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Fri December 27, 2013
Amid Nationwide Scramble, Missouri Seeks To Stand Out To Nab Boeing's 777X
Originally published on Fri December 27, 2013 8:45 am
The opportunity was too good to pass up.
When Boeing decided to move production of its 777X passenger plane out of Seattle, states across the country were eager to offer their services. Missouri's political and business leaders were no exception. They simply couldn't miss out on the chance to cement thousands of high-paying jobs for decades to come.
In all, 22 states want to produce the commercial aircraft, which has already attracted tens of billions of dollars worth of orders around the world. Securing the 777X could result in what political and business leaders say is a once-in-a-generation economic development opportunity.
While Missouri isn't the only state to throw its hat into Boeing's ring, many are saying it's certainly the loudest state to do so.
Missouri lawmakers swiftly passed legislation in a special session to provide the company with up to $1.7 billion in state incentives. Soon afterward, the St. Louis County Council promised up to $1.8 billion worth of tax breaks if Boeing brings the 777X to the St. Louis region. And St. Louis’ construction unions have already offered to work 24-hour shifts with no overtime to build Boeing’s facilities at a quicker pace.
“Missouri’s been more aggressive than most,” said Richard Aboulafia of the Teal Group, a Fairfax, Va., company that monitors the aerospace industry. “Obviously, it’s been a big debate in Washington. They’ve come through with an incentive package – a large one. Everybody else has been a little bit more muted.”
Missouri's boosters cite a number of advantages helping the state's case: an established relationship with Boeing; available land; and an underused airport.
More than anything, St. Louis Mayor Francis Slay said, St. Louis possesses “a good track record with Boeing overall,” adding that “Boeing knows and likes St. Louis.” Nearly 15,000 people in St. Louis already work for Boeing, primarily building the company's defense products.
“They have a great experience here. They know what our people can do and what we’re capable of,” Slay said. “And likewise, this is not a company that just came out of the sky. This isn’t a fly-by-night company. We know what they can do for the economy, because they’re already doing it in St. Louis County.”
Christian Hospital President Ron McMullen highlighted what's at stake in the 777X chase.
During a special county council meeting earlier this month, McMullen said that Missouri's bid for the 777X is more than an esoteric economic development exercise. It’s about the future of a part of St. Louis County that's suffered high unemployment and high levels of poverty for years.
“North St. Louis County needs to this happen,” said McMullen, who was speaking on behalf of group of north county businesses. “While we have many vibrant small and medium sized businesses in north county – and indeed some very large ones like Express Scripts – north county needs these jobs.
“And north county needs the multiplier effect from these jobs to help not only the employment situation, but the culture – and in fact the very fabric – of north county,” he said.
Indeed, one of the region's key business leaders says Boeing's decision could mean thousands of direct and indirect jobs.
Depending on whether Boeing decides to shift part or all of the 777X production to the St. Louis area, the region could land between 2,000 and 8,000 new jobs. St. Louis Regional Chamber President Joe Reagan said earlier in December that his group examined the economic impact of various alternatives on the region’s 16-county area.
According to the chamber's calculations, if Missouri were picked for full production of the 777X, it could result in more than 8,000 jobs generating more than $1 billion in earnings. Reagan said that the work would prompt an additional 20,900 indirect jobs. Together, the economic output from both the direct and indirect jobs could total more than $9 billion.
Even if Missouri is only picked for the 777X's wing fabrication, Reagan said it would result in roughly 2,760 direct jobs and about $331 million in earnings. It would also result in an additional 6,787 indirect jobs with earnings of $371 million.
“However you would look at it, this economic impact is real,” Reagan said. “As it has been mentioned, this is a once-in-a-generation opportunity.”
During a speech in Chesterfield in November, Missouri Gov. Jay Nixon emphasized that adding any commercial production was crucial because some of Boeing's defense products are being phased out.
"Deep cuts to defense budgets in Washington and recent setbacks with international orders have raised questions about whether there will be enough military production to sustain aerospace manufacturing in St. Louis," Nixon said. "It’s a new reality in which we must compete. And to win, we must work to diversify our aerospace industry to make sure what’s built in St. Louis not only flies over hostile territory overseas, but also in friendlier skies here in America and around the world."
One development that could help Missouri’s cause is that Dennis Muilenburg, who now heads up the $33 billion Defense division, has been named vice chairman, president and chief operating officer.
U.S. Sen. Claire McCaskill, D-Mo., said, “It’s a very positive thing for St. Louis that Muilenburg got promoted." She added that he's intimately aware of St. Louis' existing workforce at Boeing -- which has been touted as a major reason Missouri can compete.
While political figures and business leaders are bullish about Missouri’s chances, the Teal Group's Richard Aboulafia is far more pessimistic.
During an interview with St. Louis Public Radio and the Beacon, he compared the situation to a scene from the film Dumb and Dumber when a lead male character is told by his love interest that he has a “one in a million” chance of ending up with her. That character then responds: “So you’re telling me there’s a chance? Yeah!”
The reality is that Washington state's incentive package is much larger than what Missouri is offering.
“It’s simply not possible that [Missouri's] offer could be good enough to beat some of the other outstanding orders,” Aboulafia said.
One big hurdle for Missouri is geographical. Unlike Washington or South Carolina, Missouri doesn’t have a seaport. That could be especially important, Aboulafia said, because Boeing has already secured billions in overseas orders.
He also questions whether Missouri's workforce is suited for the 777X work. A workforce accustomed to constructing defense products can't automatically start building commercial aircraft.
“Politicians see jetliners as just another industrial product like cars or semiconductors. They don’t work into it the peculiarities associated with jetliner production,” he said. “And indeed, we are a peculiar industry.”
Aboulafia said he thought it unlikely that Boeing would pick a state that has not adopted so-called “right to work” policies toward labor unions. That’s shorthand to describe laws that say that workers do not have to join a union or pay dues or representation fees, even when a majority of employees have voted to organize a union.
St. Louis County Executive Charlie Dooley acknowledged that the lack of a seaport. But, he said, the state’s community colleges and universities are working together to smooth the way. They've agreed to help transition workers to build commercial airplanes such as the 777X.
“We’re ready to train a new workforce,” Dooley said. “That’s what that education consortium is in place for, to make sure we have a skilled workforce in the coming years.”
St. Charles County Executive Steve Ehlmann said that Missouri’s labor policies could play a big role in what Boeing decides. Ehlmann – whose county is home to thousands of union members – said the construction unions' pledge to work more quickly on the project is a sign of good faith from organized labor.
“You’ve got to look at what’s happened with Seattle, with their union and look at the much better relationship that Boeing has had with their’s [here in Missouri.] You’re absolutely right. This is going to be part of the discussion,” Ehlmann said during an appearance on the Politically Speaking podcast. “If the Boeing officials think they’re going to come to St. Louis and get the same sort of treatment as they got up there, they won’t be coming.
“But I have faith that the leadership of labor in this area. They’re smart enough,” he added. “They understand that.”
While lawmakers on both sides of the aisle agree that incentives are needed to entice Boeing, some say the push amounts to corporate welfare.
Besides questioning whether the 777X production would spur enough jobs to pay for the incentives, state Rep. Paul Curtman, R-Pacific, said the entire situation showcases the un-evenness of Missouri's economic development policy.
“I would say it is corporate welfare when we tell one company that we’re going to do really well. We’re going to put together a really good package just for you,” said Curtman on a recent edition of the Politically Speaking podcast. “Meanwhile, for the businesses back in my district, the tax burden is ultimately going to be transferred and levied onto other people to make up for the taxes Boeing’s not paying.”
But Slay, Dooley and Ehlmann said business incentives are a matter of reality. Dooley said, "There is no corporation in this country or in the world that don’t ask for incentives.”
Even lawmakers with apprehension about the use of incentives said the possibility of jobs was too much to pass up. Rep. Michael Butler, D-St. Louis, said he initially was going to vote against the Boeing incentives because he “hates the stench of corporate welfare.” But he said that “plenty of businesses in my district could use the help they would get from this thing.
“If we took the chance and gave these incentives to Boeing and they actually come, that would be better than if we didn’t take the chance,” said Butler said on the Politically Speaking podcast. “And then, all of a sudden, when our constituents are asking about jobs and we know that we didn’t do what we had to do to incentivize some, we would have let them down."
Pins and needles
Boeing began alerting states late last week about if they made the initial cut. Some states – like North Carolina and Pennsylvania – publicly announced they’re out of the running. Whether Missouri is still a contender is unknown; neither Boeing nor Nixon’s staff is divulging any specifics. A Boeing spokesperson says the company is not identifying which locations made the cut.
The last wildcard is the Washington machinist union, which rejected earlier contracts. Members are expected to vote on a revised contract in early January, which could subsequently short-circuit the site selection process.
Aboulafia predicted that Boeing would stay in Washington or venture to South Carolina. He noted that Boeing already shifted part of its Dreamliner work to South Carolina, a right-to-work state.
“I think it’s between Washington and Charleston. But even within that, all economic and industrial logic would keep it in Washington,” Aboulafia said. “It would purely be psychology – anger mostly – that would cause the company to move. It would be one of those CEO locker room bragging rights things. You know, ‘yeah! I beat up on the union! We’re moving to a right to work state!’”