Leeham News and Analysis

Boeing will leave Seattle: prediction

Update, April 27: It has been pointed out to us that The Everett Herald wrote that we advocated changing and cutting unemployment insurance and taxes during our speech to the Economic Development Council of Snohomish County. This is not correct. We took no position on the then-pending legislation in Washington State. What we did say is that we agreed with County Executive Aaron Reardon’s characterization that a change by the Legislature in 2005 to the 2003 Boeing 787 incentive plan was “bait-and-switch.” This concurrence apparently led the paper to conclude we supported the change proposed this year.

The Washington State Labor Council wrote us with this information about the 2005 change:

EHB 2255 was the bill in 2005 that restored UI benefits from four-quarter averaging (which it was changed to as part of the 2003 7E7 incentive package, a significant cut of up to $200/week for some workers) back to two-quarter averaging where it was prior to 2003.  There was only one business in Washington that testified in support of this restoration of benefits.  It was BOEING.  Bob Watt.  Check it out (under “pro”) right here: http://apps.leg.wa.gov/documents/billdocs/2005-06/Pdf/Bill%20Reports/Senate/2255.SBR.pdf

Update, April 24: Bryan Corliss wrote a five page article for the May issue of Seattle Business Monthly that just hit the web. The article, entitled “Boeing, Boeing…Gone,” is an excellent analysis of the current state of affairs in the perennial controversy over the issues involved in Boeing staying in Puget Sound or moving elsewhere. We knew he was working on a piece–we’re quoted extensively in it–but did not know who else he was talking to. We note that other observers touched on virtually the identical points and came to the identical conclusions we discussed in our EDC presentation below. Corliss knows Boeing as well as any local reporter. He covered the company for years for The Everett Herald, leaving when he obtained a fellowship at New York’s Columbia University. Michelle Dunlop succeeded Corliss, who returned to the Seattle area after conclusion of his Columbia work to resume his coverage of Boeing for other publications.

Update, April 23: Michelle Dunlop of The Everett Herald, in her reporting of our EDC appearance, inserted this little reminder:

Last fall, during the Machinists’ strike, analyst Richard Aboulafia, with the Teal Group, predicted a Boeing exodus over the next decade.

“Over the next 10 years, (Boeing Commercial Airplanes) will move to southern states with weaker unions and right-to-work laws that diminish union power,” Aboulafia wrote in a briefing. “This move will likely happen in phases, with new programs … established elsewhere and the 787 line shifting locations.”

Update, 3:00 PM: In response to an analyst question on the Boeing earnings call, CEO Jim McNerney said a decision on ramping up 787 production beyond the goal of 10/mo (ie, this effectively means a second production line) will be made about a year from now.

Note: This is a 2,400 word report.

We were the speaker today (April 22) at a meeting of the Economic Development Council of Snohomish County, which is the county in Washington State where Boeing’s Everett wide-body production facility is located.

The meeting was scheduled before a flurry of press activity following the unauthorized release of a study by Deloitte Consulting about Washington’s aerospace competitiveness and a second study about Boeing’s impact on the Puget Sound (the greater Seattle area) economy. The second study was by the Washington Research Council (WRC).

The Deloitte study concluded Washington is not competitive with Texas, Kansas and some other Southern states due to its business climate deficiencies, labor issues and other factors. The Washington State Labor Council and the national headquarters of the International Association of Machinists (IAM local 751 represents thousands of Boeing workers in Puget Sound) dismissed the veracity of the Deloitte study because Deloitte has done work for Boeing in the past.

The validity of the WRC study was discounted by a close observer of Boeing because WRC officials have previous connections to Boeing.

Our view on the two studies is this: we don’t really care whether Deloitte has done work for Boeing in the past or not, or if some Boeing talking points were included in the study (which, generally, seems to be true). The underlying thesis that Washington hasn’t attracted significant new aerospace business is indisputably true and most if not all of the statistical data comparing states-to-states is publicly available. (How this is interpreted may be a different and legitimate issue of debate.)

Bottom line: there is something wrong in Washington where new business avoids this state.

As for the WRC study, the conclusions contained therein are probably sound. Whether this study, or the Deloitte report, are orchestrated efforts by Boeing to send a message to the Legislature is hardly the point. There is a problem (a challenging business climate), solutions need to be found or there could be ramifications (the prospect of Boeing leaving Puget Sound in whole or in part). The nature of the solutions are the proverbial devil in the details.

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