Report’s message to Boeing: Build the 797 here in Washington

SEATTLE — The numbers look good. Washington, by far, is the most competitive state in the U.S. for aerospace manufacturing.

That’s according to a new report released Wednesday at a gathering of state political, business and labor leaders, including Gov. Jay Inslee, at South Seattle College.

“Washington isn’t No. 1 in everything, but Washington was on top by a very healthy margin,” Richard Aboulafia, vice president of the Teal Group, told The Herald before the announcement.

But numbers can’t always tell the whole story. The report didn’t delve into murkier, less quantifiable, topics — for instance, political climate or labor issues.

“We’re not qualified to address those,” said Aboulafia, considered one of the world’s top aerospace industry experts. “It’s our job to provide the numerical analysis.”

Instead, the “Aerospace Competitiveness Economics Study” measured key factors such as electricity costs, the percentage of state residents with engineering degrees — “anything that could be quantified” — using public and government sources, said Aboulafia. He described the study as “objectively vigorous.” The state hired his Fairfax, Virginia, firm for $55,000 to produce the report.

The study found that — in order — Washington, Ohio, North Carolina, Kansas and Colorado offer “the most competitive environments for the manufacture of aerospace equipment.” And those other states were distant runners up. “This isn’t a close call,” Gov. Jay Inslee said at a news conference here Wednesday. “We win this going away.”

The report was commissioned by the governor’s Choose Washington New Middle-Market Airplane Council. It’s a coalition of local and state government officials, including Snohomish County Executive Dave Somers; labor unions; and business and education groups, including the Aerospace Futures Alliance. The council hopes to help convince the Chicago-based Boeing Co. that the best place to build its next passenger airplane model is in Washington.

Boeing’s so-called middle-market airplane, informally dubbed the 797, would fit somewhere between the largest 737 and the smallest 787, filling a niche left by the discontinuation of the Renton-built 757. The aerospace giant began discussing the plane openly last June at the Paris Air Show.

Washington’s strengths are many, the report says. “What makes it especially competitive is its advantages beyond aerospace experience,” including Washington’s low energy costs, high port shipping capacity, low insurance losses, high patents per capita, high private investments in research and development, the lack of a state individual income tax and low manufacturing taxes.

While the state is an obvious aerospace industry leader and has other general advantages, there is work to do. Aboulafia pointed to two areas in which the state could improve: education and infrastructure, especially roads. Both issues are easily addressed, he told those attending Wednesday’s news conference.

On another level, the report serves as a signal to Boeing. State and local leaders are ready to come to the table to build the sort of consensus that marked the state’s work to land the 737 Max project (Boeing at the time was not certain to build that new generation of the airplane in Renton) and avoid what Aboulafia called the “far more confrontational” debate over where the company would build the 777X. Boeing chose Everett after state lawmakers in 2013 approved a suite of tax incentives that were expected to save the aerospace giant more than $8 billion through 2040.

News conference replay

Still, it’s not clear what metrics Boeing will be weighing if it decides to produce the 797.

“They haven’t disclosed anything,” Aboulafia said.

For its part, Boeing says it is far from being ready to talk about how it might proceed with the 797. When asked Wednesday, the company provided a written statement:

“Boeing recognizes Washington’s efforts to quantify the significant impact the aerospace industry has on the state’s economy. However, it’s premature to provide comment at this time as we have not begun the formal process of site selection for the New Mid-Market Airplane. We will do so in due course but until then we continue to work to close our business case. Our business case efforts do not represent a program launch nor do they indicate when we will decide on next steps.”

Asked about offering additional incentives to Boeing to convince it to produce the new airplane in Washington, Inslee replied: “We are providing the best place to build an airplane in the world today — and that’s a pretty good incentive.”

The state’s favorable aerospace tax structure, supply chain and workforce are “a great incentive package,” the governor said.

The state is not approaching this as a “supplicant,” Inslee said, but with confidence in what the Washington offers.

Jon Holden, president of International Association of Machinists and Aerospace Workers District 751, said one of the study’s most innovative features was its ranking of labor costs.

“The Teal Report looks not just at the basic cost of the labor, but they also looked at the output of that labor,” Holden said. “What they found is that Machinists and engineers here in Washington are more efficient and productive. We produce more aerospace output per dollar cost of labor than almost anywhere else.”

The study found that “every $1 paid to workers in Washington’s aerospace industry generates $11 in revenue, translating into the fourth-lowest unit labor costs in the nation.”

“The report shows where we can make improvements,” said Brian Bonlender, director of the state Department of Commerce. “We’ll be taking a hard look at what we and our partners can do to improve our competitiveness.”

Produced by the Teal Group and research firm Olympic Analytics, the report was paid for by the Machinists and another union, the Society of Professional Engineering Employees in Aerospace.

Janice Podsada: 425-339-3097; jpodsada@heraldnet.com.

Highlights

Washington is the second-most competitive state in the nation for labor, material, energy and construction costs.

The state ranks second in a report category called labor and education, which measures the availability of aerospace workers, the population’s level of educational attainment and a state’s spending on K-12 education.

One of every 29 Washingtonians holds an engineering degree, the second-highest rate in the nation.

The state has more aerospace workers than California, which is five times Washington’s size, and twice as many as Texas, which has three times the population.

Washington had the third-fastest per-capita gross domestic product growth in the nation over the past five years.

The state has the third-highest number of patents per capita and the fifth-highest rate of research and development in the nation.

Washington has the fifth-lowest taxes in the nation as measured by the report’s taxes-and-incentives category.

Washington offers seven tax incentives to aerospace businesses, with the 330 users of those tax incentives reporting $327 million in annual savings.