To understand how Boeing Co. wound up making its 787 Dreamliners in North Charleston in 2009 — and how South Carolina has become forever entwined with the aerospace giant as the company celebrates its 100th anniversary — it helps to look a few years farther into the company’s past.
The move to South Carolina has its roots in a corporate philosophy — and geographic — shift that began with Boeing’s 1997 merger with competitor McDonnell Douglas and then, four years later, the company’s decision to relocate its headquarters to Chicago.
“The strategy was to downplay the regional location of its commercial aerospace division” in Washington state, said Leon Grunberg, a sociology professor at the University of Puget Sound and the author of “Emerging from Turbulence,” a book that examines two decades of Boeing’s corporate culture and its impact on the workforce.
When the Dreamliner program was announced in 2003, Boeing had sharpened its focus on reducing costs and risk, outsourcing its work and developing a complex global supply chain that was worlds apart from its long history of in-house design and production.
Jim McNerney, a protege of Jack Welch, his former G.E. boss and a brash leader known for his less-than-compassionate management style, accelerated those changes when he began to lead Boeing with many of those same attributes in 2005.
McNerney’s decision to locate a second final assembly Dreamliner plant in North Charleston signaled that Boeing “will be a radically different company moving forward,” Grunberg said. “It will be a more globalized company.”
As much as North Charleston changed Boeing, the planemaker forever changed South Carolina’s manufacturing landscape.
The company has invested $2 billion in land, facilities, infrastructure and machinery at its Dreamliner campus and other North Charleston sites that now employ more than 8,200 workers and contractors. It has donated $28 million to area charitable organizations and, last year alone, spent more than $355 million with 294 suppliers and vendors within South Carolina.
The Palmetto State’s aerospace cluster, still in its infancy, generates a $17 billion economic impact each year and its more than 400 civilian companies employ more than 17.000 people.
“South Carolina’s booming aerospace industry continues to grow at a remarkable rate, creating jobs and opportunities for people all across this state,” said Bobby Hitt, the state’s Commerce Secretary.
Just as important, Boeing gave the region a much-needed economic ego boost and anchor after previous setbacks such as Hurricane Hugo, the closing of the Navy Base and the real estate crash.
“It proved not just to ourselves but to the world that South Carolina and the Charleston region is capable of successfully handling the largest and most technologically advanced companies operating anywhere in the world,” said attorney Bobby Pearce, who has spent more than 30 years promoting economic development in the Charleston area, most recently with Pearce Capital Management.
“One hundred years from now, the folks in the Charleston region will look back at Boeing’s arrival as one of the top five to 10 significant economic events in Charleston’s entire history,” Pearce said.
The proximate reason Boeing chose South Carolina, Grunberg said, is because it is a largely anti-union, right-to-work state.
“It was clearly an effort to severely weaken the power of the union,” he said. “The machinists union (in Washington state) has been a fairly robust and strong union, and it has gone through five different strikes through the years, winning fairly good concessions.”
McNerney didn’t want to continually be held hostage by organized labor, Grunberg said.
So the move to North Charleston accomplished two things — it gave Boeing a union-free workplace and the upper hand in negotiations at sites where the unions exist.
“They’ve used the threat of locating new programs elsewhere as leverage, and they’ve been very successful in their recent negotiations,” Grunberg said. “They’ve got long-term deals with both unions — the engineers’ union and machinists’ union — which essentially guarantee no strikes for several years.”
The International Association of Machinists has tried without success — including a 2015 election canceled at the last minute — to organize Boeing’s local workers, with politicians including Gov. Nikki Haley and North Charleston Mayor Keith Summey vowing the union will never get a foothold at the plant.
The South Carolina “threat” extends beyond unions. In 2013, Washington state legislators awarded Boeing with $8.7 billion in tax breaks because they feared the company would move its 777 production out of state, possibly to North Charleston.
“While Boeing will always retain a huge presence in Washington state, the reality is that the company has to become more aggressive in its internal competitiveness to drive down costs, boost efficiency and allow better airplane pricing,” said Saj Ahmad, chief analyst with StrategicAero Research in London.
“I don’t think for one moment Boeing is abandoning its Washington-based heritage or roots,” he said. “But at the same time, the company will not be beholden to Washington if states like South Carolina offer a better solution to the benefit of the wider company going forward.”
John Fredrickson, who retired in 2011 after a 36-year career with Boeing, agrees that company executives were growing frustrated with strikes that hurt profits and brought production in Washington state to a halt. But he says the impetus for the move to South Carolina had more to do with mismanagement at a pair of North Charleston suppliers — Vought Aircraft Industries and Global Aeronautica, a joint venture of Texas-based Vought and Italy’s Alenia North America.
In his book “Boeing,” a photographic look at the company’s first 100 years, Fredrickson writes the company was counting on those suppliers to fabricate the aft 787 fuselage and upfit the Italian-made midsections for final assembly at Boeing’s Everett, Wash., plant.
“A bumpy startup was experienced,” stated Fredrickson, now a volunteer at Boeing’s official archives division. “Serious schedule and production woes soon engulfed the 787 program. Some deliveries were to run three years behind schedule. Taking drastic action, Boeing intervened and took over both operations in 2009. Despite the technical challenges, Boeing executives were elated with the cooperative stance of government and labor.”
That cooperative stance included roughly $1 billion in tax breaks, training programs and other incentives provided to Boeing by South Carolina and local governments when it decided to build a full-blown assembly line for the 787 on the outskirts of Charleston International Airport.
The Dreamliner’s troubles didn’t end when Boeing took over the North Charleston facilities. The plane was already behind schedule because of supply-chain shortages, software problems and parts failures. In the months after Boeing arrived in South Carolina, an engine blew out during ground testing of one Dreamliner and an electrical fire caused an emergency landing during an in-flight test.
The first delivery, to Japan’s All Nippon Airways, was three years late and all Dreamliners were grounded for three months in early 2013 when an emergency landing of one of the planes exposed a battery fire risk.
“The experience with the 787 has taught Boeing some lessons,” Grunberg said. “They are being much more cautious about what they are outsourcing now.”
Boeing officials and most analysts agree that the Dreamliner’s technical problems are now in the past, although the company must chip away at the program’s nearly $30 billion in deferred production costs.
Despite its growing pains, North Charleston’s role in the company’s future appears bright.
With more than 400 acres of vacant land available, the North Charleston campus is mentioned any time there’s talk of a new Boeing program, such as a long-discussed middle-of-the-market plane to replace the discontinued 757 model.
“Boeing will likely launch a mid-sized jet before the decade is out, and it also has to then develop a true 737 replacement farther down the line,” said Ahmad, the London-based analyst. “These two prospects alone could harness thousands of orders over a 15- to 20-year production run. Boeing South Carolina has the edge now when it comes to composites and developing new production methods — and it’s conceivable Boeing South Carolina could win one or both of those longer-term projects alongside the 787 family.”
In addition to the Dreamliner’s final assembly plant — which also fabricates, assembles and installs the aft fuselage — Boeing has indicated its commitment to North Charleston with the development of a factory that makes interior parts for the Dreamliner, a propulsion center that designs and makes engine parts, a research and technology center and a paint hangar where airplane liveries will be completed.
What BMW’s arrival in Greer 15 years earlier did for the Upstate, Boeing’s arrival in 2009 “was an inflection point in Charleston’s economic development that accelerated Charleston into the international business scene,” Pearce said.
And when Boeing celebrates its 200th anniversary a century from now, Pearce said he expects North Charleston will be seen as at least a 50-50 partner in the company’s operations and success.
“While both Washington state and South Carolina will compete for work, they are both on the same side of the coin and ultimately complement the other for the benefit of the company’s long-term prosperity,” Ahmad said. “If Washington state started the first century of flight for Boeing, then in my mind South Carolina will expand that prowess in the second century.”
Reach David Wren at 843-937-5550 or on Twitter at @David_Wren_