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Sunday, October 26, 2003 - Page updated at 12:00 A.M.
What if Boeing decides to build its airplanes someplace else?
By Stephen H. Dunphy
At a brief ceremony to mark the passing of an era, the smiles painted on the politicians' faces hide years of recriminations and lost opportunities.
With the end of manufacturing operations, Boeing's presence in Seattle is down to just sales, marketing and some engineering work. With fewer than 5,000 employees, it's one-twentieth of its former size.
Boeing's commercial aerospace business is now based in South Carolina, where the family of jets based on the 7E7 is made. And Seattle is just another big city in the north trying to keep alive its dwindling manufacturing base.
Is this scene far-fetched?
Perhaps, but Boeing's pending decision on where to place final assembly of its proposed next-generation jetliner, the 7E7, could be the first step toward that depressing end.
Fear of losing the plant led Gov. Gary Locke and the state Legislature to enact $3.2 billion worth of potential tax relief for the aerospace industry, along with road projects and reductions in worker benefits that Boeing sought.
But since then, blunt criticism of the state's business climate by commercial airplanes chief Alan Mulally has underscored the fear that Boeing will take the 7E7 elsewhere and continue to shrink its presence here.
With Boeing employment now down by 50,000 from its peak, the future of the aerospace industry looks more murky than it has since World War II. What's ahead? The economic tea leaves are murky as usual, but here's a look at some of the ways the Boeing decision on the 7E7 could play out.
The boll weevil scenario
Trying to forecast what might happen if the 7E7 goes elsewhere is like playing a board game, Pick the Scenario. Roll the dice and see the possible outcome play out.
Jim Bruce, president of Business Facility Planning Consultants in Atlanta, a site-selection company with several clients in the state, compares the 7E7 to the boll weevil in the South. The bug attacked the South's cotton industry in the early 1900s, forcing the region to abandon "king cotton" and pursue a mixture of farming and manufacturing.
The loss of the 7E7 plant could be like that, Bruce said, forcing the Puget Sound region into hard times, forcing it to change in ways that would be beneficial in the long run.
The analogy might be hyperbole. The boll weevil hit the South hard in a comparatively short period of time. By contrast, even if the 7E7 plant goes elsewhere, Boeing would probably remain a big part of the Seattle economy for at least another two decades.
The region would at least get plenty of time to plan its post-Boeing economy, much as the city of Renton plans for the day Boeing moves out of its historic plant there. That far into the future, a lot can happen. The economy of 2030 could be dominated by something that barely exists now no one could have predicted in 1980 that Microsoft would become such a huge piece of the local economy in 20 years.
"We create our future, not have it imposed externally," said Richard Davis of the Washington Research Council, a Seattle-based think tank. Dark scenarios of urban decay like Pittsburgh or Detroit "assumes that we lost (the 7E7) and assumes that we did not learn anything from it."
The doomsday scenario
When economists and politicians try to figure out the impact of a Boeing departure, they look first to the direct jobs involved the 800 to 1,200 assembly-line workers, for example, Boeing says it will need for the new plant.
But most of the damage to the economy comes from the multipliers the economic theory that says every Boeing job creates 1.8 other indirect jobs in the service economy. The problem with multipliers is that they work in reverse the worst-case loss of 50,000 direct Boeing jobs means another 90,000 jobs would fly away with Boeing's departure.
Meet Tiffany Gariss serving a customer at High Flying Espresso on Airport Avenue near the front gate of Paine Field and just out of view of the Boeing Everett plant. Gariss is in one of those multiplier jobs everyone talks about.
"About 90 percent of our business is Boeing," Gariss said during a slow period in early afternoon. "It gets busy in the morning and it will get busy again here in a few hours."
The doomsday scenario presumes that not only the 7E7 but subsequent new Boeing models are made at the new site, and production, engineering and management eventually move there.
Gov. Gary Locke's office forecast as many as 134,000 direct and indirect jobs would be lost to the region if Boeing took the 7E7 elsewhere and the rest of its airplane production followed. That is about 10 percent of the region's workforce. Even the "low" scenario put the loss at 56,000 jobs, over a 15- to 20-year period.
If such things as concept planes, engineering and computer aided design/manufacturing move too, then we have the worse possible scenario, the one that costs 135,000 jobs and potentially pushed the Puget Sound region into long-term decline.
"Unless this region gets that product, I think that in the long run we may well slip away as their center for commercial aircraft production," said William Beyers, an "economic geography" professor at the University of Washington. "The latest 737s and the 777s ... how long before even they become supplanted by some newer technological regime?"
Kriss Sjoblom, a regional economist here, said without aerospace manufacturing, the region runs the risk of becoming a "boutique economy," a collection of well-paying second-tier players, but without any unifying presence.
The region would be characterized by relatively high incomes, but high unemployment as well. That's because the region would lose solid manufacturing jobs that pay workers well even if they have limited education. The gap between rich and poor grows wider in a "boutique economy."
"The multiplier goes away," Sjoblom said. "There are only so many meals out you can have."
The Mercedes scenario
Over in Moses Lake, one of the sites Boeing is considering, things are falling into place. It recently got a $2.3 million grant from the federal government to help with economic-development projects.
If the 7E7 plant goes to Eastern Washington, chances are greater Boeing and the region will go through a shift similar to another larger corporation that moved production but did not see any large-scale departure from the home base.
When Mercedes-Benz decided to shift production outside Southern Germany, there were similar fears of a "doomsday" shift. That proved unfounded.
"A kind of cluster develops in the new place," said Christian Ketels at the Institute for Strategy and Competitiveness at the Harvard Business School. "But they also tend to start specializing more." All Mercedes SUVs are made at new factories in the Southeast U.S., for example, while research, design and new models "the heart and soul of the company" remain in Germany, Ketels said.
Boeing is a much different situation, of course.
The weakness in the "Mercedes scenario" is that Daimler has its corporate base in Stuttgart, Germany, in contrast to Boeing, which moved its headquarters to Chicago in part to emphasize it is not joined at the hip with Seattle.
And while Daimler has moved some manufacturing all over the world it recently said it may make cars in China it has made it clear it has no intention of leaving its home. Boeing, on the other hand, has said just the opposite that it will abandon Puget Sound if it's more cost-effective to operate elsewhere.
The why-worry scenario
Another big-picture scenario could be summed up as the "who cares" gang. In this case, Boeing packs up its manufacturing and heads off somewhere but the region survives without it.
Boeing already is a much lower percentage of jobs here, less than 3 percent, down from 4.5 percent in 1995 and 6 percent in 1990. There are more "high-tech" jobs in the Seattle area than aerospace jobs now and high tech has held up fairly well in the downturn.
In a recent study, the Puget Sound Regional Council, a broad-based group that looks at regional issues such as transportation, found that despite losses since 2001, high-tech employment remains a big factor in the economy.
From March 2001 to March 2002, the region saw almost 15,000 high-tech jobs disappear, about a 10 percent change. Tech employment went from an estimated 148,864 in March 2001 to 133,869 in March 2002.
But high-tech employment had gone from 83,919 in 1995 to 148,864 in 2001, a 77 percent increase. So despite big losses since 2001, the high-tech employment sector is still 59.5 percent higher than it was in 1995.
In March 2002, the software sector was 111.2 percent higher than in 1995. The "computer related" sector was 115.8 percent higher than in 1995. There has not been much growth in those sectors since last year, but neither has there been any sharp decline.
There has been a long-standing shift in the U.S. economy and in Washington state away from manufacturing and toward services. Now the gap is widening. Marple's Pacific Northwest Letter recently noted that manufacturing jobs in the state slipped below 300,000 last November for the first time in more than 17 years.
Washington state hit its peak of manufacturing employment in mid-1998 at 382,000 jobs and started falling shortly thereafter. Boeing's cutbacks are a big part of that decline about 47,000 Boeing jobs have been cut since the peak in 1998.
Renton is a good example of life after Boeing. It has developed plans for use of the Boeing property in the city, a mixed-use plan that is forecast to help produce more jobs than Boeing did. Already Boeing property in Renton is more valuable if used for non-Boeing purposes, according to commercial real-estate companies.
Best case: No more booms
Even if the new 7E7 is built here Boeing's brass has consistently refused to be pinned down on that point it will not ramp up employment the way it has in the past. Boeing is likely to use productivity gains and outsourcing to keep its employment levels lean.
What does Boeing look like, then, in 20 years?
"Boeing is going to be part of this economy for a number of years," said Andrew Dale, managing director at Buerk Craig Victor, a venture-capital fund company that invests in private companies. "But perhaps it begins to look more like a biotech its employment numbers are not big but its good well-paying jobs have an impact on the economy."
Boeing's commercial airplanes division could not be like a biotech in one regard it could not continue to lose money. It needs the profits and especially the cash flow to make the needed investments in its future, wherever that might be.
If the production facility is placed elsewhere, the location could play a big role in what happens here. Sjoblom said a plant located in Alabama is better than one located in Texas.
"Texas already has a well-developed aerospace industry and would be likely to get more," Sjoblom said. "If the plant is in Alabama, it increases the chances the engineering and design stays here."
Stephen H. Dunphy: 206-464-2365 or email@example.com
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