Nobody should be surprised at Boeing decision

By Scott Hamilton

Commentary

Oct. 1, 2020, © Leeham News: Nobody, but nobody, should be surprised that Boeing is going to consolidate 787 production in Charleston (SC).

This die was cast Oct. 28, 2009, when Boeing announced that the second 787 Final Assembly Line would be placed in Charleston instead of Everett.

It was only a matter of time.

Boeing 787 production and assembly plants in Charleston (SC). Source: Flight Global.

Demand inevitably wanes

Demand for every airplane program eventually wanes. Supporting two production lines is a finite proposition, especially for a widebody airplane.

When this inevitably happened for the 787, LNA and a plethora of others predicted that the Everett Line 1 FAL would disappear and Charleston Line 2 FAL would become the only production line. The timing was generally forecast to be around 2025.

The COVID-19 pandemic accelerated the timing. But not the result.

Charleston has less expensive labor costs. South Carolina has a less expensive business climate. The 787-10 is only assembly in Charleston, not Everett. The fuselage sections are too long to transport to Everett.

Charleston is a production site of fuselages. Everett isn’t.

Charleston is closer to Italy, where the tail section is produced. This is flown to Charleston and Everett in the Dreamlifter. Cutting Everett cuts transportation costs.

Only the 787 is assembled in Charleston. The plant and automation are newer than Everett. Advanced manufacturing processes on the MQ25 were tested at Charleston. Boeing has a couple of billion dollars invested in Charleston.

There was no way Boeing would mothball Charleston.

Washington State’s tax incentives were found to be illegal by the World Trade Organization. In February, Boeing asked Washington to cancel them. It claimed this would resolve the WTO issue. (This remains to be seen.) But was it a forebearer of consolidation to come?

South Carolina’s ~$1bn in tax breaks weren’t part of the WTO case. Are there new tax breaks to assure Charleston retained the only 787 FAL? These could be offered free and clear of the WTO. Washington couldn’t match.

When does consolidation take effect?

Boeing previously announced that the 787 production rate will fall to 6/mo in 2022. This is when consolidation will happen unless Boeing reduces the rate to six next year.

Don’t look for Everett to see 787 production ever again. Boeing will work to increase the through put of the Charleston plant to accommodate more than its current maximum of 7/mo, should demand return after COVID is over.

The inevitable that was so clear Oct. 28, 2009, is here now. A little early. But it shouldn’t surprise anyone.

29 Comments on “Nobody should be surprised at Boeing decision

  1. Why can’t Charlestowns tax breaks become part of the WTO case?Not that I want to encourage Boeing to waste even more money and their far more precious time and effort.

    • @Grubbie: A brand new complaint would have to be filed. The 2004 WTO case is now over, after 16 years.

      • actually the WTO case really started in 1999- 2001- and was ready to be formally filed in DC the week of 911(2001) … but 911 delayed it, and then Rudy de leon and others fubarred the 767 tanker game by that year end.. and the rest is history…it was a few years later before Boeing woke up with a few taking up residence in club fed- and decided to file in 2004.

        wuzthere

    • If the taxes are lower in general for every company, this isn’t a WTO-thing.

      If the tax breaks are a benefit to one single company and this gives it an advantage in terms of international trade, it is something a competing country can complain about.

  2. Makes all sense business wise, but will hurt a lot of families short term.

    • Scott, you mentioned that the WTO outcome remains to be seen, but didn’t the WTO just uphold the Airbus end of the case as well? Or maybe that is only unsourced reporting at this point?

      As I understand it, both Boeing and Airbus voluntarily gave up their subsidies hoping the WTO would favor elimination of future harm over actual past harm, but the WTO has now signaled it won’t do that, and will uphold both past rulings of harm & penalty.

      Observers have mentioned this creates strong incentive for there to be a negotiated settlement to prevent both sides from applying their full tariff powers. As well as to perhaps prevent future disputes from ending up at the WTO. Examples of that might be tax incentives at Charleston and government eco-sponsorship in the EU.

      The world today is moving more toward government financial partnership with industry, so best to put agreements in place beforehand.

      • @Rob: Reuters reported WTO has authorized $4bn in tariffs by the EU, but the WTO itself hasn’t made any such announcement.

        When I refer to awaiting WTO outcome, this relates to your other point: Airbus says it has now complied with A350 subsidy rulings and Boeing gave up WA State tax breaks, saying it now complies with WTO rulings. The WTO has yet to confirm these claims. Airbus and Boeing saying it’s so doesn’t mean it’s so until the WTO says it’s so. So there. 🙂

        • Ok Scott, thanks for the clarification. I didn’t realize there are rulings still to come on the Airbus/Boeing efforts, I thought the WTO was ending the case here by upholding both earlier rulings. Wishful thinking.

  3. “Charleston is closer to Italy, where the tail section is produced. This is flown to Charleston and Everett in the Dreamlifter. Cutting Everett cuts transportation costs.”

    Scott: I hate to point out a tech bust. Italy is the least of the aspects here.

    The wings and center wing box are made in Japan, far exceeding both the quality and distance that they now have to travel to Charleston for all builds.

    I agree with the overall, not because of economics, Boeing clearly wants to get out of Washington State and this is part of the long term plan.

    Charlestons in fact has cost Boeing additional Billions added to the cost of the program that no lower cost wages will ever overcome.

    Add in the 100s of millions if not billions in the quality issues and what Charleston has costs and none of it adds up as a financial decision.

    • Just to clarify, there is no known or reported statement or plan by Boeing to pull out of Washington State. So this would be speculation and the expression of an opinion.

      • The 787 tail is only made in Frederickson, just south of Tacoma, so the Dreamlifters will still have to visit the Seattle area.

        • Rob:

          Boeing has been moving people out of Washington State as far back as the move to assembly in Charleston.

          And Boeing clearly does not care how much money they loose as long as they can blame it on workers ala the Unions.

          Cowering workers is their goal as stated by McNenearney (sp, not worth looking up)

          Realistically, there is nothing special about an assembly hall. Its just a big building and Boeing was more than willing to build an unneeded building to start the process of moving out of Everett. The tooling is special and can be moved (or just left if no more of that type is to be built)

          I have watched them scatter the operation all over the US. Clearly its a move to ensure that no single center has any counter weight behind it in regards to employees contesting with Boeing.

          If Charleston votes the union in, you will see them start breaking that center up as well.

          Funny to see how its workers who cost Boeing when mismanagement on the 787 cost them 15 billion. of the 737MAX mismanagement, but that is all different of course.

          Moving the 777 line is interesting because you need a really big building for that aircraft and bigger still for the 777X.

          Due to the wings plant and the size aspect, 777 will probably die a natural death in Washington State (sooner or latter depending on how Covd recovery goes and the 777X size market).

          Ironically Lufthansa says its going to keep it 747-8 (and dump the A380) , so there may be a future for the 777X size.

          If Boeing ever does a new single aisle, it won’t be in Washington State.

          Timeline on the 767 is ticking as the USAF looks to be going in a different direction once the KC-46 first lot is done.

          Boeing now needs two single aisle to compete with Airbus, they may just abandoned the market and wind down BCA.

          They have no vision for aviation clearly.

          • “Ironically Lufthansa says its going to keep it 747-8 (and dump the A380) , so there may be a future for the 777X size.”

            Lufthansa has always had a sort of love affair / fetish with the 747, so the decision may be emotional rather than rational.

            Even if Lufthansa retains some sort of interest in the 777X (there are reports that they want to convert their order to cargo variants), the program will probably be killed if/when other names (Emirates, Qatar, Cathay, BA) pull/convert their orders.

          • The KC-46 is scheduled to end production in 2029, the Pentagon has confirmed funding through that period. After that they are re-evaluating the tanker role for the next generation.

            I posted in another thread the Boeing employee counts by location, there is no evidence of a general exodus of Washington State. Even the 787 shift is only 1 or 2 percentage points.

            The rest of your claims are your opinions as always. I don’t have a crystal ball and don’t know what Boeing will do for the next aircraft, but they have never initiated a new commercial aircraft program outside of Washington State. So if they do, that will be a first.

            I highly doubt BCA will close, I think that is fairly wild speculation. There would be no reason to do so. All your predictions and statements tend to be negative and worst-vase, but as we’ve seen, most of the world does not share those views.

          • “Ironically Lufthansa says its going to keep it 747-8 (and dump the A380) , ..”

            contract conditions the deciding factor?
            buyback or not.

          • 19 747-8s and 8 A380s might have something to do with it. Eight of anything is a small, expensive sub-fleet.

          • Airbus’ PDF shows 14 A380.
            Did Lufthansa retire 6 already?
            There is a big difference in seats, hard to fill an A380.

          • @Leon: 6 A380s were turned back to Airbus for A350s.

  4. Out of curiosity, do you suppose the analysis of the two sites considered shipping 787-10 fuselages to Everett in 2 pieces, then joining them in final assembly in Everett, and maybe updating the tooling in Everett?

    It would be interesting to read the analysis in any event.

    • Stan- the powerpoint rangers no doubt decided the extra weight of a fuselage join and how to show that with a bullet point was not doable on version.001 of the powerpoint program. Nesting two sections would probably not fit- therefore two trips needed. besides which the evil unions made fun of stony and his successors and the rest is history..

    • We won’t ever see it, so no. Its never going to be public.

      the 787-10 build was an excuse to ensure that produion of the all of the 787 went to Charleston.

  5. So…. they chose the cheap and shoddy line over the better quality operation, for long term cost reasons. Fair enough as they know the quality issue is of no importance at all.
    Of course in the short term, clients are refusing to take delivery of airplane made in SC. Could cancellations ensue?
    Truly a move worthy of inclusion in the longest of B’s management terrible mistakes.

    • Everett would have required a major tooling move as well, and at least temporarily, more space. Charleston doesn’t need those things.

      The FAA investigation of quality control issues at Charleston is still open, so results of that could potentially cause Boeing to pause or reconsider.

    • Pretty much nails it.

      Considering how much Charleston has cost Boeing, it will never return money on the 787. Probably around 5 billion addition to the 787 program all told.

      What is odd is why they just don’t shut down BCA? They clearly don’t want to be in the Aviation business. Its so embarrassing as the disasters are so public.

    • I’m reminded of a comment that TW made on another article, with regard to fence posts…which was very relevant.
      There just doesn’t seem to be a realization (any more) at Boeing that, when you’re making aircraft, perception and reputation are vital…there must be a visible and constant drive to achieve impeccable quality.
      The move to Charleston throws mud in the face of that concept.

      There used to be a derogatory saying: “Take a chance, fly Air France”.
      One could just as easily say the same about the (new) Boeing.

  6. I hear further cost cutting at BA has resulted in the cancelling of the corporate subscription to Leeham News! You know they’re scrapping the bottom of the barrel now!

  7. The [Edited] politicians Washington State voters vote for are the [Edited] politicians they deserve. Lived in Washington State for 57 years. So sad to see these [Edited] ruin a once great State

  8. History lesson learned agaoin: government subsidies do not work.

    (Whether cash, tax changes, favorable regulations, or ……)

    And of course the stupid’s of Boeing and governments did not think ahead to WTO risk.

    With Boeing playing WRO games against an emerging competitor, driving it into Airbus’ hands.
    History lesson relearned: devious schemes do not work in the long run.

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