing out that this isn’t exactly classified information and you can bet that the states of Texas, South Carolina, and North Carolina will tout any advantages they percieve for all their worth.

  4. if you can’t compete

    you lose

    you have to answer

    is it better to compete?

    or lose the job/company/industry?

  5. Good for Gregoire. At least she’s doing something! Where’s Aaron Reardon, who thinks he’s going to be governor? Or LIsa Brown, who had to wait until the Governor put this out to do something? If I am not mistaken, she would put an income tax in! Ya that is going to keep corporattions deciding to come here!

    You might complain, but at least Gregoire’s on it. More than you can say for all these other wannabes.

  6. Let me make this clear, in fairness:

    When Gary Locke opted to try to pay Boeing off to bulid 787 here, I sad “Fine, but you will never stop paying, and Boeing will be back for more. Much more”.

    Apparantly nobody can see what is happening here. Boeing is simply colluding loosly with the governor, and the unions, to extract more taxpayer money.

    1.Boeing makes it’s demand tangentially, and by proxy.

    2. On the exact same day the governor makes here statement and he plans known.

    3. Both of BA’s major unions get a seat at the table.

    Masterfuly orchestrated, but highly obvious.

    As obvious as Scott Carson making the obvious production cut notification after months of obfuscation, doing so after market close, on the best day Boeing stock had in a long, long time. It gave up half of it in after hours trading, and I wouldn’t be surprised at all if monday is a bloodbath for shareholders.

    This news was no surprise to those of us that follow aerospace. That was baked into the stock price.

    Boeing apparantly will adopt an incremental bad news policy, trying to peel of the band-aid slowly.

    No, the stunning revelation by Carson was that apparantly, Boeing have been discounting prices on aircraft close to delivery, causing them to warn on earnings in a quarter that experienced full production.

    Further, the commercial division is running out of revenue sources.

    777 revenues to be cut buy a third.

    No revenue from 747. (Losses actually)

    Little revenue from 767.

    Huge losses on 787. And if anyone still belives in q-1 2010 deleveries, thay ought to put down the crack pipe.

    This leaves 737 as the pole holding up the tent, and they are apparantly discounting right up to delivery.

    Boeing just sold a billion dollars in debt to prop up the balance sheet. My guess is we will see another bond sale soon enough. The shambles made of the balance sheet by management generated events, and Boeing’s debt ratio is going to only get worse.

    Michael O’Leary’s irish eyes must be smiling right now. I’m sure he knows, as the rest of us do, that Scott Carson is lying about 737 rates. In no way are those rates sustainable without more orders from Ryanair. And MOL is the vulture circling over the Boeing renton plant right now.

    It will come as no surprise if Boeing announces a 30% rate cut on 737 in Q1 or Q2 of 2010. But Scott Carson will deny it to the day he makes the statement.

    Boeing is simply incapable of telling the truth, either in a timly manner or at all. Being frank and candid is beyond their abilities. The investment community loves the company, but hates it’s management. The only thing preventing a total collapes of the stock are the instituionals who are unwilling to take the losses by dumping thier holdings right now. It’s just too big a writedown for say, Bank of America to dump 69 million shares, though I’m certain they wish they could.

    There is no question that most of Boeing’s wounds are self inflicted. They have skillfully manuverd through tough times before.

    Not this time.

    Only the current management team could pull off the sort of gaffs that have occured serially for the last three or four years. Even the defense side is running out of steam, the majority of their programs are on their death beds. They have lousy government relations, no doubt made worse yesterday by sucessfully suing NASA for patent infringment. And they will apparanty take the money.

    NASA? You are going to sue a national icon and good customer? Wow, how patriotic. I’m sure you will score points in congress for that.

    Boeing might as well have just sent a thug to beat down Neil Armstrong.

  7. It gets better:

    April 10 (Bloomberg) — Boeing Co.’s long-term corporate credit rating is being reviewed by Standard & Poor’s Ratings Services for a possible downgrade.

    S&P disclosed the review in a statement.
    Last Updated: April 10, 2009 12:32 EDT”

    I hear Boeing has a board of directors. Perhaps that’s only a myth.

    The quarterly conferance call should be interesting. Well it might be if the analysts and the media leave the softballs at home.

  8. Have Boeing set up a second 787 assembly line in Mobile, AL. That’ll kill two birds; Eliminate opposition when they win the KC-X contract and send a shot across the bow of the unions… “Wake Up, Ladies and Gentlemen… The 1970’s are over. You need to compete”.

    As mentioned above, a 10 to 15 year contract is probably a great idea for the long term viability of Boeing and its employees. This past strike was damaging and simply can not happen again. Both sides need to realize that Boeing is the standard bearer of American aviation and industry, and there is a “bigger picture” involved. Not only do we need to look across the Atlantic for our competition, but we have to look over our other shoulder behind us across the Pacific for the guys gaining on us.
    Both management and labor needs to start working as a team, as they represent America’s largest exporter and one of its most important industries.

  9. What is really at stake is not so much the second 787 line, which Boeing denies needing at this time, but the 737RS. I wasn’t kidding about the long term, no strike agreement. If Washington State wants the 737 successor, they better be prepared to convince organized labor to agree to a no strike agreement, with financial penalties in the event of an unauthorized strike. Of course, both sides could agree to substitute binding arbitration in the event of failure to agree on wages-hours-working conditions, but the company and its customers must be indemnified against the regular-as-clock-work strikes that have been occurring. Does anyone think its a coincidence that Japanese auto transplants locate mostly in the south?

    Sal, I like the idea of sourcing the second 787 line (if it ever happens) at Mobile!

  10. Shareholders unite and vote against Boeing’s Board of Directors. Also vote against proposals 2-3 and for shareholders proposals 4-10.

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