Analysis: Boeing bidders dangle goodies to win 777X jetliner

NEW YORK/CHARLESTON, South Carolina Thu Dec 5, 2013 7:40pm EST

Boeing Chairman James McNerney (2nd L) shows United Arab Emirates' Prime Minister and Ruler of Dubai Sheikh Mohammed bin Rashid al-Maktoum (2nd R) a model of the new version of its 777 long-haul jet during the Dubai Airshow November 17, 2013. REUTERS/Ahmed Jadallah

Boeing Chairman James McNerney (2nd L) shows United Arab Emirates' Prime Minister and Ruler of Dubai Sheikh Mohammed bin Rashid al-Maktoum (2nd R) a model of the new version of its 777 long-haul jet during the Dubai Airshow November 17, 2013.

Credit: Reuters/Ahmed Jadallah

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NEW YORK/CHARLESTON, South Carolina (Reuters) - South Carolina will clinch a long-awaited land sale next week that should help Boeing Co (BA.N) expand aircraft production. Perhaps more importantly, the $13.8 million deal may help South Carolina win assembly work for Boeing's next big jet.

The acreage near Boeing's assembly line in North Charleston is just one of a tantalizing collection of goodies that states across the country are dangling to try to lure the lucrative new jet program, known as the 777X, that promises thousands of jobs and billions of dollars in economic benefit to the winning state.

Boeing has requested proposals for the jetliner program from more than a dozen states after the unionized machinists in Washington state last month roundly rejected a labor contract that would have guaranteed the plane was built there.

Initial proposals are due next week, according to people familiar with the discussions.

In Missouri, lawmakers are meeting in a special session to consider tax cuts and other benefits for Boeing. Alabama government leaders are preparing to pitch Huntsville, where Boeing has extensive operations. California said it is working on a plan to meet Boeing's requirement. Georgia said it may offer two potential sites.

"We want it as bad as anybody else. And we can deliver it," said Paul Campbell, director of airports for Charleston County Aviation Authority, in South Carolina.

Making 267 acres available near where Boeing already builds 787 Dreamliners, "absolutely is a plus," Campbell said. "They could certainly use part of that property to build the 777X."

Washington state remains in the running. Lawmakers last month passed $8.7 billion in aerospace tax incentives to keep Boeing in the region where it already builds nearly all of its commercial aircraft.

Analysts say there is strong logic to building the new plane in the Seattle area, where the current 777 is made.

But the union's rejection of the labor offer further strained relations between Boeing and the International Association of Machinists. The vote also stirred turmoil within the union that could complicate efforts to forge a new labor deal with Boeing.

GAME ON

Boeing has not said which states are in the contest. Some states said they were under confidentiality agreements, while others have been open about the process.

"Some locations that have received requests for proposals are being open about it and others are not," Boeing spokesman Doug Alder said. The Chicago-based company expects to choose a site "early next year" but has not announced a firm deadline.

Boeing declined to comment on a report of a leaked copy of its bid request that shows it may spend up to $10 billion on a new, 4.2 million-square-foot factory, and wants to be near rail, highway, air and sea ports. It also wants land for free or at very low cost, according to the report by the St. Louis Post-Dispatch.

Missouri's state legislature's debate on its plan offers the most revealing look at what states can offer. The state senate on Wednesday approved incentives that could be worth $1.7 billion over 23 years, provided Boeing creates 8,000 jobs in the state, according to Gov. Jay Nixon.

The Missouri package, now before the House, includes payroll tax credits, tax breaks for factory construction, job training and debt financing, according to the state.

While the total is far less than the $8.7 billion package from Washington state, costs such as energy, wages, taxes and shipping can vary substantially from state to state, and labor laws change the company's ability to set terms for workers, so that specific breaks given to Boeing may not tell the whole story of a region's competitiveness.

In Alabama, officials are preparing to pitch Huntsville, where Boeing already has extensive operations. The state legislature convenes January 14 for a regular session, but could go into special session earlier if needed, officials said.

Texas officials declined to confirm whether they are bidding, but pointed to a large Boeing presence in the state. There is no scheduled Texas legislative session in 2014, but the state has $116 million it can use without legislative approval to attract Boeing.

In California, the governor's Office of Business and Economic Development is launching a tax-credit program in January for companies that want to expand or relocate to the state, and Boeing would be eligible for the program. The state also offers credits for research and development and is exempting equipment purchases from sales tax, starting next year. The value to Boeing would depend on its investment.

Kansas confirmed it is bidding, but did not provide details. The state is home to Spirit Aerosystems Holdings (SPR.N), which makes large structures for Boeing, including fuselages and wing pieces. Utah also is on the list of states Boeing has asked for bids, according to people familiar with the process, but officials there declined to comment.

Wisconsin, which wasn't among those invited by Boeing, is preparing a bid anyway.

"We've got a team of people working on it right now," said Mark Maley, a spokesman for the Wisconsin Economic Development Corp. "We think we can make a good case."

RENT: $1 A YEAR

Boeing's South Carolina plant assembles fuselages for the 787 and performs final assembly on about 1-1/2 of the planes per month. The production rate is expected to increase to three per month early next year, said Jack Jones, vice president and general manager of Boeing South Carolina.

Boeing leases its current land from the aviation authority for $1 a year. The new land deal will double the size of Boeing's main campus. The lease rate for the new land hasn't been disclosed. The deal is due to close on December 13.

In 15 years, Boeing can pay the state the purchase price of $13.8 million and take title to all of the 267 acres, or it can extend the lease, state officials said.

As part of the land transaction, South Carolina last week sold $85 million in bonds, raising a portion of $120 million the state approved last spring for Boeing's expansion. The funds include money for infrastructure and wetlands mitigation. State officials wouldn't discuss any other incentives for Boeing.

Boeing has already spent at least $1 billion in South Carolina and has committed to investing another $1 billion and hiring 2,000 workers over the next eight years, tied to the 787 and other projects.

In November, it kicked off construction of a 225,000-square-foot propulsion center that will design and assemble part of the engine housing for another new jet, the 737 MAX. The facility is on Boeing-owned land about 12 miles from the main campus.

Campbell, of the Charleston aviation authority, said Missouri's $1.7 billion incentive plan was revealing, and South Carolina does not intend to tip its hand.

"That at least gives us an idea of what is out there, what we've got to go up against," he said. Missouri would "also have to come up with property. Boeing's got 267 (new) acres here."

(Editing by Peter Henderson and Grant McCool)

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Comments (17)
Jake1932 wrote:
None of those states has ever built anything as complicated as an airliner. Yet they are willing to hang there citzens with debt to get something they don’t know anything about. If they build the 777x in any of those states with scab labor I’ll never fly on the death trap.

Dec 05, 2013 9:17pm EST  --  Report as abuse
DaveinKL wrote:
Memo to Jake1932- maybe UnionJake? :)

Dude, the state’s arent building it, the company is.

Last I checked, they’ve been doing it for awhile. Chill.

Dec 06, 2013 12:18am EST  --  Report as abuse
gitmojo wrote:
This story dramatizes the effect that unreasonable union leaders have on an industry. They practically killed the auto industry here with their arrogance and delusions of grandeur.
When will they realize that there’s no future in pricing your self out of the market?

Dec 06, 2013 10:12am EST  --  Report as abuse
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