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Friday, December 5, 2003 - Page updated at 12:00 AM

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7E7 team wants Everett; morale here was a factor

Seattle Times aerospace reporter

Boeing 7E7 team's conclusions


• State's tax package made Everett competitive
• Boeing needs support of Washington workers, legislators
• Company keeps option to relocate later
Top 7E7 candidates


The top dozen 7E7 site contenders back in late September, compiled from sources inside and outside Boeing:

Everett, Wash.
Moses Lake, Wash.
Charleston, S.C.
Kinston, N.C.
Mobile, Ala.
Tulsa, Okla.
Stennis, Miss.
Jacksonville, Fla.
Savannah, Ga.
Harlingen, Texas
Millington, Tenn.
Blytheville, Ark.

After an eight-month-long nationwide search, Boeing's 7E7 executive team has concluded that the new jet should be built in Everett, according to an insider familiar with the details.

The team's site evaluation was prepared for a Dec. 15 meeting of the Boeing board of directors, and for review by new Boeing CEO Harry Stonecipher during a visit he made to Seattle on Wednesday.

If Stonecipher and the board agree, Everett will remain the heart of Boeing jetliner manufacturing for the next generation.

Keeping the 7E7 and future Boeing models here would save thousands — possibly many thousands — of Puget Sound-area jobs even though the number of direct Boeing jobs building the 7E7 would be relatively small.

Thomas Downey, vice president of communications for Boeing Commercial Airplanes (BCA), said last night, "No decision has been made and no decision will be made until the results of our site evaluation are fully vetted with our board of directors." Downey declined to comment on whether a recommendation from BCA to the Boeing board in Chicago had been finalized.

The Boeing insider, who has provided accurate information about key 7E7 decisions in recent months, said Everett was chosen over three other finalists, all in the Southeast: Kinston, N.C.; Charleston, S.C.; and Mobile, Ala. The source spoke on the condition of anonymity.

The 7E7 team's analysis showed that the cost of operating in Everett, though higher than in the other cities, was competitive because of the $3 billion 7E7 tax incentive passed by Gov. Gary Locke and the state Legislature in June.

With that incentive package, the difference in cost between Everett and Kinston, the lowest-cost city, narrowed to about $300 million over 20 years, a number dwarfed by the estimated $7 billion to $10 billion cost of developing a new airplane.

Boeing executives have long said the 7E7 site decision would be based on bottom-line factors such as the cost of workers, taxes and government regulations.

But in the final analysis, other factors played a major role, the insider said, including the potential impact on the morale of the Puget Sound work force if the 7E7 went elsewhere.

Boeing, which has cut some 26,000 jobs here since it moved its headquarters to Chicago, needs cooperation from its unions and from nonunion workers as it continues to introduce aggressive, lean production techniques that will entail some downsizing and moving of work to other countries.

Another constituency that weighed into the analysis was the Washington congressional delegation, which would be angered if the 7E7 landed elsewhere at a time when Boeing needs friends in the nation's capital.

Washington politicians such as Locke have made winning the 7E7 almost an obsession, and the delegation, led by U.S. Rep. Norm Dicks of Bremerton and Sens. Patty Murray and Maria Cantwell, all Democrats, have worked on Boeing's behalf to win a $22 billion deal to make tankers for the Air Force even as the deal has grown more unpopular amid allegations of unethical behavior by Boeing officials.

Rejection would be surprise

The Boeing board will meet in 10 days in Chicago to hear a presentation of the business case from the head of the 7E7 program, Mike Bair. It is widely expected to give Bair formal approval to offer the plane for sale to airlines.

The board and Stonecipher also must agree to the final assembly site. But it would be a major surprise if board members refused to back the choice of the Commercial Airplanes group's CEO, Alan Mulally, and his executive team.

Stonecipher, who took over as Boeing CEO when Phil Condit resigned earlier this week, was reported earlier this year to be skeptical of financing an airplane-development project, but he denied that this week and spoke glowingly of Boeing's commercial unit and the 7E7.

Wednesday, according to an employee e-mail newsletter, Stonecipher was in town for briefings on the 7E7. Afterward, he visited the 7E7 interior mockup with Mulally. "Getting the 7E7 launched is the topic of the day," he was quoted as saying. "We need to be poised and ready when the market returns."

Boeing has been saying for months it would announce a final assembly location by the end of the year. But Bair and others have recently warned that an announcement might be delayed into 2004.

It is not known whether the 7E7 team's conclusion could still change. In 1997, Alabama snatched a Boeing rocket plant away from Florida at the last minute by providing an additional capital-investment tax credit, according to state government officials familiar with that site selection.

And North Carolina Gov. Mike Easley has convened a special one-day extra session of the state Legislature Tuesday to consider possible extra incentives for "specific economic-development" programs, one of which is believed to be the Boeing 7E7 bid.

Ripple effect on region

The effect of keeping the 7E7 in Everett would ripple out to a host of aerospace suppliers in the state and to local businesses that service the Boeing work force, particularly in Snohomish County.

A study by regional economist Dick Conway estimated that about one in six Puget Sound-area workers relies directly or indirectly upon Boeing.

But the victory could be bittersweet for Boeing's unions, because the 7E7 production line will employ so many fewer workers than previous airliner programs.

Boeing has said as few as 800 would be employed at the 7E7 plant, less than one-third of the number working on the 777. That's because the 7E7 is designed to be assembled mostly by Boeing's global partners, who will deliver large finished sections to the plant.

Nevertheless, the news would bring immense relief to the union leaders and business figures who have lobbied hard for the 7E7 and for Locke and the legislators, who rammed through the $3.2 billion incentive package. Without that package, according to the company insider, Everett likely would have lost the 7E7.

Bair's team did a detailed analysis for each site of the cost of taxes, transportation, facilities, equipment and labor. For every category except the cost of facilities, Everett's costs were higher than those of the other cities.

In the end, Boeing's need to maintain a working relationship with its employees and with the unions was a key factor.

Changes ahead on existing programs at Everett mirror the production techniques planned for the 7E7 and promise to be painful for the unions. Boeing is set to introduce lean production techniques and to outsource more parts and assembly work, transforming the way it makes the 777 and 767 jets.

Moving the 7E7 to the Southeast could have stopped dead all union cooperation on that front. It would also have raised the likelihood of a strike when the next Machinists contract comes due in 2005.

In the course of secret labor talks over the 7E7 in the past two months, Boeing asked both the International Association of Machinists, the factory workers union, and the Society of Professional Engineering Employees in Aerospace, the engineers union, to discuss extensions to their contracts from 2005 through 2007.

Boeing suspended the talks after the Machinists, which to win the 7E7 had already agreed to back state concessions on unemployment insurance and workers' compensation, balked at changing the contract, according to sources inside and outside Boeing.

Boeing's hope is that a decision to put the 7E7 in Everett would be enough to win union support for its planned "lean global enterprise" changes, because that would at least secure for the plant a long-term future, however lean.

In case it isn't, Boeing has a fallback position that will effectively be a sword over the heads of workers here, the insider said: Boeing's 7E7 plans call for maintaining the ability to move manufacturing out of the Puget Sound area at a later date.

Seattle Times aerospace reporter David Bowermaster contributed to this report. Dominic Gates: 206-464-2963 or dgates@seattletimes.com

Copyright © 2003 The Seattle Times Company

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