Aug. 24, 2020, © Leeham News: Did Boeing telegraph plans to consolidate its 787 production in Charleston last February?
That’s when Boeing announced it asked the Washington Legislature to cancel tax breaks granted in 2003 to locate what was then the only 787 production line, in Washington.
Given subsequent events in which Boeing in July said it will consider consolidating two lines into one, one must wonder if the decision is already made. There’s near unanimous conclusions by outsiders that Everett’s days producing the 787 are numbered.
When Boeing said it asked the Legislature to cancel the tax breaks, officials said it was doing so to comply with a long-ago decision by the World Trade Organization that the breaks were illegal.
The WTO has yet to agree. It’s their call, not Boeing’s whether compliance was achieved.
But what is unequivocally true is that if Boeing moved 787 production out of Washington, those 2003 tax breaks would disappear. Gary Locke, who was governor in 2003 when the Legislature approved them, told me in 2008 this was the case.
This begs the question: if Boeing wants to consolidate 787 production in South Carolina, it will lose the Washington tax breaks. So why not ask the Legislature to cancel the breaks and look like you’re comply with the WTO decision?
If this is the case, then it is logical to conclude that Boeing may already have made the decision, in principal, to consolidate to Charleston.
The study announced by CEO David Calhoun on the July earnings call may be just nailing down the details of the savings and what must be done to implement it. Risk-reward factors will be outlined.
Or, as Boeing’s touch-labor union fears, it could be a gambit to wring more concessions out of the union. Or all of the above.
I’ve been following Boeing as a reporter and an analyst for more than 20 years. This scenario, which is entirely speculative, is in keeping with Boeing’s methods.
This is not a criticism. Boeing is very good at gaming as many scenarios as it can think of. True, it’s not always as good as gaming the outcome. One only needs point to the 787 production debacle or the gross miscalculations leading to the 2008 IAM strike or pushing Bombardier to sell the C Series to Airbus for $1 as examples.
But these mistakes don’t take away from the multi-dimensional chess game thinking that I’ve observed at Boeing all these years.
This scenario reminds me of the 2008-2009 Boeing actions, and telegraphing its punch, in the run-up to the decision to locate the second 787 assembly line in Charleston.
Jim McNerney, the CEO of Boeing at the time, was clearly engaged in open war with 751. He was intent at weakening the union, regardless of the risks.
Boeing’s internal study, called Gemini, clearly concluded that opening a second line in Charleston created more risks than benefits. But busting the union was so important that Boeing went ahead.
Things were so obvious that in April 2009, six months before Boeing made the announcement, that I predicted the second line would be located in Charleston. I also predicted that the replacement for the 737 and 777 would be outside Washington.
The 777X is not a replacement for the 777, it’s only a derivative. But even this was a close thing. Despite skeptics at the union and elsewhere, Boeing was serious about locating the 777X line elsewhere. When a true replacement for the 777 comes along, we’ll see what Boeing does at that time.
A replacement for the 737 must be announced later this decade. The best place to put it will be in Everett; LNA thinks it likely the Renton plant will close in 2033 at the end of 737 production. It’s certain Boeing will compete the site location across the country.
Boeing is expected to complete its study by the end of next month. I expect an announcement on or before the third quarter earnings call, Oct. 28. And I expect it to consolidate 787 production in Charleston.