Boeing

Case Study of Boeing Co.

Aerospace giant Boeing has been an aggressive seeker of subsidies both in cases when it was relocating facilities and when it was staying put.

In March 2001, after 75 years of being based in Seattle, Boeing held a press conference in Washington, DC to reveal that it planned to move its headquarters to another part of the country. Boeing reportedly wanted a neutral place, without any major company operations, to make the announcement. This was apparently part of a plan by Boeing to reinvent itself as a global high-technology company.

After making the announcement, Boeing launched an unusually public auction among three metropolitan areas – Chicago, Denver and Dallas-Ft. Worth – that had already been selected as finalists. The three areas launched frantic, high-profile campaigns to win the prize. Each city enlisted public officials and celebrities to sing its praises, and, of course, each one put together a generous package of subsidies. The most generous of the three was the deal put together by Chicago and the State of Illinois, which had a total value estimated at $56 million. The amount is all the more amazing in light of the fact that Boeing's new headquarters was expected to bring only about 500 jobs to the Windy City.

To justify the big subsidy package, the Illinois Department of Commerce and Community Affairs cited a dubious projection (from the now-defunct accounting firm Arthur Andersen) that for each new Boeing headquarters job, the region would gain five more “high end” jobs.

The loss of Boeing's headquarters sent chills through Seattle; leaders there feared that the company was thinking of relocating its production facilities as well. That fear of disinvestment likely softened up Washington state for the company's next auction. In 2003, Boeing launched a 20-state bidding war for its next-generation passenger jet, the 7E7 “Dreamliner” project. Recognizing that the company was looking to win major concessions to keep its assembly operations in Seattle, the engineers’ union denounced the auction as “corporate extortion of the communities and people who have long supported Boeing.”

Boeing wanted a lot more (financial) support, and the state's elected officials were eager to provide it. Governor Gary Locke got his way, and Boeing ended up with a package of research & development tax credits and cuts in Business & Occupation taxes (the state’s substitute for a corporate income tax), sales taxes and property taxes that together were estimated to be worth $3.2 billion over 20 years. As a result, the aerospace industry, which had been the state’s biggest source of business tax revenue, would see much of its tax liability disappear. The state also raised gasoline taxes to fund transportation improvements, overhauled the unemployment insurance system to reduce costs for employers and tightened up on workers compensation claims. Boeing responded favorably to all this, selecting its long-time assembly operation in the Seattle suburb of Everett as the production site for the Dreamliner. It later emerged that the state also gave Boeing $32 million for training costs plus other “sweeteners.”

The strategy was successful, though there were lingering suspicions that Boeing never seriously considered leaving the Seattle area. Not that Boeing confined its panhandling to Washington state. It made major efforts in at least two other jurisdictions to obtain government underwriting:

In 2003, the Kansas legislature offered Boeing a half-billion dollars in bond financing to build part of the 7E7 at its Wichita facility. Boeing would then be allowed to pay off $200 million in interest by collecting personal income taxes collected from its 7E7 workers. Boeing agreed to the terms, but in 2005 sold its civilian Wichita operations to Onex Corporation, a Canadian private equity company. New owner Onex, which took over the 7E7 fabrication, demanded a wage cut from its unionized machinists, and then renamed the operation Spirit Aerosystems. In October 2005 the state offered Spirit $80 million of the same kind of bond financing – including the diversion of employee payroll taxes – that had been approved for Boeing.

South Carolina was one of the “losers” in the 2003 competition staged by Boeing for its initial production facilities for the 7E7 Dreamliner. But in October 2009 Boeing announced that it would spend at least $750 million on a new 7E7 production line and create thousands of jobs. The state's subsidy package was initially estimated at $450 million, a large part of which reflected generous property tax abatements. In January 2010 the Charleston Post and Courier published an analysis of the package that concluded it could be worth more than $900 million.

The fact that Boeing became the recipient of a huge amount of government assistance throughout the U.S. has not prevented the company from expressing righteous indignation over the government aid received by its European competitor Airbus. In a 2004 conference call with analysts and the media, Boeing’s CEO said that the state aid his company received was not a subsidy but was simply a matter of “lowering the cost of doing business.” It was not reported whether the remark was made with a straight face.


SOURCES

Jack Norman, Boeing's Cash Cow: A Corporate Strategy's Impact on Middle Class America, Institute for Wisconsin's Future, April 2010.

Jeff McCourt and Greg LeRoy, A Better Deal for Illinois: Improving Economic Development Policy, Washington, DC: Good Jobs First, January 2003, pp. 57-65.

Greg LeRoy, The Great American Jobs Scam, Berrett-Koehler 2005, pp. 29-31, 56-57, 87-88.

John Gillie, "State Piled on 7E7 Incentives," Tacoma News-Tribune, January 22, 2004.

"Inside Boeing's Big Move: A Conversation with John Warner," Harvard Business Review, October 2001.

Jack Lyne, "The 7E7: A Bold Gamble for Both Boeing and the State of Washington," Site Selection, March 2004.

Ralph Martire, "Boeing Gained in Move Here, But Did We?" Chicago Sun-Times, June 9, 2001.

Kate Pfleger and Dominic Gates, "Sky-High Request? 7E7 Bidders Asked to Provide Freighters," Seattle Times, October 14, 2003.

Ron Starner and Mark Arend, "Behind Boeing's Flight Plan," Site Selection, September 2001.

Edward Wong, "Boeing Wants to be Wooed, Or It Moves On," New York Times, June 10, 2003.

Steve Painter, “Boeing Wichita Lands State Bonds,” Wichita Eagle, May 22, 2003

“State Bonds will Give Spirit A Lift,” Wichita Eagle, October 19, 2005

“County OKs $1.6 Million to Spirit,” Wichita Eagle, September 11, 2008

Yvonne Wenger and Katy Stech, “Boeing Lands Here,” Post and Courier, October 29, 2009.

Andrew Shain, “How the Boeing Deal was Done,” The State, November 2, 2009.

Katy Stech and David Slade, “Boeing’s Whopping Incentives,” Post and Courier, January 17, 2010.