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8 years, billions in incentives: Was the 787 worth it for Washington?

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By Michelle Dunlop
Herald Writer
Published:
  • The first Boeing 787 runs through taxi tests before flying in December 2009 at Paine Field in Everett.

    Jennifer Buchanan / The Herald

    The first Boeing 787 runs through taxi tests before flying in December 2009 at Paine Field in Everett.

Was the 787 worth it for Washington state?
Eight years ago, state and local leaders courted the Boeing Co. and its 787 assembly line with $3.2 billion in incentives.
Boeing's promise for jobs was small: 800 to 1,200 direct workers.
Fewer suppliers in the state were to land contracts on the Dreamliner as Boeing said it would place its trust and business with global suppliers.
But politicians rejoiced when Boeing selected Everett in 2003 as its final assembly line location.
In the years since, state and local coffers have fallen short millions of dollars as delays in the 787 program meant fewer tax dollars were collected from the jetmaker. And Boeing placed its second 787 assembly line in South Carolina.
As Boeing delivers its first 787 to Japan's All Nippon Airways todat, it's asking the state to compete once more -- this time to keep work on its re-engined 737, a jet that has long been built in Renton.
Still, most government officials believe their efforts for landing the 787 were worth every penny. And they're preparing to fight again for the 737.
"I wouldn't have made any other decision," said Ray Stephanson, mayor of Everett.
"Without the 787 and the number of orders it has, the prospect for recovery and job growth would be bleaker," he said.
Boeing's 787 has won more than 800 orders, which will keep workers busy until roughly 2020. With production increases planned across its jet lines and older workers retiring, Boeing has been hiring at a steady pace.
Employment is one of the key reasons the 787 worked out in Washington's favor, said John Monroe, a retired Boeing executive who works as aerospace coordinator for the Economic Alliance of Snohomish County.
If Boeing had stuck with its original delivery plan, Monroe believes there would have been higher unemployment in the state.
Engineering, supply chain and production issues forced Boeing to keep on thousands of workers -- both full-time and contract employees -- for years longer than it had planned. The 787 originally was planned to be delivered in 2008 but just now is being handed over to Japan's All Nippon Airways. Those extra years of higher than anticipated employment came as the economy was tanking, Monroe points out.
Both Monroe and Stephanson downplay the business and occupation taxes the state would have collected from Boeing over the past few years had the company delivered the first 787 in 2008.
The state and city of Everett both charge business and occupation tax on every jet delivered. Both lowered that rate in order to land the 787.
Trying to figure out how much each would have collected over the past three years is a dubious task -- Boeing doesn't disclose how much it charged each airline for 787s.
Initially, Boeing's 787-8 had a list price of $125 million, which has risen to $185.2 million. But airlines don't pay full list price. And delays have forced Boeing to make even further concessions with 787 customers.
However, even if the 787 was discounted by half, the state would have received more than $18 million in business and occupation taxes on the more than 100 787s that would have been delivered if there had not been delays.
While that's certainly nothing to sneeze at, it wouldn't have reversed the state's budget shortfalls over the last few years.
Stephanson said the business and occupation tax the city will receive from 787 deliveries is a relatively small portion of the Everett's budget. Earlier this year, the city projected a $10 million shortfall on the lack of Dreamliner deliveries.
Snohomish County Executive Aaron Reardon believes government can't get so caught up in taxing businesses like Boeing if it wants those businesses to create jobs, as the aerospace giant does.
"We see it as a long-term opportunity and a long-term investment," Reardon said recently at the governor's aerospace summit. "What we have to do is continue to make the investments to continue to grow."
State and local officials are gearing up for an effort to secure work on Boeing's updated 737 jet, called the 737 MAX. The company is expected to decide where it will build that aircraft in the first quarter of 2012.
Scott Hamilton, an analyst with Leeham Co., said Boeing officials have told him their top concern in selecting a 737 site is having an available and trained workforce.
In 2003, the state agreed to build an employment resource center in Everett for Boeing to use to train its 787 workforce. But for years following their 787 win, state and local officials did little in terms of workforce training.
Just before Boeing picked South Carolina for its second 787 line, the county and industry lobbying group, Aerospace Futures Alliance, created another aerospace training center at Paine Field. Over the past year, that training center has been expanded to other sites in Washington in an effort to keep up with Boeing's needs.
Stephanson said the state can't let its guard down, and can't cut education funding.
"I think getting WSU was and will be huge not only in educating the engineers that are needed today but also as a research institute," Stephanson said. WSU will start offering courses at University Center in Everett in 2012.
Whether the latest effort on the 737 will be successful remains to be seen. But Monroe and others believe Washington wouldn't even be in the running if the state hadn't done what it did to land the 787.
"The American dream is alive and well in Snohomish County .., because of the aerospace industry," Reardon said.

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