Key decisions coming on state’s role in Boeing’s plans

What a remarkable soap opera development of the Boeing Co. 787 has become. This ain’t no Dreamliner.

By substituting carbon composites for traditional materials like aluminum, the 787 was conceived as a revolutionary departure in aircraft manufacturing. By reducing weight, the plane would shave millions of dollars off fuel bills. And by outsourcing much of the subassembly production, Boeing laid some of the financial risks on its partners.

To ensure the 787 would be assembled in Washington, then-Gov. Gary Locke in 2003 pushed through the Legislature $3.2 billion in tax relief for aerospace companies in the state.

What followed was a buying frenzy that filled up Boeing’s 787 order book for years. And one production snafu after another.

The program is already two years behind schedule. The plane that was rolled out to much fanfare in August 2007 was a shell immediately returned to the factory for more work. Lots more work. Seemingly poised for its first flight last month, the plane revealed structural weaknesses in a critical area that forced another embarrassing cancellation. No new date has been announced.

Meanwhile, Boeing has taken out a major kink in the supply chain, the Vought Aircraft Industries operations in North Charleston, S.C. In March 2008, the company bought Vought’s half of a subassembly plant shared by Global Aeronautica of Italy. The adjacent Vought plant making the rear section of the 787 was purchased last week for $1 billion, which included $400 million Boeing had advanced Vought for plant upgrades.

Vought owner Carlyle Group may be politically well connected, but it apparently cannot put a fuselage together.

But by taking the Vought plant under its wing, Boeing has again put Washington and the International Association of Machinists under the gun.

The company now has the space in South Carolina to accommodate a second 787 production line. A site choice could come as early as this fall. Boeing officials have privately told Gov. Chris Gregoire and members of Washington’s congressional delegation the company can no longer tolerate work stoppages like an eight-week Machinists walkout last fall that cost $6 billion.

Gregoire created a Washington Council on Aerospace in May to assess not only labor issues, but a list of problems summed up in a study done for Snohomish County. Based on the work done by Deloitte Consulting, Washington will falter as an aerospace leader if costs – wages, unemployment premiums, and housing and utilities – remain out of line with those in other states.

Competitive tax rates, worker skills and research and development capabilities are among the pluses.

Boeing’s South Carolina investment underscores just how tenuous Washington’s grip on aerospace leadership has become.

“That certainly gives a sense of urgency,” said Randy Julin, general manager of Absolute Aviation in Spokane and a member of the governor’s council.

He said the group has put its work on a fast track given the apparent deadline for a decision on the second 787 line.

Machinist willingness to work with Boeing, on the council and in negotiations, will probably tip the balance. The union will be under tremendous pressure to surrender its ability to strike, certainly extracting concessions from Boeing in the process. There is not much time to get things done, although the production glitches, order cancellations and overall doldrums in the airline industry ought to stretch out any deadlines.

With another decision critical to the future of Boeing looming – choice of a new Air Force tanker – everyone needs to be going in the same direction.

And it’s not south.