By Scott Hamilton
Oct. 5, 2020, © Leeham News: The contrast in tones couldn’t be sharper.
With the announcement last Thursday by Boeing it will consolidate 787 production from Everett into Charleston, local political leaders were disappointed but understanding and even sympathetic.
Snohomish County Executive Dave Somers and Everett Mayor Cassie Franklin likened Boeing to a family member who was in crisis. Hard decisions by Boeing were made, but in a crisis, you must. Support your family. Understand the situation. Figure out how to make the best of it to move forward.
On the other hand, Gov. Jay Inslee vowed to review the state’s relationship with Boeing and tax breaks granted to the company. Inslee claimed understanding but his tone was hostile, defiant and angry.
With his vow to reassess the relationship and tax breaks, Inslee was asked about the risk of Boeing moving 737 and 777 production out of Washington. He dismissed the idea.
The governor said the tax breaks granted Boeing in 2013 to locate the 777 composite wing factory and final assembly here contains language prohibiting moving the 777 line out of state.
This statement is odd on two counts. The 777X tax breaks were an extension of the 787 tax breaks found to be illegal by the World Trade Organization. At Boeing’s request in February, the state canceled the 787 breaks, ostensibly to resolve the WTO findings.
One can’t help but wonder if Boeing’s request had less to do about the WTO than it did with knowing where it was going with 787 production consolidation. Why? If Boeing moved 787 production out of Washington, the breaks would go away. So, use the WTO as the reason to cancel the breaks without tipping your hand with what’s coming.
But maybe that’s just me.
The other reason Inslee’s reference to tax breaks is odd is if the 777X tax breaks tie Boeing to Washington, why in the world do you review the remaining tax breaks from which Boeing benefits?
He fell back on the refrain that because Boeing’s Washington workers are the finest in the world, it makes no sense to move 737 production.
This line of reasoning worked really well arguing for the retention of the 787 line….
Inslee also pointed to the highly efficient production of the 737. Disrupting it makes no sense to move out of state.
This is a valid point. However, LNA analyzed the pros and cons of moving some or all the three lines from Renton to Everett to fill the vacuous space that will be left when the 787 and 747-8 FALs disappear. We agree that moving the lines out of state isn’t worth the trouble and cost, however. But that’s not to say it couldn’t be done.
There are lots of obstacles, challenges and considerations to moving 737 or 777 production. But myopically, Inslee overlooked several other possibilities Boeing has.
There is nothing stopping Boeing from moving engineering jobs out of state. It’s been doing that. It can continue to do so.
Boeing could relocate its facilities at Moses Lake out of state.
What’s to say Boeing doesn’t relocate Insitsu, its UAV company in Bingen (WA), across the Columbia River to Oregon or elsewhere?
More to the point, who says the headquarters for Boeing Commercial Airplanes must remain in Renton at its huge Longacres campus? Administration and sales don’t have to be in Puget Sound.
When the company created its Boeing Global Services business unit, employees from the former Commercial Aviation Services were relocated to Southern California. The new headquarters was sited, not where CAS was in Renton but in Plano (TX), of all places.
All of this shows that Inslee during his pique missed the point.
Boeing did what it had to do under the COVID crisis: decide to consolidate the production. Doing so in Charleston was the only logical conclusion.
Inslee understands this. He’s pissed that Boeing would not commit to restoring the 787 to Everett once the market recovers.
This shows a remarkable naivete on his part.
First, due to changing market dynamics, notably the ability of the A321XLR and the 737-8 MAX to fly 8-10 hour missions, this chips away at the market demand for the 787-8—Boeing’s long-thin market-maker. I doubt production will return to 14/mo or even 12. But if it goes beyond 7/mo, the current cap at Charleston, this plant will be ready to go higher. Increasing production capability at Charleston has been in the works for some time.
The single-aisle airplanes can’t fly as far as the 787-8. Nor do they carry the same number of people. But they can be market-makers in thin, new routes where range and capacity aren’t needed. These also may make some marginally profitable 787-8 routes profitable with their lower costs.
Mayor Franklin and Executive Somers got it right. The real point is preparing for the future, not whining about the past. Inslee needs to focus on how Washington State can win the Next Boeing Airplanes.
Boeing needs two new airplanes for the 2030 decade. The pressing need is a replacement for the 737-9 and 737-10. These two airplanes do what they do very well, but there are inferior to the A321neo family. The strength of the A321neo drives Airbus’ successful market share in the single-aisle sector to capture 55% or more.
Boeing needs a new airplane in the 190-250 seat sector, and it needs it badly.
The company also needs a new airplane in the 125-189 seat sector to replace the highly niche 737-7 and the anchor 737-8 MAX. Embraer was going to be charged with this responsibility (in the 100-160 seat sector). This joint venture is off, however. So, it falls to Boeing to design this airplane, too.
Governor, this is your mission, should you be reelected. You need to be thinking how to win this business for Washington. Franklin and Somers understand this. It’s not clear Inslee does.
Inslee went out of his way to praise BCA CEO Stan Deal and the relationship he has with Deal. But he complained that despite many requests, verbally and in writing, Deal never offered a “scintilla” of what it would take to keep the line in Everett.
I know Deal and he is every bit the good guy Inslee says he is. But when it came to making this decision, Deal wasn’t the guy Inslee needed to talk to. The governor needed to be talking to David Calhoun, CEO of The Boeing Co., and Greg Smith, EVP of Enterprise Operations and CFO. Inslee didn’t mention their names during is testy press conference, so it’s fair to conclude he didn’t talk to them.
Calhoun and Smith are based at Boeing’s Chicago headquarters. Chicago, as HQ is colloquially known, doesn’t have the best relationship with Washington.
When the 777X tax breaks were granted, for $8.2bn, a record anywhere in the US, Inslee crowed about it. Privately, he groused that he couldn’t tie jobs to taxes because Boeing threatened to put the wing center and FAL elsewhere if Inslee insisted.
During Inslee’s brief run for the Democratic nomination for president, he went public, denouncing his own deal. He felt mugged and extorted by Boeing. He was right on both counts. This alone may explain why Inslee is cranked at Boeing.
His pissy tone and threat to review the relationship and tax breaks won’t go unnoticed in Chicago.
But the poor relationship predates Inslee.
Inslee’s public pique with Boeing isn’t the first time a Washington governor stepped on it.
In 2008, the IAM 751 went on strike for 57 days. Gov. Christine Gregoire was in a tough reelection fight with former State Sen. Dino Rossi. Rossi came within 133 votes of defeating her in Gregoire’s first run in 2004. Three recounts and a court challenge were necessary to declare Gregoire the winner. A rematch was expected from the day she was sworn in.
While the strike was underway, union members held a rally outside the Seattle area hotel where negotiations were underway. Gregoire, needing all the union votes she could get, appeared at the rally in support of striking members.
Chicago took note.
The following year, then-CEO Jim McNerney stuck it to the union and to Gregoire by putting line 2 in Charleston. Gregoire, like Inslee, asked what the state could do to keep 787 production in Everett. Boeing then said nothing—the fight was with the union.
Gregoire took Boeing at its word. No incentives were offered. South Carolina governments, on the other hand, ponied up more than $900m in incentives. Gregoire, and other politicians, felt flimflammed. With good reason.
Inslee complained he felt mugged and extorted by Boeing in 2013 when $8.2bn in tax breaks were extended for the 777X. Workers were insulted and taxpayers betrayed with the decision last week to consolidate production in Charleston.
Boeing’s complaints about Washington are deep-seated.
In 2001, Boeing didn’t even tell Gov. Gary Locke and other electeds it was shopping around to move its headquarters. Chicago won—with tax breaks, and other reasons.
Talk about insulting Washington.
For years, Boeing executives complained Washington failed to support aerospace education and took Boeing for granted. Boeing was correct on both counts.
In Gregoire’s first term, she didn’t even bother to go to the Farnborough or Paris air shows to promote Boeing or Washington aerospace. Only after a cacophony of criticism (started by yours truly in every media that would listen) did Gregoire make the trek.
Democrat Inslee is running for a third term as governor. The same day Boeing announced its Charleston decision, some Republicans criticized him, charging he “lost” the 787.
This criticism is completely unfair. As LNA noted last week, nobody should have been surprised. This decision was made Oct. 28, 2009, when McNerney put Line 2 in Charleston. Anyone with any vision understood then that one day all 787s would be assembled there. COVID only accelerated this move.
Inslee’s posture may be a combination of being mugged and extorted in 2013 and his need for union support in his reelection (though his Republic opponent stands no chance of winning).
But the criticism that should be leveled at Inslee, which is entirely fair, is the myopic view that (1) yes, Boeing can move more jobs out of Washington, as noted above, and (2) Boeing has need for two new airplane programs.
Kicking Boeing when it’s down—and there is no mistake, it’s down—is not the way a savvy governor treats one of the state’s largest employers.
Just ask the California politicians beginning in the 1970s and 1980s. How’s that state’s aerospace market today?