Boeing Gearing Up in Carolinas - TheStreet

Boeing Gearing Up in Carolinas

Many view the $580 million purchase of Vought Aircraft Iindustries in North Charleston as the first step toward Boeing creating a second plant to make Dreamliner 787 planes.
Publish date:

Updated from Tuesday, July 7

CHARLOTTE, N.C. -- Now that it has agreed to buy a South Carolina plant that fabricates major parts for the 787,


(BA) - Get Report

could be on a path to establish a new 787 assembly line in that state as well.

Boeing said Tuesday it will pay $580 million for the

Vought Aircraft Industries

plant in North Charleson, where Vought fabricates and assembles the rear fuselage sections for the long-delayed aircraft. Boeing will also release Vought from repaying unspecified advances.

Many view the deal as the first step on the path to Boeing's creation of a second line in North Charleston, complementing the current line in Everett, Wash. It's no secret that Boeing has had some labor issues in its current location.

At the Paris Air Show last month, CEO Jim McNerney said Boeing was "actively looking" to establish a second line, according to

Aviation Week


On Tuesday, Boeing spokesman Jim Proulx said no decision has been made on a second line, noting: "Our main priorities on the 787 program right now are to work through the recently announced postponement (and) to move toward production ramp up."

Proulx said the 787 jetliner taxied under its own power Tuesday for the first time in its development, the

Associated Press

reported. He said the low-speed taxi test at Paine Field near Everett, Wash., was the first time the plane has moved under its own engine power. Previously, tow trucks had moved the aircraft.

The Vought purchase is expected to close in the third quarter, pending approval by the company's investors. The deal will enable Boeing "to accelerate productivity and efficiency improvements as we move toward production ramp-up," said Scott Carson, CEO of Boeing Commercial Airplanes, in a prepared statement. For Vought, "the financial demands of this program are clearly growing beyond what a company our size can support," said CEO Elmer Doty.

In a report Tuesday, Macquarie Securities analyst Rob Stallard wrote: "The acquisition will be viewed by many as Boeing admitting that it needs to take more direct control of the 787 production line, but we think it should increase the efficiency and seamlessness within the 787 supply chain.

"The purchase could also pave the way for a second 787 assembly line once Boeing ramps up production," Stallard wrote.

Scott Hamilton, publisher of an online newsletter that covers aircraft manufacturers, said the second line would likely be in North Charleston, where two plants already produce 787 fuselage sections with parts shipped from around the world.

One is the Vought plant, which Boeing has been actively managing since late 2007. An adjacent plant, which assembles the center section of the fuselage, is operated by

Global Aeronautica

, a 50-50 joint venture between Italy's

Alenia Aeronautica

and Boeing.

Hamilton cites two reasons for a North Charleston line. First, Washington state's deteriorating business climate and a history of union conflicts make it increasingly unattractive for Boeing, and, second, Boeing desperately needs a second 787 line.

Delivery delays, now at two years, "are costing Boeing billions of dollars in terms of compensation costs, cost overruns and deferred revenue," Hamilton says. "They need to start getting the program back on some semblance of a delivery track, and the only way to do that is to get a second line. "

Like most stories involving site selection for a major manufacturing plant involving hundreds of high-paying jobs, this one is filled with intrigue.

For openers, Boeing is firmly established in Washington, where it employs 73,000 people, mostly in the Seattle area. But that is not to say the company is happily wedded to the area.

In 2001, it moved its headquarters to Chicago. In 2003, it searched the world for a site for the first assembly line for the aircraft then called the 7E7 before settling on Everett.

At the time, Boeing laid out criteria including a major seaport, a nearby runway, a moderate climate, available land and high quality of life. The finalists included Charleston as well as Kinston, N.C., and Mobile, Ala., the

Seattle Times


Today, the two plants are immediately adjacent to Charleston International Airport and close by major facilities of the Port of Charleston, a major East Coast container port.

In a recent report, Broadpoint AmTech analyst Peter Amant wrote that "having a second line co-located near the Global Aeronautica JV makes tremendous logistical and financial sense." While the cost of the Vought acquisition could pressure on Boeing's share price, he said, "the one positive is (that) with 10% unemployment, state support in the form of tax breaks will be very strong." Late Tuesday morning, Boeing shares were trading down 1.85% at $39.81.

Labor is a major issue. Relations between Boeing and Local 751 of the International Association of Machinists are strained; last year, the union staged a 58-day strike, the latest in a succession of job actions. Vought workers are also represented by the IAM, which would likely seek to organize any new Boeing workers in North Charleston, but the labor climate in the South is far less contentious than it is in Seattle.

In Paris, McNerney issued a warning to the company's unions, saying, "The union problem is a Seattle problem," and noting, "We have had serious delivery delays over the years because we could not get a timely settlement with the union and we can't keep letting our customers down," according to

Aviation Week


The IAM remains committed to keeping jobs in Seattle, but it is not commenting on the current debate. "Our focus remains on getting that plane running and downing everything we can to help them fix the problems with the airplane," says spokeswoman Connie Kelleher.

At last month's Paris Air Show last month, CEO Jim McNerney said Boeing is "actively looking" to establish a second production line for the 787, according to

Aviation Week

. McNerney said that may not occur until after the introduction of a second model, the 787-9, in 2012, because "We don't want to jeopardize the 787-9 introduction" by moving people to support a second line, the publication reported.