Boeing Heading Down To Dixie

Boeing announced today that they would go ahead and establish the second 787 airliner production line in South Carolina. The company had openly discussed the move for several weeks with the CEO, Jim McNerney, making it clear that it could happen at the recent conference call to discuss earnings. Or in that case record losses of over $1.5 billion due to the delays to the 787 and 747-800 programs.

Boeing had purchased the facility from Vought and had used it for parts manufacturing perilously. In order to meet the goal of assembling the 787 it will have to be expanded and while that happens the traditional Paine Field plant in Everett, WA will surge to produce the necessary quantities.

The 787 is made up of assemblies and parts made all over the world that are then sent to Washington where the aircraft is assembled. This makes it easier for Boeing to set up another line in a diverse geographic location as they primarily need trained labor and some backshops to support production. Since there has been a history of aircraft and other manufacturing in the Charleston, SC area a labor force is there who just need specific training.

In doing this move to set up an assembly plant in South Carolina Boeing is joining many foriegn companies like Honda, Toyota, Mercedes Benz and EADS who have set up car and aviation related factories across the deep South. These states tend to be Right To Work and tax friendly when considered against the traditional West and East Coast states. In fact the local Congressman for Everett, Rep. Largent (D-WA) said “”There weren’t large enough tax breaks to keep Boeing from moving to South Carolina,”.

Another Washington Congressman, Rep. Inslee (D-WA), also focused on the union labor force in that state believing Boeing wanted a non-union labor force. McNerney had stated that they were trying to negotiate a non-strike clause with the union but were not making progress. He felt that the costs related to labor strife were so high that a move to South Carolina while requiring upfront costs would more then be made up with the lack of strikes.

In the current economic climate states are willing to make great sacrifices in order to lure manufacturing jobs to them. The tax climate in South Carolina is obviously better then in Washington and the new plant will probably see incentives that make it even better. Boeing does have a facility in Right To Work state Kansas but that does military work and is mainly unionized as historically most of Boeing’s work force is.

The challenge will be to see if the new plant can get up and running quickly and that the market for 787 aircraft justifies it. The longer it takes for this facility to produce aircraft the more risk to the company as a whole. There is also a chance that this will add to labor strife with the core Washington workforce who really are the key to the company. This is a decision that hopefully wasn’t made lightly or without much analysis and thought.