* Boeing seeking tax incentives and new 8-year labor
* Unclear if company would settle for less than full
* Investors not concerned about placing 777X production in
By Jonathan Kaminsky and Alwyn Scott
OLYMPIA, Wash./ NEW YORK, Nov 7 The Washington
state legislature met on Thursday in a special session to
consider tax breaks aimed at ensuring Boeing Co builds
its newest jet, the 777X, in the Seattle area.
Washington Governor Jay Inslee, a Democrat, called the
session to seek roughly $8 billion in tax incentives along with
a streamlined permitting process for Boeing and $10 billion in
funding for transportation improvements.
But to win the coveted work for Washington, Boeing's
machinists must ratify a long-term labor contract with
concessions on pensions and healthcare.
The 777X program would secure thousands of jobs in the
state, keep it at the forefront of aircraft technology and
trigger construction of 1.5 million square feet (139,355 square
meters) of new facilities in the Puget Sound area. It is viewed
as crucial to the Seattle area, which is competing with
nonunionized workers in southern U.S. states where wages are
"Assembly of that airplane will be the lynchpin of economic
growth for the state of Washington for decades to come," Inslee
said, speaking before the Washington state House Finance
Committee on Thursday.
It remained unclear exactly how much Boeing's decision about
where to build the jet really hinges on the labor deal and the
A union "letter of understanding" distributed to members
says Boeing "agrees to locate" 777X production in Washington if
workers approve a new, eight-year labor contract.
The document makes no mention of the deal depending on
legislative action, raising the question of whether the airplane
maker could be locked into production of its newest jet in
Washington state with no new tax incentives or other
Inslee spokesman David Postman insisted both measures are
essential to the deal, characterizing the letter as nonbinding
and noting it does not take into account other agreements.
His view was backed up by a statement from the union,
forwarded to Reuters by the governor's office.
"Any suggestion that the union thinks Legislative action
isn't necessary is simply wrong," said Larry Brown, the
machinist union's legislative director, in the statement.
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 jet will be built using a metal fuselage similar to the
current 777, 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
In a letter to Inslee sent on Thursday, the senior vice
president of Boeing's government operations, Tim Keating, listed
tax incentives and the transportation infrastructure package,
along with a labor agreement, as elements "that will ensure our
lasting competitiveness in Washington state."
The letter went on to commend the governor for working to
"achieve the results that are necessary" to locate 777X
production in Washington state.
"That doesn't mean it's a deal-breaker," if the legislation
doesn't pass, said Ken Herbert, an aerospace analyst at
Canaccord Genuity Inc in San Francisco.
Boeing clearly wants to lock in the labor concessions but
might be more flexible on the legislative proposals, Herbert
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.
A newspaper in South Carolina reported on Thursday that
officials there never seriously considered that their state was
in the mix for winning the work.
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
"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
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 ended down 1.2 percent at $131.51 on
Thursday 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.
Union members are due to vote on the proposal by next
Inslee's plan includes extending commercial airplane tax
incentives passed in 2003 until 2040 and widens other
The 2003 tax incentives were for Boeing locating the 787 in
Washington, and figure prominently in a trade dispute between
Boeing and rival Airbus, and were ruled unfair by the
World Trade Organization (WTO).
Similarly, Washington has criticized Airbus for continuing
to take government loans for the A350 aircraft that the United
States says were ruled illegal by an earlier WTO case.
Democrats control the state's legislature's lower house, and
Republicans control the Senate. Sentiment in both chambers leans
toward passing Boeing-related tax incentives.
But state 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
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 new
facilities in the Puget Sound area.
"It's not do-or-die to get the transportation package done
immediately," Tom said.