Boeing looks to take 777X production elsewhere after machinists reject contract

November 14, 2013 

BIZ BOEING-IAM 1 TC

Boeing machinists cheer to the news that the proposed contract was turned down and jeer at the union president Tom Wroblewski in the headquarters of the Boeing machinists union (District 751) in Seattle, Nov. 13, 2013.

PETER HALEY — Staff photographer

Boeing workers’ rejection of a new labor deal has sent the U.S. planemaker in search of alternative sites to build its newest jet and could mark the beginning of the end for wide-body aircraft manufacturing in the Puget Sound area.

On Thursday, The Boeing Co. made good on its threats and said it is looking elsewhere to develop its popular new 777X airplane — and the company may take thousands of jobs along with it.

Boeing spokesman Doug Alder declined to specify where the company is now looking, saying there is no short list and that there are many places both within Boeing’s current operations and outside that are being explored. “Everything is back on the table,” he said.

However, it was disclosed Thursday afternoon that Boeing leaders have reached out to Utah Gov. Gary Herbert about the state’s interest in bringing the production line of 777X airplanes to that state.

Michael Sullivan, a spokesman for the Governor’s Office of Economic Development, says Herbert received the call Thursday afternoon and has begun preliminary discussions with Boeing leaders.

Boeing has had operations in Utah for 25 years, and is getting close to opening a new 850,000 square foot factory in a Salt Lake City suburb. The company employs 575 people and is expecting to hire 100 more at the new West Jordan factory.

STRAINED RELATIONS PAVE WAY FOR OTHER STATES

Boeing has helped anchor Western Washington’s economy for decades, but that relationship began to fray about 15 years ago. In 2001, the company moved its headquarters from Seattle to Chicago.

In 2003, Washington state lawmakers approved a broad package of tax breaks for Boeing in hopes of securing long-term work on the company’s new 787 airplane. While that plane is being built in the Puget Sound, Boeing has since developed a new production line in South Carolina and placed wing production in Japan.

In the contract vote late Wednesday, The International Association of Machinists District 751 rejected the latest proposal with 67 percent of the votes. Union members who called for a no vote did so in protest of Boeing’s push to end a traditional pension plan and increase their health care costs. The deal would have exchanged those concessions for the long-term stability expected with the 777X line. Workers would have received a $10,000 signing bonus if they approved the deal.

“We preserved something sacred by rejecting the Boeing proposal. We’ve held on to our pensions and that’s big. At a time when financial planners are talking about a ‘retirement crisis’ in America, we have preserved a tool that will help our members retire with more comfort and dignity,” Tom Wroblewski, District 751 president, said in a statement.

The IAM could present a counter offer, but union leaders in Seattle said that the 67 percent “no” vote by a heavy turnout of members makes it tough to hammer out a new proposal agreeable to both sides.

JD Anderson, a 28-year veteran and quality inspector in Renton, said the union leadership “sold us down the river.”

Meanwhile, the 777X is expected to be launched at next week’s Dubai Airshow with the announcement of more than 100 orders.

Sources close to Boeing said this week its analysis of production site alternatives focused not only on Salt Lake City, but also Long Beach, Calif., Huntsville, Ala., and North Charleston, S.C.

The long-range, twin-aisle 777 holds about 365 passengers, making it Boeing’s second-biggest plane. Since its first flight in 1994, it’s been a best-seller for Boeing, which has sold more 777s than any of its other current large planes.

In May, it began offering the revamped 777X. Boeing is still finalizing plans for the plane, but it has said it is expected to carry as many as 400 passengers and to be 20 percent more fuel efficient than the current 777.

Instead of the current all-aluminum wing, the 777X wing is expected to be made from composites, the same high-tech plastic that makes up most of Boeing’s new 787. Boeing is aiming to deliver the first 777X by the end of this decade.

VOTE RESULTS SURPRISED OBSERVERS

Wednesday’s union vote outcome surprised observers from Wall Street to Tokyo, where many had expected the union to back the proposal.

“It was a no? Really?” said a Japanese government official who helps to oversee Japan’s aerospace industry.

The Washington workforce is well-trained in building the current 777 jetliner, which is 90 percent hand-built. The factory and tooling are in place, with suppliers geared toward delivering to the plant.

“The door isn’t shut on Washington,” Canaccord Genuity analyst Ken Herbert said in San Francisco, adding that the agreed tax package means that Boeing and the union could return to the bargaining table.

Deutsche Bank analyst Myles Walton agreed that Boeing could still strike a deal with the state, given the logistical challenges of starting afresh at a new facility in another state.

“We’d expect more rhetoric than we’d have otherwise hoped between the company and labor in the coming months, but still see a deal with Washington as the lowest risk even if on paper other locations have potentially lower costs,” he wrote in a research note.

“One of CEO Jim McNerney’s key initiatives is to de-risk product development and leaving Washington would certainly be a challenge to that goal.”

But RBC Capital Markets analyst Robert Stallard said that since Boeing’s South Carolina plant had performed “pretty well” in building 787 Dreamliners, there would be “less concern about the risk of setting up a new plant elsewhere in the U.S.”

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.”

Mike Baker of The Associated Press, Dominic Gates of The Seattle Times, Jim Camden of The Spokesman-Review, Alwyn Scott, Harriet McLeod and Jonathan Kaminsky of Reuters contributed to this report.

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