Oct. 28, 2009: five years ago today, Boeing announced 787 Line 2 goes to Charleston; then, now and the future

This is about eight pages when printed.

It was five years ago today that Boeing announced it would locate the second assembly line for the 787 in Charleston (SC).

The decision was expected and, some say, had actually been made months before–as early as the preceding February. We take a look back at the events leading up to Boeing’s decision to put the second line in Charleston, what’s happened since then and where Boeing will be in five more years.

No State Strategy
Remarkably, Washington State had no formal aerospace strategy until 2010. Actions were ad hoc. Gov. Gary Locke (1996-2004), like governors before him and concurrent with the Legislature, took it for granted that Boeing would “always” be in Washington. He was blindsided when Boeing moved headquarters from Seattle to Chicago and blindsided again when Boeing undertook a nationwide search to find a site to assemble the 7E7.

His successor, Christine Gregoire, (2004-2012), spent her first term focused on things other than aerospace. She skipped Farnborough and Paris air shows in her first term. Little was done to lead the Legislature in modifying the State’s business climate to address Boeing’s demands. (“Fixing” the business climate often would conflict with union demands and interests.)

Gregoire did step up during the high-profile fight to support Boeing’s bid for the KC-X USAF aerial tanker competition with Airbus, but her relations with Boeing were at best tenuous (see below).

During 2009, Boeing began a new site selection threat: the second 787 assembly line would not be placed in Everett, but rather in Charleston, unless the IAM agreed to a 10-year contract that prevented the possibility of another strike.

That April, we gave a speech to what was then called the Economic Development Commission of Snohomish County. At this event, with a table full of Boeing managers nearby, we predicted the 787 Line 2 would be placed in Charleston, and if nothing changed in Washington, the replacement airplanes for the 737 and 777 would also go elsewhere. We told some harsh truths, as we saw it (and were never invited back to speak).

In early October, we were keynote speaker for the Governor’s Aerospace Summit in Spokane (WA). We had a 45 minute slot, and Gregoire (at whose table we were seated) had 10 minutes. (Talk about awkward.) At this speech, we repeated our prediction and outlined a strategy we recommended for the State to look “Beyond Boeing,” once more detailing some hard truths about Washington’s aerospace strategy (or lack of it). (We weren’t invited back after this one, either, but shortly after Gregoire provided an interview in the Puget Sound Business Journal in which she said the State needed to look beyond Boeing for its aerospace business.)

We were retained by the State in 2010 to recommend an aerospace strategy. Beyond Boeing was essentially adopted, and today Washington aggressively courts suppliers to feed Boeing, the other of the Big Four airframe OEMs, the new entrants and more.

Relations between the State and Boeing
Relations between Boeing and Washington State had been growing more testy for many years. Former CEO Frank Shrontz (1986-1996) complained that the State’s business climate and educational standards needed improving. His successor, Phil Condit, along with Boeing Commercial Airplanes CEO Alan Mulally, carried on the refrain. So did Mulally’s successor, Jim Albaugh, and Condit’s successor, Jim McNerney. But it seemed Washington politicians weren’t listening.

Gary Locke, Washington governor from 1996-2004, was caught napping when Boeing moved its headquarters from Seattle to Chicago in 2001 and again when Boeing nearly located the assembly line for the 7E7 in North Carolina. Photo: KOMO News.

Gary Locke, Washington governor from 1996-2004, was caught napping when Boeing moved its headquarters from Seattle to Chicago in 2001 and again when Boeing nearly located the assembly line for the 7E7 in North Carolina. Photo: KOMO News.

Washington State politicians, from the governor’s office down to the local level, were complacent. When, in 2001, Boeing relocated its headquarters from Seattle to Chicago, the news came as a shock: Washington’s elected officials didn’t even know Boeing was shopping around.

The departure, many claimed, became a “wake-up call.” Gov. Gary Locke, a Democrat in this highly Blue state, was into his second term but he, along with other politicians, then proceeded to hit the snooze button.

A mere two years later, Washington electeds were once again caught napping. When Boeing looked like it was finally going to go forward with its first all-new airplane since 1994’s 777, the composite 7E7 (as it was then known), Boeing began shopping once again, this time for the final assembly site. Washington politicians assumed any new airplane would be built right here in Puget Sound. From all appearances, it looked like the 7E7 was going to go elsewhere. Only a last minute tax incentive package, at the time the largest Washington had even given (and probably more than any other state), of $3.2bn over 20 years saved the day. Boeing announced the program and the assembly site in December 2003. The 7E7 would be assembled in Everett.

True to form, Washington got snookered on this deal, though it would be six years before this became evident.

Former Gov. Chris Gregoire, who won her first term in 2004 in a disputed election that required three recounts and a court action that ended with a victory

Then-Gov. Christine Gregoire rallied with IAM 751 during her reelection campaign in 2008, at a time when 751 and Boeing were in bitter contract talks. The union would strike for 57 days. Boeing executives were said to be incensed at Gregoire’s appearance with 751. Photo: Washingtonwire

margin of just 133 votes, faced the same opponent in 2008 in what was also expected to be squeaker. Labor could naturally be expected to vote for her—she is a Democrat—but she chose anyway to appear at a rally by the International Association of Machinists District 751 outside the Sea-Tac (WA) hotel where contentious contract negotiations were going on with Boeing in September 2008. Labor leaders boasted that Washington State was the fourth most unionized state in the country.

Gregoire’s appearance was said to have incensed Chicago—Boeing’s headquarters. The union’s boast didn’t help Boeing’s attitude toward Washington.

The union would go on to reject the Boeing contract and strike for 57 days, costing Boeing billions of dollars and a public chastisement from Richard Branson, who was in town to take delivery of a new Boeing 777-300ER for Virgin Australia. If Boeing couldn’t stop these strikes, he said, he’s simply go buy Airbus.

787 Line 2
Coming off the strike, Boeing C-level executives in Seattle and Chicago had had enough. It wasn’t long before rumors of taking work out of Puget Sound picked up again, with the prospect that the second assembly line for the 787 going elsewhere the headliner.

Given the $3.2bn in tax breaks the State gave to Boeing for Line 1, many initially thought this meant all 787 assembly would be in Everett. This wasn’t the case. As confusion swirled, we called Gary Locke, by now at a Seattle law firm, having decided not to seek a third term. Locke told us that the tax breaks did not provide that a second line, or any additional line beyond Line 1, would be built in Washington. In fact, there was nothing technically to prevent Boeing from moving Line 1 out of Washington—the tax breaks would simply go away. (As a practical matter, this wouldn’t happen.)

Boeing was able to have its cake and eat it, too.

As Boeing let it known it was going to possibly put Line 2 in Charleston, State officials and the IAM 751 leadership suddenly woke up—that pesky snooze alarm had gone off again.

State officials, led by Gov. Gregoire, asked Boeing if there way anything the State could do to ensure Line 2 would be located in Everett. Boeing told the governor, and any other State official and Washington Member of Congress who asked, that, No, there were no incentives that could be offered. This was entirely between the company and IAM 751. A 10-year, no strike deal was needed. (The 2008 IAM contract at that time extended only four years.)

Nonetheless, Gregoire’s office put together a slick document stating a “business case” why it made sense for Boeing to put Line 2 here. Mostly it revolved around the experienced workforce, established infrastructure, a huge supply base, education and, less persuasive, that regulations and the so-called “business climate” were superior to South Carolina.

For South Carolina, its argument was a variation on the old real estate saying (Location, location, location): Non-union, non-union, non-union.

In fact, as the site selection process was unveiled, Charleston was represented by a different IAM district, but members voted to dissolve the representation by September.

Gregoire, other electeds and the Seattle business community could only sit back and wait for events to unfold. They took Boeing at its word that this was entirely between the union and the company, and that incentives had no role in the decision.

From here, claims and counter-claims diverge about what happened next.

Tom Wroblewski

Tom Wroblewski was president of IAM District 751 in 2009 when Boeing and the union tried to reach a 10 year contract to assure 787 Line 2 would be in Everett. Talks failed. Wroblewski charged Boeing never intended to put Line 2 in Everett and talks were a sham. Photo: WSAU

IAM 751 leaders and staff claim they went to Chicago with a comprehensive package to give Boeing its 10-year agreement, as long as some additional economic considerations were given in return. They claim Boeing negotiators were stunned when the union in fact offered a 10 year deal, and didn’t know what to do. So, 751 leaders claim, the Boeing negotiators did nothing. No counter offer, no nothing.

Boeing claims 751 asked for additional economic terms that it simply could not accept. Talks broke off and on Oct. 28, 2009, Boeing announced Charleston would get Line 2.

IAM 751 leaders were furious: they charged Boeing never intended to have good-faith negotiations and used the talks as a stalking horse to blame the union for its decision. IAM charged further that the decision was made in retaliation for the strike.

Boeing claims the talks were real, an agreement simply couldn’t be reached and there was no retaliation—although officials were clear in every public statement (and private ones, too) that the decision was “about the union.”

But when Boeing announced the Charleston decision, it also announced that South Carolina and local governments provided hundreds of millions of dollars worth of incentives. The final amount was never revealed, but it was widely reported to be in excess of $900m in economic value.

Washington politicians, from Gregoire to US Sen. Patty Murray—“the Senator from Boeing”—to officials of Snohomish County (where Everett is located) all felt betrayed, having been told incentives would play no role.

Washington was snookered again. Or, in an alternative theory, South Carolina was snookered. This theory is that Boeing indeed had already decided to go to Charleston and used the talks and uncertainty to pick South Carolina’s pocket.

Boeing being Boeing, and extraordinarily adept at the game, anything is possible.

Economic blackmail of labor, Washington State held hostage
Adept, indeed.

When Boeing was forced by Airbus—in a brilliant international game of strategy—to abandon the idea of a New Small Airplane and go with a re-engined 737, later called MAX, to meet the A320neo threat, everyone (including us) said it only made sense to assemble the MAX at Boeing’s 737 Renton plant. After all, it was a derivative.

The CEO of Boeing Commercial Airplanes, Jim Albaugh, got some tail feathers plucked publicly when he said the re-engined 737 would be assembled in Renton (WA). Photo: Arabian Business

The CEO of Boeing Commercial Airplanes, Jim Albaugh, got some tail feathers plucked publicly when he said the re-engined 737 would be assembled in Renton (WA). Photo: Arabian Business

Jim Albaugh, then CEO of Boeing Commercial Airplanes, told employees here the 737RE would be built at Renton. This, of course, immediately leaked to the media, which promptly reported it. But an extraordinary thing happened. Jim McNerney, CEO of The Boeing Co., said not so fast and in a move that shocked Wall Street, employees, media and observers, publicly rebuked Albaugh. Albaugh’s media handler had to fly to Chicago and explain himself; fortunately, he did not lose his job over it. Neither did Albaugh, though it is widely believed this was another chink in his armor that cumulatively led to his abrupt retirement less than a year later.

Boeing once again demanded IAM 751 extend its labor contract and grant other concessions. Overhanging this was a complaint by 751 to the National Labor Relations Board about the Charleston decision being in retaliation for the 2008 strike. An NLRB examiner sided with the union, and a full hearing was planned. Boeing used moving the 737 MAX assembly outside Washington as a cudgel to dismiss the NLRB complaint, even though Boeing professed confidence it would win any hearing.

We believe 751 had Boeing by the short hairs, as they say. Boeing’s public and private statements were clear. Documents obtained by 751 and the NLRB also made it clear that putting Line 2 in Charleston was a highly risky moved and that strikes were a consideration.

In another perfidy, Boeing’s legal response to the NLRB complaint said the decision had nothing to do with the union at all, it was entirely about incentives.

Talk about chutzpah.

In the end, 751 dropped the NLRB complaint and extended the contract. The State stepped up with some training money. And the MAX was sited where we think it was going to be all along, at Renton.

Boeing still wasn’t through with labor and economic blackmail.

For all the dissing Boeing does about Airbus, the European company not only had diddled Boeing into proceeding with the 737 MAX—a solution that really doesn’t work all that well (as we have written on several occasions), the A350-900 and -1000 put Boeing on the defensive with the 777-200/300 Series. To be sure, Airbus once again muffed its wide-body strategy, first having to revamp the A350 design five or six times, then creating a shrink (the -800) that simply wasn’t up to snuff and a -1000 that is a bit too small. Despite all this, the -900 killed the -200 Series that was already dying and the -1000’s economics were so far superior to the -300ER’s trip costs that Boeing had no choice but to respond with the 777X. (In a rare muff of its wide-body strategy, Boeing’s 777-8X will almost certainly be a sales dog, the replacement for the ultra-long range 777-200LR that has little market appeal.)

As with the 737 MAX, we and many others believed the only logical place to build the derivative 777X was Everett. Boeing had other ideas, and once more turned to the union: extend the contract, drop your pension, pay more for your health care, make other concessions or we’ll take our airplane elsewhere.

And by the way, Washington, what can you do for us?

Jay Inslee

Gov. Jay Inslee (right) speaks with Boeing executive Pat Shanahan at the opening ceremony of the Everett Delivery Center, an investment Boeing points to demonstrating its commitment to Washington State. Inslee crafted a controversial $8.7bn set of tax breaks to land the 777X assembly site and wing production plant. Photo: Leeham News.

Washington was the first to act. In a hastily called special session of the Legislature, Gov. Jay Inslee, who succeeded the retiring Gregoire, offered up $8.7bn in tax breaks over 20 years. These are a straight extension of the $3.2bn in tax breaks for the 787 (which, by the way, the World Trade Organization ruled to be illegal, a detail Inslee chose to ignore). The 777X tax breaks are a US record—no corporate welfare of this size has ever been done.

Another little detail is that Washington could ill-afford them: we’re $2bn in the hole on education alone; even the State Supreme Court has held the Legislature in contempt of a court order to fix this, something decades in the making, though the Court’s decision came after the tax breaks. But that’s neither here nor there.

As for IAM 751, nothing ate at leadership and membership more than being asked at contract time for give-backs, and the blackmail that Boeing routinely engaged in made matters worse. Union members had other legitimate reasons to be pissed off. They lobbied fiercely for Boeing in the KC-X USAF tanker contract. It was IAM members who worked long, over-time hours to boost production and efficiencies on the 737 and 777 lines to provide the cash flow necessary to keep Boeing afloat during the multi-billion dollar 787 and 747-8 design and production debacles. It was IAM members who had to fix the 787’s problems from poor-performing industrial partners and suppliers. And finally, there was the ever-persistent complaint that while Boeing was asking union members for give backs, the executives were raking in bonuses, stock options and pensions.

The union rejected the first contract. Boeing came back with a slightly better one and, in a bitter vote, 751 members approved it with a mere 51% count. The contract was extended to 2024. Jim McNerney, for all practical purposes, broke the union, at least its effectiveness if not the organization.

The 777X and its composite wing were located in Puget Sound, where many in 751 believed it would be anyway. Boeing broke ground on the 777X wing factory Oct. 21, 2014.

Unlike the 737 MAX, we’re not at all sure this would have been the case had 751 rejected the contract a second time. Our information from inside Boeing among those who actually think the company was, as usual, ham-handed in its handling of the situation, is that they are to this day convinced Boeing would have put the airplane elsewhere despite making no financial sense. We think so, too: McNerney dislikes 751 so much, we believe he was willing to move the airplane, common sense be damned. He’d be retired by the time production begins anyway.

McNerney wasn’t done. The white-collar engineers union, SPEEA, has always been the weaker of Boeing’s two main unions. It’s easier to outsource engineering than it is the touch labor, and Boeing has been moving SPEEA jobs out of Washington on a regular basis.

Labor relations at Boeing are about as bad as we’ve ever seen them, and we’ve been following Boeing for more than 20 years.

Washington, five years later
So how do things stand five years after Boeing put 787 Line 2 in Charleston? Boeing points out that it’s made additional investments here: the Everett and Renton delivery centers are pointed to as examples. Investments in Renton to add the third 737 line (for the MAX). Production rates for the 737 are steadily increasing in Renton. Click the image to enlarge into a crisp viewing.

Boeing 2009-2019But Boeing is also moving thousands of jobs, mostly engineering and technical, out of the state. The 787-10 will be built exclusively in Charleston (because of logistics, the company says). The record-breaking 777X tax incentive package didn’t include job guarantees. Washington was snookered again, critics say, but the jobs moved so far are unrelated to the 777X. To be sure, Boeing at St. Louis, its defense unit, is getting 777X-related jobs, but one can make a strong argument that with defense cut backs and St. Louis taking a big hit, Boeing needs to put work there to keep the skill set sharp. (St. Louis was said to have been a top choice for the assembly site.)

Boeing points out that employment in Washington is up and the data supports this (see Table). But we believe jobs will be down in another five years as Boeing moves jobs out across the “Enterprise” and the 777 Classic production declines. As 777X production takes over, Boeing said at the Oct. 21 groundbreaking there will be about 10% more 777X jobs than today’s Classic, or, according to a Seattle Times estimate, an extra 300 despite increased automation.

Lest Puget Sound thinks it can hit that snooze button again, think again. Based on our Market Intelligence, Boeing can be expected to launch a New Small Airplane program in 2018 to replace the 757 and 737-9 MAX, followed by a 737-8 MAX replacement, all with entry-into-service in the 2025-2027 period. The 757 is aging, and Airbus has a solution to replace it with a more capable A321neo Long Range. The 737-9 MAX is inferior to the A321neo. The 737-7, if not already dead, is the “new” 737-600 that sold only 69 airplanes in its entire life. This leaves the 737-8 MAX, which is slightly better than the A320neo, as the prime 737 family going forward. Boeing has to do a new airplane, and once the 777X is in flight testing, look for the new airplane program launch.

Then it will be labor and state economic blackmail all over again.

3 Comments on “Oct. 28, 2009: five years ago today, Boeing announced 787 Line 2 goes to Charleston; then, now and the future

  1. In this summary WA government justifiably comes of badly.
    Boeing justifiably comes off very badly.
    It appears to me the union and its militancy was soft peddled, when BOTH Boeing and the union seem to be spoiling for these confrontations, and both sides don’t seem to be able to see the forest for the trees! Multiple EGOs run amok on BOTH SIDES, with a bumbling state government caught in the middle-is my condensed version.

  2. Great article – RE the last contract with the IAM. While you are correct in what the outcome was, a not so subtle issue missed by most. The International president, Buffenbarger worked the whole deal with Boeing, with little or no input from 751. And as it later turned out, due to the governing documents, no vote by 751 was really needed, Buffy and a few in the national had sole authority to make and approve the contract. Those 751 staff and elected officials got the message re opposing the Buffy arrangements re ‘ career ‘ development. Probably the first time in Boeing history that BA management AND the National IAM got together to screw the local union. Thus the ‘ vote ‘ schedule over Xmas when most senior had left was merely window dressing.

    Now add to that the ‘ cowering’ comments, and the ‘ financial engineering ‘, the inappropriate comments by BA personally attacking a union EMPLOYEE and BA now seems to be on the same path as the MDC, and for the same reasons.

    Since they lose money on every 787, and will for several years they may not be able to ‘ make it up by volume’ .

  3. In the past, Boeing’s business philosophy was long-term, emphasizing productivity, performance and quality, in the Deming-san sense. Shortly before the merger, Boeing set that aside, consciously trading the problem-solving engineering-manufacturing culture for the Wal-Mart business model; extracting gains from major stakeholders through power relationships.

    The Wal-Mart model is characterized by conflict, rivalries, and one-way relationships.

    Aerospace customers demand performance. When the 787 was launched in 2004, a respected engineer said Boeing would have one and a half programs under this business culture. After that, the loss of leadership and capability would prevent recovery. We’re approaching that moment.

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