The economic competition between the North and the South continues, 144 years after the end of the Civil War. As The Seattle Times is reporting, Boeing (BA) is opening a second final assembly line in Charleston, South Carolina, for its 787 -- the 850-order, $150 billion-backlog passenger jet whose production schedule has been delayed six times in the last two years.
One reason for the delay was a 52-day strike last fall by Boeing's machinists union, largely based in Washington state. But South Carolina, which Bloomberg reports is a right-to-work state, meaning workers there can't be forced to join a union, offers Boeing some leverage against the union; it can threaten to shift more work there if the union in Washington doesn't play ball.
Boeing isn't alone in using this tactic. The economic competition between North and South also plays an important role in the automobile industry. States like Michigan, which hosts General Motors and other big U.S. manufacturers, have powerful unions which demand high wages and health care for workers. Southern states like Kentucky make it harder for unions to operate, and thus attract manufacturers like Toyota (TM). This helps explains why senators from Kentucky and Alabama objected to the GM and Chrysler bailouts.
But a workforce free of unions is not the only thing that Boeing likes about South Carolina. The state offered Boeing $170 million in upfront grants for start-up costs, plus multiple tax breaks that would be worth tens of millions of dollars more. But there's a catch -- if Boeing doesn't invest $750 million and create 3,800 new jobs in South Carolina within seven years, all the money from South Carolina to Boeing vanishes, according to the Seattle Times.
And this is not Boeing's first foray to South Carolina. At Vought Aircraft Industries, which Boeing bought in July, 900 workers make the 787's rear fuselage. Workers there voted to drop their representation by the machinists union in September 2009. Boeing also co-operates an adjacent Global plant, owned 50-50 by Boeing and Alenia, where 1,600 workers assemble the 787's central fuselage, according to the Seattle Times.
It looks like the union in Washington -- where Boeing has been making aircraft for 93 years -- pushed Boeing too far. The machinists union offered a 10-year agreement that would guarantee no strikes but Bloomberg reports that it also demanded that Boeing not communicate with employees if the labor group tried to organize in any non-union plants. This was the straw that broke the proverbial camel's back according to its interview with a Boeing spokesperson.
Will this move help Boeing get the 787 back on track? Not really. It has yet to demonstrate that the aircraft can even fly. And when it does get the 787 to the point where it passes FAA test requirements, those South Carolina workers that Boeing will hire are going to require training and expertise that its Washington workers may already possess.
But there's little doubt that shifting production to South Carolina puts Boeing in a much stronger negotiating position with its unions in Washington. And it tilts the economic playing field a little more in favor of the South.