Leeham News and Analysis
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Leeham News and Analysis
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Boeing needs to show respect for taxpayers, Gov. Inslee says
By Scott Hamilton
Oct. 1, 2020, © Leeham News: Washington Gov. Jay Inslee reacted today to Boeing’s decision to consolidate 787 production in Charleston (SC) with a threat.
Gov. Jay Inslee
“Boeing’s decision to take the 787 to South Carolina necessitates a review of our partnership and the company’s favorable tax treatment,” said in a statement.
Boeing needs to respect Washington taxpayers, he said.
The county executive and the city mayor where the Washington 787 Final Assembly Line #1 is located promised support and strengthening the relationship with an eye toward economic recovery and a future New Boeing Airplane (NBA).
This is no time for divisions, said Snohomish County Executive David Somers when asked about Inslee’s threat.
Everett Mayor Cassie Franklin agreed. She said it’s time to support Boeing, a “family member,” who is hurting in this economic crisis triggered by the COVID-19 pandemic.
Governor’s remarks
Inslee complained that Boeing wouldn’t commit to returning the 787 to Everett if and when market demand recovers.
“I recently asked Boeing’s leadership what the company needs to keep 787 production in Washington state. In all our conversations, they never asked for anything. I understand the serious market forces Boeing faces today,” Inslee said in a statement. “What I don’t understand is why the company can’t commit to restoring production here when the market for this plane improves.”
Between 900 and 1,000 jobs will be lost at Boeing. For every direct job, three or four indirect jobs will be affected.
“Boeing’s decision to take the 787 to South Carolina necessitates a review of our partnership and the company’s favorable tax treatment,” Inslee said.
Dave Somers
Somers was perplexed at Inslee’s tax treatment element. Boeing gave up all favorable taxes in April to clear adverse rulings at the World Trade Organization that Washington tax breaks were illegal under WTO rules.
As for Inslee’s thinly veiled threat, Somers said this is not time for division. It’s time to rally to Boeing’s side. He called Boeing “family” and in times of stress, it’s time to strengthen the relationship and plan for the future.
Franklin, the Everett mayor, agreed. Everett and Snohomish County will plan to support aerospace and Boeing to be ready when commercial aviation recovers, she and Somers said. The best guestimate is an economic and industry recovery around 2024-25.
Cassie Franklin
“Mayor Franklin and I are committed to looking for the future,” Somers said. “We continue to see that as the best path for the future.”
The best way is to be supportive and understanding, Somers said.
Boeing needs to respect taxpayers
In a press conference this afternoon, Inslee said that he has a responsibility as governor to seek fairness for taxpayers over past and current tax breaks to Boeing.
He criticized Boeing for disrespecting taxpayers by its refusal to discuss returning 787 production to Washington when the market recovers.
Boeing still benefits from $100m a year in tax breaks, Inslee said. These are relief in Business & Occupation taxes for pre-production and real estate, computers and new construction. Inslee said a review of these tax breaks will begin.
“We need The Boeing Co to show more respect for the taxpayers,” Inslee said.
Inslee objected to the characterization by Somers and Franklin that his statement is divisive.
“We cannot be a state that just takes orders from any company,” Inslee said. “We just can’t. We can’t be in a position where a company dictates to us. If anyone suggests this is divisive, I’d say it’s responsible. This is a two-way street. It is not a one-way street. We have to have The Boeing Co. realize this.”
Inslee has a somewhat contentious relationship with Boeing. He was governor when, in 2013, the state granted $8.2bn in tax incentives to land the 777X wing factory and FAL. Inslee later complained he felt mugged, because Boeing threatened to locate these outside Washington if the breaks weren’t granted. Boeing also refused to guarantee a certain level of jobs with the breaks. Afterward, Boeing relocated more than 10,000 jobs outside Washington, in some cases using these to fill jobs-for-tax break requirements in other states.
During Inslee’s brief run for president, he criticized Boeing for its tactics.
No incentives
With Inslee complaining about Boeing tax breaks, the obvious question arises: did state or local governments in South Carolina offer any tax breaks to incentivize Boeing to consolidate production there?
The Charleston Post and Courier reported today the answer is “no.”
“Boeing has not received any new incentives to consolidate production at Boeing South Carolina,” the newspaper reports, citing a Boeing spokesperson. “This decision was driven by an objective review of market realities, production scenarios, and logistical considerations. We value our relationships across South Carolina and constantly work with those partners to ensure a long-term, competitive business environment.”
Gov. Henry McMaster also said no incentives were offered, the paper reports.
In the meantime
Somers, who said he talked with Boeing this morning, said there was no discussion about what Boeing will do with the empty space. Rumors within Boeing’s Everett plant suggest the 737 line might relocate from Renton to Everett. With production ticking along at low rates, a transfer could occur with relatively little disruption, in theory.
Somers said there was no discussion of this on his call with Boeing.
I have little sympathy for the governor, or tax payers or employees. The ground work for this action on the part of Boeing was engendered by a militant union who acted with avarice and greed to gradually ramp up wages and benefits far far in excess of inflation. They made thid bed – now they must lie in it.
If I’m looking for avarice and greed, I would start with $70 billion extracted from cash flow for stock repurchases. Then I would look at two consecutive airplane programs with eye-popping losses and delays under a failed shareholder-first business model. I might also wonder about the loss of technical leadership and dashed confidence among customers, passengers, regulators and the public at large.
It’s hard for me to fault workers for wanting to keep their pensions, when shareholders are hollowing out the company.
Yes, Manglement was also at fault, I looks at stock repurchases as simple combustion of money – in effect they are bedfellows in Seattle. Most of those funds came from other divisions than in the Seattle area.
I would like to see the detailed union agreement published by wiki-leaks, as we are in the dark on this and it is hard to judge.
“Most of those funds came from other divisions than in the Seattle area.”
Do you really think that most of Boeings free cash comes other than the Commercial airplane division. before the Max issues , 2/3 revenue came from commercial planes
Boeing is doing to Seattle what it did to Long Beach. The next single aisle program FAL will be not be in Seattle Maybe the thermoplastic wings in Seattle, convert the 777x wing line to thermoplastic technology (since the 777x will be close to be out of production) So what did “we” learn Subsidies of $11 billion for 787 and 777x is a taxpayer nightmare! Low cost labor and non union environment is Boeing formula for FAL location.
” ramp up wages and benefits far far in excess of inflation”
Thats their job because the US has a long history of wages rising faster than inflation ( until very recently). Its an economic axiom that it is so.
Anyway why should employees get a share of the rivers of cash that flowed through Boeings accounts, if the shareholders were getting it so should the wage employees.
If you havent noticed Everett did a far better job with the 787 final assembly than Charleston, the quality was higher and the assembly time per plane was substantially less.
Boeing has shown, over the past decade or more, utterly abysmal leadership, whether on the 787 development debacle or the 767 scandal or most recently the incredible fustercluck that is the 737MAX.
They’ve lost all claim to any kind of “presumption of innocence” where this or any other issue is concerned. In other words, it’s not hard to imagine that Inslee is right.
Boeing had said that consolidation would require the chosen location to handle future increased demand, so that is probably why they didn’t commit to moving back.
As far as not asking for anything to stay, there was probably nothing the state could offer within the scope of the WTO ruling. Also why Charleston didn’t offer anything.
It’s understandable why Inslee is upset, no one wants to see those jobs leave, and the state has made significant efforts on Boeing’s behalf. But maybe more productive now to discuss with Boeing how to work together to minimize the damage, and try to provide alternative work for some of those employees.
It’s a bad business all around, unfortunately. I hope that some of the Everett quality & rework expertise is transferred to Charleston.
As I understand it, Charleston was built to handle at least 10 a month, possibly 14.
So leaving as Scott noted was part of the long term plan.
Couldn’t handle the 7 rate before as planes had to be moved in and out of the final assembly building to keep the line moving. Add to that a 30% slower build rate than Everett. Can’t see how they can get to 12 without major new buildings …or does Boeing have some more blue sky thinking from management to change current reality.
Duke:
Not how they did, but what the possible capacity of Charleston is.
No disagreement on issues of how many they acualy can make, but not an issue right now.
The reality is Boeing is leaving Washington State, its clearly a part of a long term strategy .
BCA was a power center that Chicago wants to get rid of, so its scattering BCA all over the US (wherever it gets tax breaks of course)
The only way for Boeing to stay in Washington State will be for WS to pay them not to build airplanes.
The next thing you will hear is, Everett is too costly with only the 777 and 767 production, so we need to move it to X (or pay big bucks to keep it here)
Eventually all the workers become Washington State employees.
And yes, I know I am mixing up metaphors and aphores, but it explains what is going on.
Will the last person out of the Everett facility planes turn off the lights!
Once again, no truth to the claim that Boeing is leaving Washington State. Just a PSA for readers here.
They have been ‘leaving Washington state’ for over 20 years, even with the 737 the fuselages are almost fully ‘stuffed’ in Wichita now.
Fuselages are not fully stuffed in Wichita. Yes the main monocoque structure sans wing box are assembled there, but no major systems are installed. Boeing is probably always looking for ways of reducing flow in final assembly and this would be a way to do it, but at the moment 737s are not “almost fully stuffed”.
The Boeing NSA program FAL with not be in Washington State. Mostly like to get to over 70 aircraft a month, they will adopt the Airbus FAL model with multiple FAL around the world (and collect government incentives “subsidies” along the way)…my guess Charleston SC, Dubai UAE, Zhoushan, China and Vietnam (one of their industrial zones)
Here is the 2027 headline “One of Boeing launch customers for their clean sheet thermoplastic composite NSA are the Chinese airlines. One of the 4 Boeing FAL for the NSA will be located in Zhoushan, China.”
Duke, TW, and others have made this claim about Boeing leaving Washington State, so I looked up the staff location percentages.
While Boeing has both acquired (through mergers) and diversified locations around the world, their commitment in Washington remains very strong.
Washington: 45%
International: 20% (15% in foreign offices)
Missouri: 10%
California: 8%
Carolina: 4%
Arizona: 3%
Texas: 3%
Pennsylvania: 3%
Alabama: 2%
Oklahoma: 2%
Illinois (Chicago headquarters) and Delaware (incorporation) are too small to appear on the list. So I don’t think the claim that Boeing is leaving Washington is substantiated by fact.
The phrase “is leaving” is dynamic in nature…indicating a transition. A static snapshot neither proves nor disproves transition.
The point was that there is no evidence of a large flux out of Washington State. The above numbers have evolved over 20-plus years, so the dynamic rate is also quite low.
The 787 shift is a percentage point or two in the data. Changes in the economy which affect employment produce much larger shifts, up and down.
Well I would call Charleston back in Anti Union move big, and this is big as well.
In Sword combat its refereed to as the death of a thousand slices.
Clearly its a slow methodical move.
You can disagree with motivation though I think its valid.
TW, I think we’ve completed the usual cycle here. You make a claim that makes no sense. So we look up the data to find out whether it’s true or not. The data do not support your claim. But you refuse to accept the true result in favor of your original opinion & claim.
And so the Transworld turns. It really is remarkable, the extent to which you hang on in the face of opposing facts. But as long as we have the facts, we know what the truth is, so that’s what matters.
Rob:
I have to agree, you roll out facts that are out of context.
What we need is what was the data 10 years ago and go year by year until today. Nice graph would be great.
While I do not have logged the reports (working on that) we can go with some.
1. Electronics division was eliminated. As I understand it, its being rebuilt (where?)
2. Jobs were eliminated in Washington State then opened up elsewhere. You were fired, then you could apply again in the new location.
That was reported on Leeham a number of times as I recall, and it was a huge deal in the papers that Washington State was loosing jobs despite the HUGE TAX BREAK (because they failed to tie those jobs to the tax break).
Now maybe the Seattle times is lying? Fake news?
On the other hand, Boeing has no choice to add jobs in some areas like 767 ramp up (though I think those were moved over from other program) as well as the 777 Wing factory.
But those are forced, unless you are going to move the 777 program out of state. More huge costs and it would look to be, ahh well, we will let it die off a natural death.
Agreed its selective as even the board would balk at a whole new 4 billion dollar facility somewhere else.
So the move to Charleston reduces Boeing and other jobs by around 4000 people. That is not a move?
Or, just perhaps, you use selective data to make a point that it does not support?
My Passat gets 44 mpg. Well, sometimes it does on the highway. Or I can say I get 40 mpg (that is a good highway average )
Real world? 32 MPG average in town (that is where most of the miles put on it are. So maybe at best its 33 or 34 average overall).
That is a long ways from 44 isn’t it?
No disagreement that I can’t prove Boeing is reducing power centers. It does mesh nicely with the overall corrupted approach.
They have no central defense center like Everett/Renton, and amazingly we see no raised issues from that. Hmmmm..
Or where are the defense centers located? Hmm, biggest is probably St. Louis. Missouri . Boeing’s kind of place (inherited but I never claimed the Boeing management were original thinkers)
So what you have done proves Zero. Well it does prove something but not what you contend.
This is pretty good overall. Note they lump 737 into the mix when in fact the 737 is made in Renton.
https://simpleflying.com/boeing-787-everett-aftermath/
Note also, no mention of future, just current models.
The could announce that future Single Aisle would be built in Everett (Renton is seriously packed and they could probably sell the property for a huge return).
Certainly a lack of any indication of future for Everett.
TW, those numbers have evolved since the McD merger, as I said over 20 years, yet they don’t show a massive exodus, and Boeing has announced no such plans. 60% of the manufacturing workers still work at Everett.
So with the facts we have at present, there is no abandonment of Washington State on the horizon. That was my original point.
I’ll leave it at that, you can continue to believe whatever you please. I just wanted the facts to be stated here, and they have been.
777X ocean ship fuselage sections from Japan to SC, the nose from Wichita to SC and fly the wings to SC FAL will be in SC for 777X if that program can last more than 5 years. 300 777x in backlog after 7 years from launch…5 a month, 60 a year…5 years…just run it to the end and close Everett
Will Boeing of S. Carolina, soon be advertising in the Seattle Newspapers for experienced Boeing Machinists to move to S. Carolina? Where the Winters are milder, and the cost of living and taxes are lower. The average home price in Washington state is $410,000 and in S. Carolina it’s only $186,000.
Hi Richard,
how about crime?
‘he cost of living and taxes are lower.”
Wages much lower too
Why would the SC plant have any need of experienced machinists?
One doesn’t need any skills to manufacture aircraft.
Bryce, [Edited]. Airplane mechanics and support functions of all grades are skilled and many are artisans. I know first hand how difficult it is to maintain tolerances. [Edited].
Can’t you recognize sarcasm?
Remember when Boeing laid off the skilled mechanics as they had a 3 month lull when the -10 came out?
Another money saving management move that cost them 100s of millions (quality went into the toilet, Everett was madly fixing all the travel work on their end, they dropped an entire 787 fuselage (fist time that has ever happened)
Will the last cowering worker please turnout the lights?
Rich that he demands Boeing respect taxpayers when his own administration doesn’t.
The State of Washington should consult the State of Pennsylvannia about how to get Boeing under control. Boeing talks a big game about leaving Washington, but Washington can make the penalties for leaving so bad that Boeing dare not leave the State…meanwhile, the workers and the State can claw back what is rightfully thieis.
Really…Pennsy tamed Boeing, so I don’t see why Washington can’t use the same strategy.
Wow Jimmy, your [Edited] is leaking out. “Get Boeing under control”/”workers and the State?” Boeing provides excellent products and jobs for whole cities of people around the globe.
They did not needed anyone’s permission to set up shop in SC nor to move the 787 line there.
Just like nobody can stop them from building the NSA away from WA state.
No matter how much you shake your fists in the air companies like Boeing will continue moving to right to work states.
Boeing rec’d over $14 billion in subsidies from the State/Muni and another $3.5 billion in loans & financing.
I guess $18 billion doesn’t get, what it used to…
https://subsidytracker.goodjobsfirst.org/parent/boeing
The likes of Boeing and Rolls-Royce have their technology heavily subsidised by the state, and are then flogged to death by the city,followed by a state rescue.Something has to change.
All through the summer I have been reading financial “experts” and analysts suggesting that it was a great opportunity to buy shares in these companies on the cheap. Any Leeham reader would know better.
On the subject of state subsidy–
Not relevant to the current article, but very interesting in the context of the continuing withering of the aviation industry as a result of the CoViD response: Reuters is reporting that Malaysia Airlines is inching toward the abyss…
“Based on the current run-rate, absent further funding from shareholders, the group will likely be unable to meet its obligations, including payments to lessors, post November 2020”
“Khazanah, its sole shareholder, ‘intends to divert all efforts and funds to an alternative company with an existing air operator’s permit to ensure connectivity for Malaysia (i.e. Plan B).’ ”
https://www.reuters.com/article/malaysia-airlines-restructuring/exclusive-malaysia-airlines-parent-company-says-group-is-running-out-of-cash-letter-idUSKBN26N0UK
Hello,
I am trying to understand the impact and get some perspective on the job loss in the area. My background is not in aerospace. If there is some data set I could look at, please let me know. My understanding is that 10,000 in WA were laid off earlier this year. Where did these jobs originate from, Everett, Renton, or that not the correct way to think about it? Now, 1000 jobs on the 787 are being reduced. What was the total job of jobs actually working on the 787 line before COVID-19?
I keep on hearing that 30,000 jobs are in Everett. How many jobs will be left on for the remaining lines? I assume engineers, techs, and machinists are all lumped together.
I guess the bigger issue is that the future the big 7X7 planes are done in WA and single isle planes like 737 might be next on the chopping block. Thanks.
This is all so comical and was predicted. Inslee is a buffoon and clueless. So he finally wakes up after someone told him Boeing is leaving. The next narrow body (if there will be one) will be built in Charleston as well.
Inslee mentions that “we can’t take orders from the likes of Boeing”, but good ole Jay takes orders from the teachers union and the tribes.
This state is toast if he’s re-elected.
Will the last person leaving Seattle turn out the lights….
I agree about Insleee.
Its his job to respect the taxpayers and make sure Boeing can’t mess with them.
Having Boeing guard the hen house is NOT a recipe for eggs for breakfast the next day.
But you miss Boeing MO. They will have a competition and somewhere else will win.
Boeing does not want any one center to have any more power than they can possibly help.
So look at where Boeing has a small presence, San Antonio (maybe not, Texas is moving blue) – so look for a strong no union state with a facility of some kind.
Texas is moving blue? Hahahahahaha
Washington state’s every government brunch from the Governor to dog catcher have gone full socialist. Never go full socialist.
At some risk of censure, I think we need to separate out Socialist from stupid.
Stupid is not exclusive to one side or the other. Politicians as a group are not particularly bright.
the only socialist elements in the US, let alone Washington State are medical: Specifically medical care for the military, the aged and of course Congress. Plus what is left of Obamacare.
Uh, look at Seattle’s policies, look at all manner of collective interference.
Advisory Vote # 35 is on the ballot for November’s election. It concerns Senate Bill 6690 which the legislature passed without a vote of the people. This bill increased the business and occupation tax on manufacturers of commercial airplanes, including components or tooling, costing $1,024,000,000 in its first ten years, for government spending. I wonder why Boeing would want to leave Washington State, the Legislature asks.
Does Inslee show respect for taxpayers?
He oppresses over the latest strong corona virus. (See http://www.moralindividualism.com/covextra.doc for the cost of shotgun policies.)
He does not deal with Sexually Violent Predators properly.
Has he leaned hard on municipal fiefdoms to protect people? Certainly Seattle city council needs a twobyalongside. The governor of OR has finally taken some action against rioters in Portland.
My objective friends in WA criticize him very strongly.