Boeing (BA) Labor Dispute: California, Alabama And Utah Pushing Hard To Get The 777x Manufacturing Contract But there Is also An Outside Chance That The Middle-East Could Take The Contract Out Of America

Alabama, Utah and California are among several states pushing hard to host a Boeing Company (NYSE:BA) factory that will build the aerospace giant's new 777X aircraft, Seattle TV station KING5.com reported Thursday.

The states' initiatives follow a rejection of Boeing's eight-year contract offer to members of the International Association of Machinists in Washington State, where the company has most of its production. With talks between the IAM and Boeing at an apparent standstill, the company is looking at alternatives to Washington's Puget Sound area.

Huntsville, Ala., Mayor Tommy Battle and Robert Bentley, who is governor of the right-to-work state, met with Boeing representatives on Tuesday in Birmingham to discuss the deal, which is very likely to include generous tax incentives for the company.

"They don't need to look at any other state," said Bentley. "Alabama is the state they need to look at most."

The IAM contract fight arose after the union rejected a deal to keep production of the 777x in Washington for the full eight years in exchange for a swap to a contributory pension program, a 1 percent raise every other year for employees and a different salary scale for new hires. In addition, Boeing was offering a bonus to every employee who accepted the deal. To smooth the deal through, the Washington state government offered the company $8.7 billion in tax breaks until 2040, believed to the largest tax break in the company’s history. But the IAM rejected Boeing’s offer, and it looks like the generous tax breaks may not be enough for the company as they look elsewhere.

But Alabama is not the only place angling for a piece of $100 billion Boeing project. San Antonio, Salt Lake City and Long Beach, Calif., have all thrown their hats in the ring as states compete to create jobs after five years of stagnation.

Salt Lake City has said it's ready to take on the eight-year project, but questions remain over whether it can match Washington's huge tax break. Boeing already has a presence in the area, primarily making parts for the 787 Dreamliner, but it's unclear that Utah has the depth of employee knowledge to take on such a project.

According to an International Machinists Association spokesperson, Utah, and other states for that matter, would struggle to adequately meet Boeing's demands. "The legacy skills that exist in Washington State do not exist anywhere else in America, and it's for this reason that Boeing may struggle to find a suitable location," said the spokesperson.

Utah officials say the state doesn't have enough high-tech jobs to keep their engineering graduates at home, but landing a lucrative Boeing contract could help change that. Even if Utah cannot match the tax break offered by Washington, it does have right-to-work laws and weak unions, which would attract Boeing.

On the other hand, and down the West Coast in Long Beach, Boeing already employs 5,000 people in its C-17 production plant, but with that project to end in 2015, California will be looking to land the 777x to keep those people employed. “The timing certainly makes sense,” said California lawmaker Al Muratsuchi, a Democrat who leads the state Assembly’s Select Committee on Aerospace.

California has passed three very attractive tax laws that could suit Boeing's move: a sales-tax exemption on manufacturing, biotechnology and research-and-development equipment; a hiring credit; and an income-tax break given at the discretion of Gov. Jerry Brown. And lastly, workers in Long Beach have already accepted some of the concessions that those in Puget sound rejected.

Given that most of the orders are for Persian Gulf-based customers, there is also a possibility that Boeing may take production to the Middle East or North Africa, where even cheaper labor and tax advantages will offer a clear cost-effective environment. But as quickly as the idea was mooted, it was hastily rejected by the buying airlines, who hope to avoid the sort of problems and delays that beset Boeing’s 787 Dreamliners, which were manufactured at non-Boeing locations across Europe and Asia.

Emirates Airlines President Tim Clark has already said that the aircraft should be built in Boeing’s own facilities in the U.S. The 787 was assembled in Italy, Japan and other countries before arriving in the U.S. for final assembly, but battery problems grounded whole fleets that began taking on losses of around $1 million a day.

Akbar Al Baker, the CEO of Qatar Airways, offered a similar sentiment and suggested that the entire 777x aircraft should be built in one single facility. "Frankly, we would rather everything was built in one place, and I think Boeing from the 787 experience have learned a lesson," he said in an interview Tuesday.

Boeing has also stated that it may keep production in Wsahington State but are considering locations all across the country.

Boeing has so far received 259 orders for the 777x with 225 of those orders coming from Emirates, Etihad and Qatar with the remaining 34 going to Deutsche Lufthansa AG (FRA:LHA).