October 4, 2009 in Business

A move to the South could also take Boeing’s profits south

By The Spokesman-Review
 

A Boeing Co. decision to locate a second 787 production line in South Carolina would cost Washington jobs, but the company has been exporting work for years, with little chance of a turnaround, an industry analyst says.

Whether or not Charleston or Mobile, Ala., bid successfully for new U.S. aerospace plants, says Scott Hamilton, Boeing and the other major players in the industry today — Airbus, Bombardier and Embraer — are breeding future competitors in Japan, China and Russia.

As they outsource more subassembly manufacturing, he says, they are transferring technology that increases the capabilities of their foreign partners.

China, for example, already makes a small commuter plane for domestic use. Designers have begun work on a plane that would be comparable to Boeing’s 737, the world’s best-selling airliner.

Hamilton notes a Boeing study that estimates China will need 3,000 new planes over the next 20 years. If Chinese-made aircraft take just one-third of that market, Boeing and Airbus will lose billions in revenue, he says.

Hamilton, president of Leeham Co. LLC in Issaquah, Wash., will be in Spokane this week to address the Eastern Washington Governor’s Aerospace Summit. He says he is going to talk about the opportunities for Eastern Washington and North Idaho aerospace companies as the industry fragments.

Long-term trends aside, Hamilton has become more optimistic about the odds Washington might yet be home to the second 787 line.

In April, he produced a study that discounted the state’s chances based on its business climate, labor relations and education. Vis-À-vis that last item: None of the aerospace engineering programs offered by a Washington university ranks in the top 15 nationally, according to U.S. News & World Report.

Boeing’s labor woes are no secret. A two-month strike last year by the International Association of Machinists sapped an estimated $1.3 billion from its bottom line. Earlier this year, Boeing workers in South Carolina voted the union out, suggesting future negotiations will be more harmonious than talks in the Puget Sound area.

But business climate has lately emerged as a potential Washington strength. Forbes just ranked the state second in climate, and the Tax Foundation placed it ninth. A report released by Gov. Chris Gregoire underscored some telling advantages Washington has not only against South Carolina, but possible alternatives North Carolina, California, Kansas and Texas, as well.

Most impressive is the solvency of the state’s unemployment fund, by far the best among the contenders. State high school students outscore those in the competing states on standardized tests in almost every category. Whatever the deficiencies in engineering degrees may be, the community colleges have impressive training programs.

And carp as it will about its relations with its workers, Hamilton says persistent supplier foul-ups have demonstrated repeatedly just how much Boeing relies on employee skills and knowledge acquired across generations. The strike was costly, but probably less so than the costs of fixing suppliers’ errors, he says.

With the 787 still facing design challenges, Hamilton wonders, does Boeing want to compound its risk by going south?

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