Boeing (BA.N) is in advanced talks with a leading union to assemble its new 777X jet and build its wings in the Seattle area, a source familiar with the negotiations told Reuters.
Where the jet should be built is one of the most keenly awaited decisions in U.S. aerospace, with workers at Boeing's commercial base in the state of Washington facing competition from lower-cost, non-unionized states in the South.
Boeing is seen as keen to keep costs on its new 777 as low as possible as it faces competition from the all-new Airbus EAD.PA A350-1000 and industry sources say there will be pressure on all sides to make concessions in location talks.
Under the proposed deal, final assembly of the 777X would be at Boeing's Everett plant near Seattle, home to all its wide-body production except the 787 Dreamliner, whose assembly is split between Everett and North Charleston, South Carolina.
The plane's expanded wings would be built in the surrounding Puget Sound region, the source said, asking not to be identified because the talks remain confidential.
Talks are "in the final stages, but are not done yet," the source said, adding that the negotiations, which were initiated quietly between Boeing and the International Association of Machinists union around a week ago, were "intense".
Barring an agreement, Boeing is expected to open up similar negotiations with other potential locations.
In Europe, a spokesman for Boeing declined to comment.
Designed to carry up to 406 people on some of the world's longest routes, the 777X may enter service in 2020 and is expected to be produced well towards the middle of the century.
The U.S. planemaker is expected to launch the latest version of its popular 777 mini-jumbo with at least 100 orders from Gulf carriers at the Dubai Airshow this month.
The discussions with the IAM union come despite recent signs that Boeing was diversifying beyond the Seattle area where the current 777 was designed and is being built.
A recent internal memo suggested Boeing would place a significant amount of design work for its new 777X in a handful of cities around the U.S. and overseas <ID:L1N0IK1GO>.
Media reports have suggested South Carolina has an increasing chance of winning the coveted assembly deal.
Analysts say the decision on where to build the plane and especially its advanced composite wings will have implications for the aerospace industry, including its chain of suppliers.
After a revamp of its smaller 737, the 777X will be the last major new commercial project on Boeing's drawing board for the next 15 years or more, and the final choice could determine the location of high-tech composites work for decades to come.
Building the 777X close to the production site for the existing model has advantages in streamlining both existing infrastructure and supply chain logistics, an industry source familiar with Boeing's production methods said.
The 777X will include the longest wing developed by Boeing with a 233-foot wingspan - so large that its wingtips are expected to fold upwards when on the ground, in order to fit in the same airport parking spaces as existing 777s.
Industry sources say the carbon-composite wing alone may cost at least $2 billion to develop and the total development cost for the 350- to 406-seat 777X could be over $5 billion.
Influential plane lessor Steven Udvar-Hazy, founder of Air Lease Corp (AL.N), told Reuters in July that it would be important for Boeing to produce the plane "as efficiently as possible" to keep ownership costs down.
Wings for the current generation of 777s are prepared in Boeing's Frederickson plant near Tacoma, Washington, which also has a composites manufacturing center.
Wings for the 787 Dreamliner are built in Japan, which has also been mentioned as a possible production site for the 777X wings. Everett faces competition for the final assembly from South Carolina and Texas among others, according to reports.
Boeing recently suffered a major setback when long-time Boeing customer Japan Airlines rejected the 777X in favor of the A350-1000, but sources say the decision to give Washington workers first shot at building the new wing is not related.
(Editing by Louise Ireland)