Mike Kane/Seattle P-I file
Washington Gov. Chris Gregoire on Monday released the business case it presented to Boeing on Friday to lure a second 787 Dreamliner assembly line.
"We think Washington provides the highest possible quality, lowest possible risk and a competitive cost structure," Bill McSherry, a special adviser to Gregoire, said in an interview Monday. He said Gregoire was not proposing any new incentives to win the second line, adding that the state has taken many steps to improve the business climate for aerospace since 2003 and would continue to talk with Boeing about the company's legislative priorities.
Boeing officials have said they plan to decide by the end of the year whether to put a second 787 assembly line beside the first one, in Everett, Wash., at its newly acquired plant in North Charleston, S.C., or at one of other, unnamed, contending sites. McSherry expects Boeing Commercial Airplanes officials to make a recommendation on a site to Boeing headquarters within the next month or so.
McSherry declined to discuss Boeing Commercial Airplanes President Chief Executive Jim Albaugh's reaction to Gregoire's Friday presentation.
"They both agreed that they would keep the meeting in confidence," he said. "We had a productive conversation."
Reacting to the state's pitch, Boeing spokesman Bernard Choi said via e-mail:
We appreciate Governor Gregoire and her staff for producing a thorough report. While Washington state has made progress, there is still work to do to deal with the high costs of doing business. We look forward to working with state leaders to help all companies compete and grow.The state's presentation has relatively little to say about what appears to be Boeing's biggest concern -- reaching a deal with unions to avoid work stoppages, such as last year's 57-day machinists strike. Workers at the North Charleston plant recently voted break away from the machinists' union, possibly giving them a leg up in the second-line competition.
The best thing the state can do on the labor front is stay out of the way, said Rogers Weed, director of the state Department of Commerce. "Opining doesn't help."
McSherry called it "good news" that discussions between Boeing and local machinists have so far played out largely in private.
Choi said:
On the labor front, we have always maintained that our world-class workforce in Puget Sound is a major reason for Boeing's success. But repeated work stoppages have clearly damaged our reputation as a reliable supplier. We need to a find way to ensure production stability. We are talking with the IAM to find an alternate dispute resolution mechanism.Last Thursday, U.S. Rep. Chip Limehouse, R-S.C., told the Charleston (S.C.) Post and Courier that his state is offering Boeing a deal that is too good to pass up. He touted South Carolina's quality of life, business climate, work force training initiatives, right-to-work status and low union presence, and willingness to offer tax incentives, infrastructure improvements and other measures to meet the company's needs.
Regarding new incentives, Gregoire said after an initial meeting with Albaugh early this month that Boeing wasn't seeking anything from the state to get a second 787 Dreamliner production line in Everett.
Boeing spokesman Jim Proulx said at the time that Boeing would "continue to support efforts going forward to make Washington a more business-friendly environment."
Boeing always has a legislative agenda, McSherry said. "We'll continue to work together, as we always have."
What the state's presentation does do is compare Everett and Moses Lake, Wash., to Charleston, S.C., Long Beach, Calif., San Antonio, Texas, Wichita, Kan., and Kinston, S.C., which are all known or rumored to be in contention for the second 787 line, have Boeing facilities or have been aggressively courting aerospace companies. It included Moses Lake, a finalist for the first 787 line, as a second choice to offer Boeing an option that offered many of Everett's advantages, without the risk of having all 787 production in one place, McSherry said.
The presentation lists nine business climate and educational attainment measures that show Washington as first or second among those states. It also says the tax burden on an airframe final assembly plant is lowest in Moses Lake and then in Everett. The state Department of Revenue calculated the burden using data from a study the consulting firm Deloitte did for the Economic Development Council of Snohomish County.
The presentation also says that, while Washington may have higher unemployment insurance rates than some of the other states, its rates have declined 42 percent in the past four years, and Washington has the most-stable unemployment insurance trust fund, with the largest reserves, measured as the number of months funded.
Looking at state tax changes since 2003, the presentation says Washington has:
- Reduced the Business and Occupation tax on Boeing from 0.484 percent to 0.2904 percent of gross revenues;
- Exempted machinery and equipment from taxes;
- Expanded the lower rate to take in Boeing suppliers and subcontractors, design and engineering services and Federal Aviation Administration Part 145 repair stations.
Washington also has advantages as a leading center of innovation in general and aerospace in particular, with 650 companies involved in aerospace, more than 200 dedicated solely to the second, more than 100,000 aerospace workers and aerospace employers in 21 counties, the report says.
"You can grow more quickly, as you can hire people on who are on the bench," McSherry said. The experience workers at Boeing's first 787 line have gained from working on the plane also would bring savings a line elsewhere couldn't match, he said.
In writing about Washington's pitch, aerospace analyst Scott Hamilton took the state's argument further.
"While Washington isn't blunt enough to say there is higher risk in locating Line 2 in Charleston because of the lack of an experienced workforce, we've had no need to be politically correct: Everett's experienced (engineering) and (machinist) workers have had to spend the last two years fixing engineering, design and production issues originating in the outsourcing to Japan, Italy and – importantly – Charleston," he wrote. "We believe it would be folly to locate Line 2 anywhere but Everett because of this history and the continuing program risks well into the future. Boeing cannot afford any more risks along these lines."
The new Washington study touches on the biggest elephant in the room without going into another area of intense political sensitivity: the historically poor labor relations between Boeing and the IAM, which struck the company for 57 days last year, disrupting production and delivery of all 7-series lines.
The State report notes that there are improving labor relations and elected officials are committed to helping this process. But in the end, only Boeing management and IAM leadership can solve this issue, and this is why the State doesn't delve into it except superficially.
Looking at education, the presentation says Washington has the best test scores of the six states, top university programs and technology development funding, and the most comprehensive aerospace vocational training network.
"We have a very mature, evolved educational system in this state for aerospace," Weed said.
Washington also ranks highest or second highest among the six states in three broad quality of life measures, the presentation says.
Finally, it notes that the state has, since 2003, dedicated nearly $33 billion to infrastructure improvements, including more than $28 billion in the Puget Sound area.
State Senate Minority Leader Mike Hewitt, R-Walla Walla, put out a statement Monday saying Washington faces spiking unemployment, rising workers' compensation taxes and budget shortfalls that are likely to spawn new tax-hike proposals.
"Tout whatever magazine rankings, studies and figures you want, but those are the realities employers in our state – including Boeing and its in-state suppliers – are facing," said Hewitt, a member of Gregoire's Council on Aerospace. "Instead of issuing reports, we should be taking action like we did in 2003 when we made major reforms to the unemployment insurance system to land the first 787 line."
Hewitt touted the "unmatched skill of our aerospace workers" and jabbed at a competing state, saying: "I'm sure South Carolina doesn't have any hills that compare with Mount Rainier.
"Unfortunately, we don't know how much that really matters to the executive in Chicago," he added. "The only ranking that counts when it comes to Boeing will be the one made in the corporate boardroom."
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