The incalculable cost of Boeing’s South Carolina gamble

The Boeing Co. is turning 100 on July 15. Throughout the year, The Daily Herald is covering the people, airplanes and moments that define the Boeing century.

NORTH CHARLESTON, S.C. — There is an alligator in a pond at the entrance to the Boeing Co.’s plant here. Just beyond the pond, construction workers are raising a new paint hangar that can handle two planes at a time.

Finishing the paint hangar will mean Boeing’s South Carolina workers can do everything needed to deliver a finished 787 Dreamliner on-site. It could be where Boeing introduces the next step forward in using robots to paint airplanes.

Just seven years ago, Boeing executives decided to do something the company had never done — build a jetliner factory outside Washington. They announced in October 2009 that the second 787 assembly line would be at a site adjacent to the Charleston airport, where suppliers had already been making sections of the airplane’s composite-material fuselage.

The decision hit metro Puget Sound like a gut punch.

It has been a boon for Charleston, which was thrust into the global aerospace market. But the implications for Boeing and Washington are murky. For one thing, increasing production rate and quality here have taken longer and cost more than Boeing expected.

The expansion of manufacturing to South Carolina was one of several critical decisions that seemed to signal a change in how Boeing’s corporate leaders in Chicago viewed the company and, especially, its relationship with the Seattle area, where Bill Boeing started making airplanes in 1916.

“The age of loyalty is dead,” a Daily Herald story declared a few days after Boeing announced the 787 line was going to South Carolina.

Turning point: 1997

Many veteran Boeing workers say things changed after the company’s 1997 merger with McDonnell Douglas, which had a reputation for having a more-cutthroat corporate culture.

“This is no longer your father’s company!” a top Boeing exec reportedly told workers after the merger. That’s according to University of Puget Sound professors Leon Grunberg and Sarah Moore, in their book “Emerging From Turbulence.”

The merger made Boeing the world’s biggest aerospace company, and one much more focused on quarterly financial performance. That was a drastic change. For more than 50 years, Boeing had fostered a family culture in its machine shops, R&D labs and even the corner offices.

Since the merger, the Boeing headquarters was moved from Boeing Field in Seattle to a high-rise in downtown Chicago. The company courted other states, including South Carolina, when considering where to locate 787 assembly. And relations with organized labor deteriorated. Machinists union members in Washington went on strike in 2005 and again in 2008. That latter strike was fresh in execs’ minds when considering where to put the second Dreamliner factory.

In the months following the South Carolina announcement, Boeing executives publicly said they selected the state in large part for its non-union proclivity.

When Vought Aircraft opened a North Charleston plant to make 787 fuselage sections in 2006, workers voted to join the International Association of Machinists and Aerospace Workers (IAM), which also represents about 31,000 Boeing workers in Washington and Portland. A couple months after Boeing bought Vought’s plant in July 2009, the workers voted the union out.

A new aerospace hub

Boeing execs saw other benefits, too, such as how the new site would diversify the company geographically and strengthen its clout in D.C. In doing business in South Carolina, Boeing would gain the support of South Carolina’s congressional delegation.

At the same time, local business boosters and public officials made the Charleston area very attractive for Boeing expansion. The state offered about $450 million in incentives. Training programs for aerospace workers were started after Vought and another Boeing supplier, Alenia Aeronautica, came to the area.

However, quality-control problems at those suppliers prompted Boeing to take over their operations.

Boeing’s decision to step in put South Carolina on a global stage in aerospace, said David Ginn, head of the Charleston Regional Development Alliance. The group was key in coordinating efforts to attract aerospace, automotive manufacturing and other high-value industries.

Since then, dozens of companies have come to the area to do business with Boeing. Many are still growing, some have struggled and a handful have failed. The industry as a whole, however, is growing and employs more than 15,000 people in the area. About 7,500 work for Boeing.

Other high-value manufacturers followed, such as Volvo and Daimler.

“It has been a stamp of approval for companies in other industries” thinking of opening shop in the area, he said of Boeing’s presence.

High cost of moving

Boeing’s early years in South Carolina were plenty painful. That pain was felt as far away as Everett, where workers put in overtime completing work not finished or re-doing assembly poorly done in North Charleston.

Boeing had anticipated there would be some additional costs associated with a new assembly line far from Washington. It expected that an all-new factory in Charleston, with a new workforce, would cost about $1.5 billion more over time than it would if a second 787 assembly line was located in Everett, according to a presentation by Jim Albaugh, then head of Boeing Commercial Airplanes, on Oct. 26, 2009.

So far, Boeing has spent $28.5 billion more than it has earned in revenue to deliver the first 370 Dreamliners. That staggering amount is the result of problems in the supply chain and on the assembly lines, among other things. It is not clear how much of that can be attributed to teething at the South Carolina site.

In 2013, the 17 Dreamliners built in South Carolina spent an average of nearly 93 days in final assembly, according to analysis of data by the blog All Things 787. Last year, that number was down to about 46 days. In Everett, 787s spent an average of 33 days in final assembly.

In any case, Boeing execs say the cost of making a 787 is under control, and the company is ready to recover some of that $28.5 billion.

It likely will be decades before it is clear whether Boeing’s decision to build airplanes somewhere other than Washington is an anomaly or a harbinger of things to come.

Dan Catchpole: 425-339-3454; dcatchpole@heraldnet.com.