Bold and tough decisions are as much a part of running a successful large commercial aircraft business as careful design, engineering know-how and a good market. That is the underlying message from ' (BCA) leadership as it closes on a $10 billion choice over where to build the next-generation , its future long-haul, high-capacity flagship.
But whilesaw the 777X site decision as an opportunity to leverage a lasting industrial agreement with the machinists union at its traditional Everett, Wash., site, the International Association of Machinists and Aerospace Workers (IAM) had other ideas. The union's rejection in November of a long-term contract extension offered in exchange for guarantees of 777X work in the Puget Sound area put the company on a search for a site that has since taken on a life of its own. From an initial pool thought to consist of three existing Boeing sites in Alabama, California and South Carolina, the 777X contest has widened to attract a greater-than-anticipated number of bids from 22 states eager to build the aircraft at a choice of up to 54 different sites across the country.
However, just as interested states rushed to submit their bids by the mid-month deadline, talks between Boeing and the IAM were unexpectedly revived on Dec. 9. This time Boeing's improved offer included an additional lump sum bonus of $5,000 per employee to the $10,000 signing bonus offered originally. The revised offer also included more benefits, dropped a proposal requiring employees to pay 33% more in their health-care premiums and retained the current rate at which employees accelerate to the top of the pay scale.
But the improved Boeing offer retained the original proposal to replace the current pension with a partially company-funded savings account program. This emerged as an insurmountable obstacle and almost as soon as hopes began to rise of a deal to secure the work at Everett—current home of the 777—they were dashed on Dec. 12 when talks failed. The outcome further soured what has been widely described as an already “toxic” relationship between Boeing and the machinists union. Unlike the first offer, which was voted down by IAM members on Nov. 13, Boeing's “best and final counterproposal” was rejected by the union leadership, adding a further twist to the divisive negotiations.
BCA President Ray Conner said, “We have listened to the union leadership and had an open dialogue in hopes of moving toward each other. Unfortunately the offer, which would have ensured this great airplane for the Puget Sound region, was immediately rejected by the union leadership.”
Conner clarifies that Boeing did not withdraw its proposal after union leaders turned it down. “That's not the case. It was a rejection, plain and simple, and we now have to turn and face the reality of the union leadership's final decision.”
District 751 President Tom Wroblewski countered by saying that despite wanting to offer the manufacturer 16 years of guaranteed industrial “peace,” Boeing's demands were “too high.” He added, “Our senior leadership team could not recommend Boeing's counteroffer.” Reports from Everett, however, indicate a growing split between the union's leadership and the rank-and-file over the manufacturer's sweetened proposal. Some members have pushed for a new ballot; Boeing declines to comment on whether further talks with the union are even being considered.
While the brinkmanship on both sides shows no sign of letting up, analysts warn that the approach may cause longer-term difficulties for the manufacturer. Teal Group Vice President of Analysis Richard Aboulafia says, “There needs to be more readiness from the union standpoint, but there is no better way to encourage unreasonableness than Boeing doing a series of 'best and final' offers.” He predicts that “if no accommodation is reached on the 777X line, bitter feelings will worsen, and a strike will loom in a few years. As everyone recalls, these things tend to last one to two months and cost Boeing about 10% of yearly revenue, not all of which can be made good.”
Site selection is meanwhile expected to be completed over the next month. According to the requests for proposals (RFP) issued by the manufacturer, the site requirements specify the supply of either a subsidized or “no cost” single $7-10 billion, 4.2-million-sq.-ft facility that would house both final assembly and wing construction under one roof, or two sites—one to house the final assembly line, the other, the 114-ft.-long composite wing shop. Divided up, the requirement calls for a primary 3.1-million-sq.-ft. facility at a cost of $4-6 billion for fuselage and final assembly, and a secondary 1.1-million-sq.-ft. site for the wing at about $2-4 billion.
The RFP calls for work to begin on building the facilities in November 2014, with the aim of starting the production process in July 2016. This timeline coincides with Boeing's schedule for the new twinjet family, which calls for detailed design in 2016 and final assembly beginning in 2017. First flight of the 777-9X is expected in 2018, with first delivery targeted for 2020.
Despite the intensity of the search and the fractious relationship with the union, observers point to Everett as the logical site for the 777X line and say placing it elsewhere will only increase the risk of program delays. Even with the hefty financial incentives thought to be on offer from other states, Washington state is offering a comparable $8.7 billion tax break for Boeing, has the closest port facilities to the company's established Asian suppliers, and includes other incentives such as a relevant transport infrastructure and experienced workers. “If 777X were a clean sheet design, a new facility and a new workforce might be feasible. But as a major derivative, having an experienced workforce from Day One would reduce manufacturing costs and program risk. Moving to a new site would disrupt the production learning curve,” says Aboulafia.
Of all the alternatives, expanding Boeing's expanding 787 production line in South Carolina is the only one “that makes any sense,” Aboulafia adds. As if to underline this view, on Dec. 13 Boeing announced plans for a major expansion of its North Charleston, S.C., facility. These include construction of a paint hangar for the 787 line as well as an intent to secure 468 acres adjacent to the site for “potential growth.” These extra acres include the 267 sold to Boeing by the Charleston County Aviation Authority and 201 acres that have been purchased with state bond funds allocated to Boeing. The land, owned by Palmetto Railways, will be leased under a long-term arrangement. Boeing has an option to purchase outright all 468 acres at the end of the initial lease term in 2027. “This expansion makes future growth in North Charleston possible. While we expect to begin the permitting process immediately for this property, we have no specific plans for the land other than where we will locate the new paint facility,” says Jack Jones, Boeing South Carolina vice president and general manager.
The prospect of gaining the 777X would “be a game changer for the region,” says Claire Gibbons, director of marketing for the Charleston Regional Development Alliance. The 787 assembly site, which already employees around 6,100, has triggered a “ripple effect” that the 777X would build on, she says. With development of the 787 facility, the region has seen strong growth in the information technology and professional services sectors as part of a broader economic impact that over the 2009-11 period was estimated at $500 million. “Both [of those sectors] have been going gang-busters,” and could be poised for more if 777X suppliers also relocate to the Charleston area. “We are talking with suppliers who want to be in strategic proximity to Boeing and, even though Boeing does not require anyone to locate anywhere near them, we encourage any and all to move to Charleston,” she says.
As Boeing considers proposals to build the 777X, the company also continues its relentless drive to devolve some key functions away from its traditional base in Washington state, regardless of where the new twin will be assembled. Following BCA's recent decision to open engineering design centers beyond its traditional Seattle base, Boeing has announced plans to restructure its entire Research and Technology (R&T) organization by establishing research centers in Alabama, California, Missouri, South Carolina and Washington.
The centers will operate independently, but cooperatively, with one another as well as with the existing set of Boeing technology centers in Australia, Brazil, China, India, Spain and Russia. The changes are designed to align R&T expertise in the various sites more closely with the requirements not only of the commercial arm but also with Boeing's defense, space, security and government customers. However, while expanding the overall reach of its R&T operation around the country, the company acknowledges that the strategy will entail a net reduction in overall employee numbers, particularly in California and Washington, the current centers of this work. Research and technology jobs in Washington are expected to decrease by as many as 1,200, while those in California are expected to decrease by up to 300. Employment at the new sites in Alabama, Missouri and South Carolina are meanwhile expected to grow by 300-400 each.
Specific specialty R&T areas have been allotted to each site, with Huntsville, Ala., responsible for simulation and decision analytics, metals and chemical technology. The Southern California site will focus on flight sciences, electronics and networked systems as well as structures, while St. Louis will cover systems technology, digital aviation and support technology as well as metallics and fabrication development. The new North Charleston site will focus on advanced manufacturing technology; Seattle will specialize in manufacturing technology integration. The international centers will continue to conduct research on environmental improvements, aviation safety, air traffic management and other areas.