We received an email from a Reader, who works for Boeing, about the details that emerged last week of Boeing’s Request for Proposals for the site location for the 777X:
I went to your site today to see what you had on the leaked RFI, and I have to say the whining by your crowd of Airbus fanboys is just astounding. Given all of the support given to Airbus for the A380, with Hamburg filling in a protected wildlife sanctuary, giving billions of euros of infrastructure. Changing laws so they could snatch land for Airbus. The hypocrisy just makes me puke. Not one of your posters, nor you, even bother to look at what the over guys got. Nope, just bad, evil Boeing. You could do better, you know.
We replied to this Reader that shortly after the details emerged and we posted links to the newspapers that had them, our power went down for the next 16 hours. When it was restored, we had moved on to other things. The email prompted us to go back, look at the comments and ponder the Reader’s premise. Here is what we came up with:
Yep, the Reader comments are pretty harsh on Boeing. And yep, they don’t talk about the Airbus A380 issues. Fair point, but certainly one Boeing fanboys could have raised on their own.
As we have repeatedly said, we generally don’t step in and participate in or edit Reader comments unless there is a violation of our Reader comment rules or there is a direct question to us, or a question about which we can clarify something.
But to get directly to the email’s point:
The benefits Airbus received for the A380 were subject to the international trade dispute between the US (Boeing) and the European Union (Airbus), and the World Trade Organization found that Airbus received illegal subsidies for the A380. Although this finding is under appeal by the EU, Boeing and the US claimed victory.
Boeing, of course, had made the issue of illegal subsidies afforded Airbus an issue for years and a key feature of its campaign to win the USAF KC-X tanker contract. Then-Congressman Jay Inslee, now governor of Washington State, was a leading proponent of this line of thinking on behalf of Boeing. There were many other facets of the US (Boeing, Inslee) allegations against Airbus across the entire family of airliners, including the underlying complaint about launch aid (which Airbus later renamed “Reimbursable Launch Aid” or RLI). Some of these other issues were found to have been illegal and some were not. RLI per se was found not to be illegal, but the terms and conditions under which they were granted were. Thus, when Airbus asked for and received RLI from France and Germany for the A350 (which was not part of the trade dispute, since the airplane had not been launched when the WTO complaint was filed), Airbus claimed the A350’s RLI was structured in a manner to comply with the WTO findings (even though the EU had appealed). This didn’t matter to Boeing or the US Trade Representative, both of whom loudly complained that Airbus continued to flout WTO findings with more “illegal” aid.
In the EU’s counter-complaint over tax breaks and other financial benefits it claimed Boeing received over the years, the EU cited $3.2bn in tax breaks provided by Washington State to Boeing for the 787 line; tax breaks provided by Kansas for Boeing work there and by Illinois to relocate Boeing’s headquarters from Seattle to Chicago. There were also NASA and Defense Department research grants that the EU claimed were illegal.
As with the US complaint against Airbus, the WTO found some Boeing funding and incentives to be illegal and others to be not illegal. The US appealed these findings.
All appeals are pending with the WTO.
Now we come to the 777X RFP and the heart of today’s matter.
Washington State approved an incentive package proposed by now-Gov. Inslee to extend from 2024 to 2040 those 787 tax breaks provided by the State in 2003 for the 787 production. The value of these breaks is placed at $8.7bn, which is the largest tax incentive package in US history. Then the union that provides the touch labor at Boeing’s plants, including the 777 Classic production, rejected a contract that contained steep concessions in exchange for a guarantee to locate the 777X assembly at Everett. With the rejection, Boeing began shopping around, issuing the RFP. Details, of course, were secret but last week the Charlotte Observer, then the St. Louis Post Dispatch and the Seattle Times all got copies of the RFP and published varying levels of details. We didn’t have a copy, so we simply linked a post to all three papers.
What emerged was a set of requirements and desires that makes even the Washington State incentives pale in comparison. Topping the list was a no-cost, or low-cost $10bn set of buildings and free land. The wish list built on top of this.
Aside from the general audacity of this–and the likelihood that it’s way beyond any state to even remotely meet–to use the Boeing employee’s word from the email at the top of this post, it is the hypocrisy of it all.
Boeing for years complained about the incentives, tax breaks and benefits received by Airbus. At Boeing’s urging, the United States of American canceled the 1992 GATT agreement controlling subsidies on both sides of the Atlantic and initiated the WTO complaint. The US prevailed on many points, including some of those associated with the A380.
Having engaged in this international trade dispute and having won on many of its issues, Boeing now is asking for many of the same things it complained about Airbus having received, and it is seeking to have the 777X become the most subsidized airplane in the history of commercial aviation.
This raises the question of a theory advanced during the WTO controversy: whether Boeing’s action was nothing more than a ploy to divert attention from its 2003 tanker scandal in which the former USAF procurement officer, by then a Boeing employee, and the Boeing CFO, went to jail for improprieties; and to use the complaint as a political tool in the tanker competition, first with Northrop Grumman/EADS and later EADS alone.
Additionally, the very 787 tax breaks that were found to be illegal by the WTO have been offered by Gov. Inslee–the very politician who was so vociferous about illegal Airbus tax breaks during the tanker fight. Predictably, Airbus issued a statement denouncing the offer and we learned the EU was already beginning to look at the issue when the IAM 751 members rejected the contract.
From our perspective, and in response to our Boeing Reader, we are in awe at the hypocrisy and audacity displayed by Boeing and Inslee.
Long time Readers know that we have total disdain for the WTO, the US and EU complaints over the subsidies and other benefits, the entire process and the ineffective outcomes. But as long as Boeing and Inslee made such fuss from 2004-2011 over these issues, we find the blind eye displayed today to be hypocrisy at its worst.
Long time Readers also know that we don’t like corporate welfare in any form. For every dollar of tax breaks granted corporations, the tax burden is increased on ordinary citizens and other businesses that don’t qualify.
But having said that, the real world uses tax breaks and other incentives, so Boeing is going to seek them and governments are going to offer them. Parochially speaking, since we reside in Washington State, we want to see the 777X production here. Inslee is correct to offer tax breaks and incentives–but as we have written, these need to be tweaked to conform to the WTO findings. Instead, Inslee waves away the very process he so ardently supported only a few short years ago.
Realistically, we don’t see how any state can meet the specifications outlined in the Boeing RFP. Some states legally can’t provide direct funding to build buildings and give land. Given the financial condition of most states, we doubt few could afford to issue bonds for this purpose anyway. The key is how close other states can come to meeting the RFP specifications.
The RFP details as reported appear written to replicate what is already at Boeing’s Everett facility. We can’t help but wonder if the RFP is written to make a win by Washington all but inevitable. In any event, Everett is the best industrial choice for the 777X.
But that comes back to the situation with IAM 751. Members rejected the contract by a 2-1 vote.
Another Reader emailed over the weekend the following, and he hits the crux of the matter: how do Boeing and the IAM 751 get back together in a face-saving way?
After reviewing all the press on the 777X RFP; I still say, that other than a large runway, the port and rail logistics component is really the key determinant to site selection. And then labor and environmental culture/regs in excess of Federal standards a close second. [Editor’s Note: see here and here on environmental proposals in Washington State that are relevant to this point.] Those both being related to production and delivery timelines. The tax breaks/permitting component is pretty standard fair with little potential to differentiate significantly between states, but it is a great way to ‘go fishing’ for marginal cashflow benefits that can be recaptured across the ‘system’ through squeezing the supply chain, as well as anchoring political capital in DC across bidding states.
It will be interesting to see if any of the states incorporate an ‘ask’ of Boeing in return for the giveaways, especially related to workforce training and higher education commitments/investments. For example: Starbucks for its production facilities shopping takes the tax breaks, but then commits to X level of philanthropy return to the community, usually a green one. The social responsibility approach. An interesting omission in all the discussion around the 777X siting. It would be very interesting to kick that beehive over since corporate welfare really is a bipartisan perspective now.
The most amazing thing to me here in Washington is that Inslee hasn’t ‘manned up’ to publicly challenge the IAM, etc. and lay it on the line as to what’s a stake. Politically, it would be the pinnacle of foolishness for Boeing to ‘reward’ the union vote by ultimately placing the site here and giving them the ‘I told you so’ high ground which would dramatically inflate the union cultural mindset they are always trying to diminish and increase the likelihood for future friction.