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Originally published December 20, 2013 at 9:14 PM | Page modified December 21, 2013 at 8:37 AM

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Bidding for 777X: Everett has the home-field advantage

Everett checks nearly every box on Boeing’s wish list for a 777X site, although its showdown with the Machinists has obscured that fact. This week The Seattle Times has been reporting on several of the sites contending to build the plane.


Seattle Times aerospace reporter

How Boeing may look at Everett

Pros:

• Existing infrastructure in place

• A skilled, experienced workforce

• An established supply chain, including hundreds of local firms

• Tax incentives worth $8.7 billion covering the entire jet lineup

• State-funded training help

Cons:

• A history of labor trouble with its unions and a current standoff with the Machinists

Seattle Times

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The skills of Boeing’s Washington state workforce salvaged the 787 Dreamliner program when other less-experienced locations let Boeing down.

The state has passed tax incentives for Boeing that no other can match.

And in existing infrastructure, Everett has just about everything on the wish list Boeing sent out to states nationwide that want to build its 777X jet.

According to most industry experts, Everett ought to be a shoo-in.

“Boeing’s request for proposals, as it has been reported in the press, describes Everett,” said Alex Pietsch, director of Gov. Jay Inslee’s Aerospace Office.

“If they are willing to spend $10 billion to reconstruct that, it’s an unnecessary cost when a proven facility is already in place.”

Aviation analyst Richard Aboulafia wrote recently that, if not for Boeing’s showdown with the Machinists union, Everett would have an open-and-shut case for building the next version of a plane it already builds.

“From a strict industry/business/economics/common sense standpoint, the alternatives are seriously inferior,” Aboulafia said.

Boeing said Friday it has whittled down the 54 bids it received from 22 states, but is not disclosing which remain on its short list.

The detailed outline that Boeing gave the states for 777X proposals, a copy of which was reviewed by The Seattle Times, included a conceptual map of a $10 billion facility showing a final-assembly bay, a wing fabrication and assembly building, a fuselage-assembly area, a cabin-interiors facility, a paint shop, a jet-delivery center and an office tower.

It also showed a rail line going right into the complex, a runway to accommodate large cargo jets and a wide ramp for parking newly built planes. A seaport was listed as desirable.

Wing building needed

Everett is missing only one item on Boeing’s list: An advanced manufacturing building in which to produce the 777X’s 114-foot-long, which will be made out of carbon-fiber-reinforced plastic composites.

But if Boeing doesn’t want the capital expenditure of constructing it, Everett offers the jet-maker a deal on that too.

Snohomish County, which owns Paine Field airport, has offered Boeing a site for the wing facility on the west side of the runway.

If asked, the county will develop the land, construct the building to Boeing’s specification, and then lease it to the company over a couple decades to recoup its money.

The county did such a deal before, when Boeing built its $35 million Dreamlifter operations center for servicing the huge modified 747s that feed the 787 assembly line.

Boeing designed the operations-center building, which opened this fall. The county paid for its construction and gave Boeing a 20-year lease, with optional extensions out to 50 years.

Peter Camp, Snohomish County executive director, said Boeing is “very happy” with this financial arrangement.

The lease rates would have to be market rate, a requirement of the Federal Aviation Administration, (FAA) which oversees airport affairs. But the same would be true at any alternative site, such as Salt Lake City.

Alternatively, Boeing insiders confirm that the company has also explored the option of demolishing some of the older buildings just north of the current 787 and 777 assembly bays and putting a wing facility there on its existing property.

It might also choose to put some work in a large hangar at the south end of Paine Field that is now busy with 787 rework but due to be empty in time for the 777X.

If Boeing chooses either of those routes, all it needs is a building permit, and the city has made clear there won’t be any delay in providing one.

“We could probably turn around a permit in four weeks,” said Pat McClain, executive director of government affairs for Everett.

“A well-oiled machine”

Anywhere other than Everett, the capital expenditure needed to create a new facility will be only the beginning of Boeing’s investment.

The productivity of a workforce building machines as complex as jetliners depends upon experience and is built up slowly over time.

The current 777 has become a cash cow with profit margins somewhere between 15 and 20 percent, thanks to incremental lean manufacturing improvements to the Everett assembly line, according to a senior Boeing engineer who asked for anonymity because employees are not authorized to speak independently with the media.

“It has taken a decade to nudge 777 margins to where they are today. Everett’s 777 line is a well-oiled machine,” he said.

He estimated that potential rival sites, even places such as California with a history of making large transport aircraft, could take as long as 10 years to get a 777 line up to the productivity level Everett has already achieved.

“Not all aerospace is the same,” the veteran engineer said.

In addition, an intricate supplier network has built up around Everett over the years that delivers parts exactly when needed.

For example, many of the lavatories and galleys for Boeing’s jets are supplied by JAMCO, just five minutes away from the assembly plant.

Any “greenfield” site missing such a web of suppliers must expect glitches in parts deliveries during the initial years of production.

Free training

To maintain its workforce advantage, Washington state will offer Boeing free training of employees, as other states have done.

The state’s Department of Commerce is setting up a program called Work Start that will offer “customized training in direct alignment with the state’s business recruitment and expansion efforts.”

More broadly, the state has committed to pour money into aerospace-focused education and training.

The Boeing incentives approved last month in a special session of the Legislature — if the 777X and its wings are built here — included $2 million for the Washington Aerospace Training & Research Center at Paine Field.

The money will be used to upgrade the facility with new equipment and establish a carbon-fiber wing fabrication training program.

Separately, the Legislature gave Washington State University $10 million to set up a new facility in Everett focused on science, technology, engineering and math.

And Inslee’s just-published supplemental budget includes $500,000 for WSU to plan a School of Advanced Manufacturing and Aerospace; and the same amount for the University of Washington to plan a new, advanced-manufacturing facility in conjunction with private industry.

Economics persuasive

The fierce competition for Boeing’s business is underlined by the recent site-search experience of Matt Yerbic, CEO of Aviation Technical Services (ATS), a large Everett-based airplane maintenance and repair firm.

On Friday, Yerbic announced ATS will expand beyond Washington and open a new aircraft-maintenance operation in Kansas City, Mo.

ATS will take over some existing buildings, old TWA hangars, at that site. But Yerbic said other states offered to build him facilities “at very low cost.”

“Other states are very aggressive in trying to get this work,” Yerbic said. “The state of Washington is a fantastic place to do what we do, but frankly the economics of some of these other locations are very powerful.”

Yerbic insisted though that his 1,100 workers in Everett can feel secure. His business is growing, not moving.

“We are not leaving Everett,” he said. “Everett is still the mothership for us. The reason we are in a position to expand is because of the good job we’ve done here.”

Still, the state has gotten the message that it has to offer incentives.

In one respect, it has a big advantage over rival states: When Washington offers Boeing tax breaks, they apply not only to the new jet program being proposed — in this case the 777X — but also to all the other jets Boeing builds here.

That’s what makes the recently passed incentive package so massive, worth a total of $8.7 billion between 2024 and 2040.

Pietsch, Inslee’s aerospace point man, said the state passed it “because we understand how important this company is and how it affects hundreds of thousands of people in the state of Washington.”

With all Everett has going for it — existing infrastructure, an experienced workforce, a state offering large tax and training incentives — there’s only one obstacle to winning 777X: the company’s standoff with the Machinists union.

Boeing demanded pension changes and benefit cuts in exchange for placing the 777X here. The union so far has refused any such deal.

Pietsch sees labor peace as the final piece of the 777X puzzle that must fall into place.

“If there was a way to reach agreement between the Machinists and company for the long term, then I think there’s no limit to how powerful the aerospace cluster in Washington state could be,” he said.

With almost a 100-year history of plane-making in the Puget Sound area, Pietsch said, aerospace is “in the blood of this region.”

That may be more true of the Machinists than of anyone else.

Even the most disaffected union veterans, who intensely distrust Boeing management, still retain a rock-solid belief in the value of their work.

One such veteran, Don Grinde, wrote a letter to Boeing Commercial Airplanes chief Ray Conner after the latest negotiations ended in acrimony. Grinde told him that if there was a vote, he’d reject Conner’s revised contract offer.

Yet Grinde also expressed an indelible faith in the company and in the Machinists’ role in making it successful.

“No other group of employees has more time, heart, blood and sweat invested in the well being of Boeing,” Grinde wrote.

He ended his letter with an exhortation to management to come to terms with the union, get a deal done and then, “Let’s go build and bust some aviation sales and production records.”

Dominic Gates: (206) 464-2963 or dgates@seattletimes.com



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