Wednesday, January 18, 2012

Boeing Ditches Wichita for Texas' Nonunion & Tax Breaks

After winning the military air tanker contract, Boeing promised thousands of new jobs to the people of Wichita, Kansas.  Those new jobs won't happen.  To make matters worse, over 2,100 existing jobs will disappear.
Four hundred Wichita jobs will move to San Antonio, Texas to a nonunion shop.  Governor Rick Perry said this of his efforts to make Texas attractive to Boeing:

Gov. Rick Perry ceremonially signed House Bill 3727, which relates to the appraisal of aircraft temporarily under production in Texas.

"HB 3727 makes it easier for companies like Boeing to have cost certainty when it comes to their tax bill, helping them commit to doing more business in this community and our state," Gov. Perry said. "This facility and the jobs it supports are part of Texas' economic success, and thanks to this bill, will continue to be part of San Antonio's robust economy."

HB 3727 requires aircraft temporarily located in Texas for manufacturing or assembly to be appraised at 10 percent of its market value. The bill also defines a temporary production aircraft as an aircraft with special airworthiness and flight permits and has a maximum takeoff weight of 145,000 pounds. 
The littany of explanations for the move has begun, from Boeing to industry experts.  Not said, Boeing needs to compete in the race to the lowest common denominator on worker benefits/pay, benefit from taxing entity giveaways and maximize nondebt, nonequity capital injections (cash and in-kind economic development assistance). 

Here's what Texas, Oklahoma and Washington have to beat economic development wise (from Boeing's latest 10-K):

Industrial Revenue Bonds (IRBs) issued by the City of Wichita are used to finance the purchase and/or construction of real and personal property at our Wichita site. Tax benefits associated with IRBs include a ten-year property tax abatement and a sales tax exemption from the Kansas Department of Revenue. We record the property on our Consolidated Statements of Financial Position, along with a capital lease obligation to repay the proceeds of the IRB. We have also purchased the IRBs and therefore are the bondholders as well as the borrower/lessee of the property purchased with the IRB proceeds.

The capital lease obligation and IRB asset are recorded net in the Consolidated Statements of Financial Position. As of December 31, 2010 and 2009, the net assets associated with the City of Wichita IRBs were $822 (milllion) and $856 (million).
Is Boeing cramming down itself or simply shafting the people of Wichita?  Here's Boeing's defense book of business (from an October 26, 2011 investor presentation):

A $59 billion backlog and $6 billion in orders weren't enough for Boeing to fulfill its Kansas promises.  Approving the move were Red & PEU board members.  Ken Duberstein and Susan Schwab represent the Red team, while private equity underwriters (PEU's) from KKR, Carlyle Group affiliate Nielsen, Oak HIll and Clayton, Dubilier & Rice occupy four seats.

Two former Boeing board members served President Obama, William Daley-Chief of Staff and John Bryson-Commerce Chief.  Consider these fun facts, nuggets regarding those running the global race to the bottom, only political donations and executive pay are exempted.

Update 2-10-13:  Boeing outsourced 35% of Dreamliner manufacturing to Japan.   Carlyle Group affiliate Vought Aircraft did its part to delay the Boeing 787 launch.  Rick Perry subsidized Vought with $35 million in taxpayer money for cutting 35 jobs.  Yes, that's $1 million per job lost.