Washington State Lawmakers Mull How To Capture Boeing 777X

by
Reuters

Washington State Lawmakers Mull How To Capture Boeing 777X

The Washington state Legislature met on Thursday to consider measures to entice Boeing Co to build its newest jet, the 777X, in the Seattle area.

Washington Governor Jay Inslee, a Democrat, called the special legislative session to seek roughly $8 billion in tax breaks, a streamlined permitting process for Boeing and $10 billion in funding for transportation improvements.

In order for the Seattle area to win the coveted work, Boeing's machinist union also is being asked to approve a long-term labor contract with concessions on pensions and healthcare. Union members are due to vote on the proposal by next Wednesday.

The 777X program would secure thousands of jobs for Washington state and keep the state in the forefront of aircraft technology. Winning the work is viewed as crucial to the Seattle area, which is competing with nonunionized workers in southern U.S. states where wages are lower.

But it was unclear how much Boeing's decision about where to build the jet really hinges on the labor deal and the state incentives.

The 777X is Boeing's latest jet program, and could be the last major new plane by Boeing for the next 15 years. It is expected to enter service in 2020.

The 777X will be built using a metal fuselage similar to the current 777, which is one of Boeing's best-selling planes, and will add a large new carbon-composite wing and new engines. More than 100 orders for the jet are expected later this month at the Dubai Airshow.

In a letter to Inslee sent on Wednesday, the head of Boeing's commercial airplanes unit, Ray Conner, wrote that the planemaker's commitment to building the 777X in Washington "would be solidified" by "favorable economic incentives" from the state and the machinists' approval of the new contract proposal.

"That doesn't mean it's a deal-breaker," said Ken Herbert, an aerospace analyst at Canaccord Genuity Inc in San Francisco.

OTHER CONSIDERATIONS

Boeing clearly wants to lock in the labor concessions but might be more flexible on the legislative proposals, Herbert said.

The Chicago-based planemaker has also considered putting the 777X at its South Carolina assembly plant, where it makes some 787 Dreamliners, according to industry sources.

Putting the 777X there was seen by many industry experts as more financially sound for the long haul. But the labor proposal shows determination to control costs and avert strike risk with the 777X in Washington.

Boeing also is under pressure to avoid the technical problems and delays that plagued the Dreamliner, which arrived three years late after production was outsourced around the world.

"It would almost certainly have been more disruptive to move a larger component of the (777X) operations to South Carolina," said Russell Solomon, an analyst at Moody's Investors Service in New York.

So far, investors are not concerned about the tilt toward building the jet in Washington.

Boeing stock is near record highs, and has not fallen significantly since the provisional proposals were announced on Tuesday. The shares were down 0.6 percent at $132.24 on Thursday afternoon on the New York Stock Exchange.

"Investors care about stability, visibility, profitability and risk in the assembly of aircraft," said Rob Stallard, an analyst at RBC Capital Markets. "If the location of final assembly impacts these factors, then they probably care."

The provisional labor agreement with the machinists' union was announced on Tuesday. The eight-year contract includes $10,000 signing bonuses and enhanced pensions for older workers who opt to retire, but would halt further additions to current workers' pensions and set up a different retirement plan funded by the company, the union said.

Inslee's plan includes extending commercial airplane tax incentives until 2040 and widens other exemptions.

Democrats control the legislature's lower house, and Republicans control the Senate. Sentiment in both chambers leans toward passing Boeing-related tax incentives.

Senate Majority Leader Rodney Tom, a conservative Democrat, cautioned it could take weeks to pass a transportation revenue package that would likely rely on a gasoline tax increase.

It was not immediately clear whether Boeing views swift passage of a transportation package as a prerequisite to locating 777X production in Washington state and building 1.5 million square feet of new facilities in the Puget Sound area.