EU may challenge 777X tax breaks from Washington State

Reuters is reporting that the European Union may challenge the $8.7bn in tax breaks Washington legislators voted to grant Boeing in return for locating assembly of the 777X and its wing in the state.

Readers know we worried about this when the Legislature voted for these in a hurry-up session. We were blown off by the state and even the mainstream media in raising these concerns.

State officials asserted at the time that the State was merely “extending” the 2003 tax breaks voted for the 787, totaling $3.2bn, for the 777X. The 787 tax breaks had been ruled illegal by the World Trade Organization, and state officials brushed this aside saying the ruling was under appeal.

We found this to be an astounding position, particularly considering that Gov. Jay Inslee, as a Congressman, demanded that the WTO findings of illegal tax breaks to Airbus be considered during the KC-X USAF tanker competition, despite a pending appeal.

In the Reuters story, Tim Hepher writes:

Boeing said tax decisions by Washington were meant for the whole industry in the state, including some Airbus suppliers, and have been designed to comply with WTO rulings.

“The $8.7 billion figure that’s mentioned is the state’s estimate of the total value of its incentives for the entire commercial aerospace industry over 16 years,” Boeing spokesman Charlie Miller said. “The benefit to Boeing will only be a fraction of that amount.”

The first statement is certainly true. We’re a bit flabbergasted by Miller’s claim that Boeing will receive only a “fraction” of the tax breaks.

The tax breaks have come under much after-the-fact criticism when Boeing announced that more engineering jobs would be moved out of state. Critics of the tax breaks noted that there had been no job guarantee provisions in the Legislation, freeing Boeing to move jobs–and it is doing just that.

Although Boeing hasn’t said how many jobs will be associated with the 777X in Washington, it’s clear that more automation and robotics will be used on the X than on the 777 Classic.


25 Comments on “EU may challenge 777X tax breaks from Washington State

  1. I’m not surprised by Gov. Inlsee at all. He’s not worried about what’s fair, he’s worried about what will be better for the State of WA to help him get re-elected.

    As for Miller’s comment: Sure, Boeing will only get a fraction of the $8.7B, but what fraction? 8/10ths; 9/10ths… Sure not all of it, but most of it.

    • A blanket statement indeed. It’s almost like saying “Let’s get these tax breaks in place so that it benefits us as much as our competitors.” Which they are certainly far from. Sure, you can say it benefits suppliers in the industry, but that doesn’t say anything about whether they are targeted at aspects that benefit mostly Boeing programs.

  2. Subsidies are bad, and Boeing is very guilty of being greedy as far as Washington is concerned, and not paying contract laborers their “fair share” obviously. But it was comically acceptable for Boeing to benefit through some swift foreign orders due to (national) state lobbying when Hillary was seeking some political donations, quid pro quo.

    Keesje is right. It’s big money, big industry, and big politics. Leeham, nor Hillary Clinton, nor John McCain are going to separate the three.

    • Boeing Union workers want it both ways, yah can’t……… most of the Union Engineers and laborers are/can be easily replaced with workers that are more grateful to have employment………whether it be 3 Years or 30 Years. Boss/Business gets all the dough………….that’s the American Way……….Labor can dream of EU Style Socialist-Marxist Labor Contracts and Employment for Life………..but it’s never going to happen. If Boeing was Smart………….they would should get out of Washington State altogether and Move to another Region/Country……sure the Labor would be happy……that is until they believe they have the same “entitlement/fair share”…and of course yah move your business again…….that’s the Capitalist way and American way

      • donal, you are welcome to apply to “easily replace” a skilled and experienced factory worker or aeromechanic or electrician or engineer.

        Please let us know how that works out for you

      • ” …as most of the Union Engineers and laborers are/can be easily replaced with workers that are more grateful to have employment”

        A great example is the South Carolina factory – 5 years and are still high up on learning curve.

        Thats why they get a bonus for meeting schedule for gasp- 10 days !!

      • Yep, we have seen how well that has gone in Charleston

        Apparently you have not been following that, the short detail is the glue for the Charleston workforce currently is “contact labor”. Thats a euphemism for outside hired mechanics and technicians who have built airframes before. When the contract labor was terminated the operation fell apart. Said contract labor has been hired back.

        It would be interesting to see actual produciton costs between the two facilities (Evert and Charleston) as the “in house” workforce costs less but you have to have a lot more people with the “outisde contractors” to do the job and those contractors will be paid far higher than the in house (probably does not help the morale a bit either). Not that you will ever hear that from “Sunny Chicago” where the wind does not blow.

        Do not take this as Charleston bashing, I expect that the people in the plant want the same thing I do. A good job that supports their families. The reality is for anyone who has worked a tech field, the requirement is always 5 yeas experience in that position. It takes that long to reach “minimum day in day out ” ability to handle routine jobs. Some master it sooner, some not as fast, but 5 years is a good average.

        To build a culture of aircraft assembly it takes far longer as you are assembling systems not a singular item. Systems interactions are much more complex and ripple into the other areas all too quickly.

        Its not as simple as greedy unions.

  3. Well Inslee is going to UK airshow to show the flag and a typical boondoggle trip.

    Actually, having been involved years ago ( 2000 2003 ) with Gatt92 ( WTO) subsidy issues when SPEEA was about to file a CVD ( Countervailing Duties petition ), and having as a mentora BA engineer who was AT Gatt 92, and putting together a lot of data on productivity, subsidies, agreements, – its fair to say that 90 percent or more of the press analysis is either incomplete, wrong, or slanted in subtle ways.

    • FWIW I’ll try a few points usually not mentioned re the subsidy issue- and how/why the WTO thing is such a mess.

      1) At gatt92- the issue was to help out the EU to become a significant player in LCA ( large commercial aircraft )- at that time really undefined- but for discussion consider it > 100 passengers.
      2) The method chosen was to allow the governments to give low cost loans for R&D and assist in production startup, tooling, facilities, etc. Payback was to be based on reasonably projected sales of xx units in yy years . And IF the targets were not met, the loan would be forgiven
      3) At that time and for many years later, productivity as measured by $$ sales/employee in the EU countries ( I use EU here as shorthand ) in the aerospace industry was well below that of the U.S.

      4) So what happened was various ways to game the system. meanwhile, U.S aerospace was slowing down, and for a while, more money had been made on govt contracts than on commercial.

      5) Airbus grew and got a bigger share of the LCA market, but arguments over what was a subsidy and what wasn’t, and how structured came to the forefront.

      6) By around 2000- a study by SPEEA of some of the data from EU re productivity and loans and sales price and production showed that on an equivalent sized- range airplane Airbus was somehow significantly undercutting Boeing prices and arrangements. The delta was estimated to be 10 to 15 percent ( I havent gone back to check the numbers ). Considering the productivity numbers from ACEMA and same cost for many parts, there had to be some other factors not obvious for Airbus to be selling at ‘ below cost ”

      7) BA did not want to file against Airbus due to concerns re sales overseas. SPEEA had standing to file a CVD petition ( not a dumping petition) and proceeded to finalize such. Matter of fact, the petition was to be carried/sent to Wash DC the week of Sept 11, 2001.

      8) For several other reasons, not going into here, the petition was never filed. One being BA was concerned about the tanker contract, and it was several years later that BA filed.

      (0 And the issue goes on and on and on and on . . .

  4. I found the motion by SPEEA re CVD August 7, 2001

    PRE-SUBMITTED NEW BUSINESS: Petition To File a Countervailing Duty Petition Against Airbus Industries

    Whereas, for the past year, the SPEEA Legislative and Public Affairs Committee (L&PA) has been conducting an intensive investigation into whether Airbus Industries is selling their commercial airplanes at below fair market prices, due to the subsidies it receives from EU governments.

    Whereas, SPEEA, acting on behalf of its members, does have legal standing to file a petition with the International Trade Administration (ITA) within the Department of Commerce and United States International Trade Commission (USITC) requesting relief under U.S. countervailing duty law.

    Whereas, the L&PA Committee has gathered data from various sources, including: annual reports from Boeing and the European Aeronautic Defence and Space Company (EADS) which includes Airbus, statistical surveys conducted by the European Aerospace Industry (EAI), Boeing and Airbus websites, numerous press accounts, and informal discussions with industry representatives.

    Whereas, the L&PA Committee’s evaluation has determined there is sufficient data to support our belief that Airbus is selling aircraft into the U.S. market at 10 to 25 percent below cost (not including special leases or other financial arrangements), with the resultant negative impact of lost jobs in the American commercial aerospace workforce.

    Whereas, the L&PA Committee has completed a draft of the petition requesting relief under U.S. countervailing duty law.

    Whereas, the L&PA Committee has completed a position paper which recommends filing the petition.

  5. Concerning the tax breaks – after what Boeing did to the IAM and is doing to their engineers, they deserve to lose chunks if not all that $8.7B.

    The Washington legislature and governor can’t or won’t act, so they should stand aside and let the EU have a try.

  6. Its interesting that no one has mentioned the fact that the state tax breaks are for domestic and foreign aerospace firms – including firms that are suppliers to Airbus.

    Granted, Boeing is the biggest beneficiary, but at least have the honesty to acknowledge that Airbus also benefits here too.

    • The only reason the tax breaks were designated as Aerospace related is to sneak around the federal / state rules about such issues. Matter of fact several WA state firms long in business already do business with Airbus . Had they limited it to BA, it would be considered a ‘ bribe’ . But think about it. BA and Inslee and pols made it very clear that IF IAM did not cave in on their contract with Boeing, we were ALL doomed. So the IAM took it in the shorts so as to get benefits for Airbus !!

      Now about the ethics document and training all must sign or be fired . ..

      Maybe there is a small print exclusion for Senior management ??

      Ahh its just a piece of paper for window dressing and to satisfy a court order for previous unethical and criminal conduct by BA executives.

    • This line of argument is disengenuous at best. The EU could come out and say that Launch Aid for Boeing would be available if Boeing were to set up facilities in the EU.

  7. Funny how corporations from time in memorial have told us


    Well, maybe they were right int his case anyway.

  8. TW – thanks for the pun.

    See also Robert Heinlein’s 1966 novel “The Moon is a Harsh Mistress” about a newly-independent Lunar Republic whose acronym-motto is “TANSTAAFL” – There Ain’t No Such Thing as a Free Lunch

    A definition of honest bribery is ” a politician or corporation that once bought off, stays bought”

  9. Don’t forget that even 99% of something is still a “fraction” of a whole.

  10. the EU may challenge, but I don’t think they will. There will be a new “understanding” between the US and EU, both WTO cases will be dropped and the west will go back to business as usual – making sure the newcomers can’t take hold.

    Just as Airbus was allowed to win a 50% market share

    or maybe Boeing will keep it simmering till KC-Z, to make sure they sell the 777 on that one.

    • Seems as Mr. M. doesn’t willingly want to let go of the reins. That could turn ugly.

      I noticed Jon Ostrower mentioned that some are embracing the Boeing Partnering for Success program. I would be interested to know just which suppliers would embrace a program which takes money away from them.

      • The Partnering for Poverty is not “embraced” by the suppliers we talk to. Reluctant participants, yes. But “embracing?” Not hardly.

        • Sort of wonder about the squeeze on vendors. After forcing all but one out for the specialized widget needed for the framistan. what happens when said sole source vendor says in a few years or so – Yo dudes- I’ll have to raise the price to 1.5 x or I’ll simply quit and go make something else. ??

  11. Will Airbus refuse the $159M in incentives for their $600M Mobile, Alabama plant?

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