From Site Selection magazine, March 2004
NORTH AMERICAN REPORTS
|
From Site Selection magazine, March 2004
NORTH AMERICAN REPORTS
|
|
The 7E7: A Bold Gamble for Both
Boeing and the State of Washington
ppropriately, the University of Washington Husky Marching Band played "Tequila." That 1958 oldie reflected the giddy buzz rippling through the gala toasting Boeing's decision to bring its US$900-million 7E7 assembly plant to Everett, Wash. Both Boeing and Washington had similar reasons to celebrate. Each had mounted a bold gamble aiming for a big payoff. The Evergreen State's rewards are more immediate, including as many as 1,200 direct jobs and 3,400 su pport jobs. "We said, 'We're not letting Boeing leave, not on our watch,'" Gov. Gary Locke said at the Everett fete in December 2003. "This serves notice to companies all over the world that Washington is definitely open for business and family-wage jobs in ways we've never been before. Today a new era begins for Boeing and Washington." For Boeing, however, that era presents stern challenges. Now, it must not only build the midsize 7E7, its first new airplane in 13 years; it must also sell lots of them to an industry still hemorrhaging red ink in 9/11's aftermath. And surging Airbus adds to the 7E7's oversized load of expectations. 2003 marked the first time ever that the Franco-German firm took more orders and delivered more planes than Boeing. "Next year will be twice as busy," Mike Bair, the senior vice president leading the 7E7 program, said after Boeing's site choice. "Every minute counts." 'We Can Respond'
Washington had been sweating the minutes since Boeing's late-2002 announcement of its wide-open 7E7 site competition. And there were major reasons to fret.
Boeing, for one, had already stunned the state in 2001, relocating its headquarters to Chicago from Seattle, the company's home since its 1916 birth. Importantly, the company was also a long-time, vocal critic of Washington's business climate, which it openly considered a profit-killer. And with the 7E7, low costs were a make-or-break factor. Locke was listening. In 2001, he'd formed the high-profile Washington Competitiveness Council (CC) to take a hard look at just such issues. "One of the major turnarounds that came out of our early meetings," recalled CC Chairman Scott Morris, "was that this state said to Boeing, 'We can respond, and we are willing to respond to keep one of our very finest employers here.'" State Faced Slim Chances
That pro-active stance spread to the Washington Department of Community, Trade and Economic Development (CTED), which hired Deloitte & Touche (D&T) to analyze the state's business appeal.
"CTED Director Martha Choe asked D&T, 'From a site-selection perspective, what do we need to do differently?'" said Morris, president of Spokane-based Avista Utilities. A lot, D&T answered. Sure, the Everett plant already made Boeing's 747s, 767s and 777s. But with Washington's existing tax and regulatory systems, it stood only a one-in-five chance of landing the 7E7, D&T National Director for Corporate Real Estate Mark Klender told Locke. Building the new plane in more business-friendly states would be 25 percent cheaper, the governor later recalled Klender explaining.
Moreover, if the 7E7 went elsewhere, it might spark the beginning of a slow but unstoppable Washington withdrawal by Boeing, the state's largest employer. Boeing commercial airplane CEO Alan Mulally echoed that grim scenario in a speech last year to the Seattle Rotary Club. "I think we suck," said the Seattle-based Mulally, who criticized the state's roads, its workers' compensation and unemployment costs, and its inefficient permit processing. Locke responded with a legislative blitzkrieg. He came away from the 2003 Washington Legislature with a $3.2-billion, 20-year tax break for the aerospace industry (applicable only if the state landed the 7E7 plant), plus a 5-cent gas-tax increase to fund $4.2 billion in state transportation improvements. Lawmakers also approved unemployment insurance and workers' compensation reforms and provided $15.5 million for a Port of Everett rail-barge dock. Boeing's New Ballgame
That bounced Washington back into the 7E7 race. But it faced stiff competition. Boeing consultant McCallum Sweeney received 80-plus site proposals. A number were reportedly getting serious consideration, including Charleston, S.C.; Harlingen, Texas; Mobile, Ala.; Savannah, Ga.; and Tulsa, Okla.
Moreover, Boeing's reputation was riding on the 7E7. In two years, the company had dropped two proposed jets. Now, Boeing sorely needed to restore its dulled luster by tapping the optimal site to build a compellingly low-cost jet. Significantly, the winning 7E7 location faced a brave new world of manufacturing. The new aircraft will be the first-ever commercial jet with most of its primary structure made of composites. The 7E7 will also be Boeing's first plane built with modular construction. Huge production chunks are being globally outsourced. That setup, Bair explained, "will optimize the production sequence in order to drive the most efficient production system up and down the supply chain."
Suppliers, in fact, will absorb as much as half of the 7E7's projected $10 billion in development costs. And the modular model will compress assembly to only three days, a seventh of Boeing's current standard. 'The Best Overall Solution'
Even after the state's incentives onslaught, however, Everett was still reportedly the highest-cost option among the 7E7 finalists. (Boeing didn't name other finalists.)
But close counted here. In Everett, Boeing wouldn't face handing a new plane and a new system to an untried airplane production location. Instead, it had 18,000 experienced workers and huge in-place infrastructure. That, in the end, made the savings available elsewhere too small to justify a new site's risks, Boeing decided. Everett was "the best overall solution for Boeing and the 7E7," Bair explained. And the friction sparked by Boeing's Mulally may have helped shape that solution. "I'm really proud of him," Morris said of Mulally, who's also a CC member. "He knew he had to deliver some tough messages for Washington to win the 7E7. "Alan took some personal hits because he was open and candid. But thank goodness he was, because it gave all of us in the state an opportunity to listen and to try to move forward. I don't think that would have happened without Alan's courage to voice his concerns." 
But Locke, another 7E7 tough messenger, is stepping down in early 2005. He decided last summer to not seek re-election, saying he wanted more time with his family. Locke's pro-business process, however, seems certain to continue. "I feel confident that there is momentum now," said Morris, "and a lot is going to continue to get done." Including the 7E7.
Continue to: “Project Olympus: ‘One for the Record Books’”
| |||||
|
| |||||
 ©2004 Conway Data, Inc. All rights reserved. SiteNet data is from many sources and not warranted to be accurate or current. |
