State economic officials have jumped at the chance to grab a piece of Boeing’s newest jetliner program after a union vote stalled efforts to build the aircraft in Washington state.
Amid a slow U.S. economic recovery and after decades of industrial outsourcing, the race for jobs is intensifying. States are competing fiercely to attract well-paid work, and aerospace manufacturing is especially lucrative.
Washington state estimated the 777X program would deliver $21.3 billion in economic benefits and support more than 56,000 direct and indirect jobs in the state over 16 years.
“We’re salivating,” Hugh “Trip” Tollison, president of the Savannah Economic Development Authority in Georgia, said in a meeting with Reuters. “We all thought this was a done deal for Washington.”
The states are getting a shot at the 777X after Boeing Co workers rejected an eight-year extension of their labor contract that along with a package of tax breaks and other incentives would have ensured the 777X and its wings were built in Washington.
Boeing officials were already en route to states to talk about incentives.
“People are on airplanes going to visit competitive states today,” said Alex Pietsch, director of the governor’s office of aerospace in Washington.
Washington already has studied competing states such as South Carolina, Texas, Kansas, Utah and Southern California to rank their competitiveness, he said. Other states are readying their offers.
Tollison said Georgia will put a competitive offer on the table, but likely will wait for a call from Boeing to avoid appearing too eager.
“When it comes, it’s all hands on deck,” he said. “You bring in the partners, set up the war room, roll up your sleeves and tell the family you’ll be home in a few days.”
Washington was not counting itself out of the running, but officials acknowledged the state would have to prove it has the best package for Boeing.
“Washington deserves a fair shot at this contract and I have made clear that I expect Boeing to provide it,” U.S. Sen. Patty Murray said.
Boeing’s Everett, Washington, plant builds the current 777, but the 777X, with new composite wings and high-efficiency engines, is crucial to Boeing’s future as the successor to its most profitable long-haul aircraft. The 777X is expected to be launched at next week’s Dubai Airshow with the announcement of more than 100 orders.
In South Carolina’s state house speaker, Representative Bobby Harrell, said he took a call from Boeing on Thursday morning to discuss the project.
“We are talking to Boeing to find out what they need in order to come here with this (777X) project,” Harrell said. “We are going to go after this as hard as we can.”
Pay to Play
States are competing to provide the right combination of tax incentives, labor costs, work force skills, worker training, easy permit approvals, port, rail and highway infrastructure and even free land to lure the project.
“The pay-to-play business model is the new reality and that’s not necessarily understood by labor,” said Tom Captain, chief of the aerospace consulting practice at Deloitte.
While some taxpayer groups say the cost of incentives can amount to $500,000 per job, those calculations do not consider spin-off economic benefits, or the opportunity costs of not getting jobs.
Deloitte found that aerospace jobs pay twice the salary and benefits of the average U.S. worker. By attracting them, states enjoy business tax revenue, property tax, consumer spending, and other spin-off development opportunities.
“That’s why so many locations are willing to pay what seem like outsize economic incentives to attract the jobs,” he said.
Washington state approved $8.7 billion in tax cuts last week for Boeing and the state aerospace industry.
But that credit comes off $16.2 billion in expected tax gains from the 777X, leaving the state with $7.5 billion in net gain, according to the state legislature.
Washington will try to bring the union and Boeing back together for more talks next week, Pietsch said.
Gov. Jay Inslee, who led the five-day effort that approved the tax package, was leaving on Thursday to join a state trade mission in China, while and Pietsch was heading to the Dubai Airshow.
In South Carolina, Harrell said he and state Senator Hugh Leatherman, chairman of the Senate Finance Committee, will campaign aggressively for the 777X, and seek incentives from the state legislature.
“We’ve got to figure out what it’ll take to get them here,” Harrell said.
Mitsubishi Heavy Industries Ltd was considered a strong contender to bring the wing work to Japan, or to possibly build a factory in the United States. Washington state officials have been pitching that idea to the Japanese industrial company for two years.
Mitsubishi could decide to build outside Washington. The company already has a large power turbine plant near Savannah, Georgia, close to the nation’s fourth-largest seaport and two hours from North Charleston, South Carolina, where Boeing’s second assembly line for the 787 Dreamliner is located.
Mitsubishi recently proposed building 777X wings for Boeing and sending them to the United States using roll-on-roll-off ships, which the port of Savannah can handle.
Close to 70 percent of the port’s traffic is with Asia, said James McCurry, senior director of administration and government affairs for the Georgia Ports Authority.
Gulfstream, the business jet company owned by General Dynamics Corp, has been based in Savannah since 1967 and is part of growing industrial and aerospace cluster in the Southeastern United States that also includes an Embraer plant in Florida, Boeing facilities in Huntsville, Alabama, and a $600 million Airbus assembly plant for the A320 jetliner that is due to open in 2015 in Mobile, Alabama.
Caterpillar recently opened a factory in Athens, Georgia, replacing a plant the company closed in Japan.
Tollison, the Savannah Economic Development Authority chief, said it would be a mistake for Boeing to let the process drag on.
“The quicker people act, especially in the south, the more competitive the incentives will be,” he said. “You want to put your best foot forward. “When you do it fast, and you do it quick, it doesn’t allow for too much scrutiny.” (Reuters)