By Alwyn Scott
NEW YORK (Reuters) - Boeing Co (BA) has decided to place a significant amount of design work for its new 777X jetliner in a handful of cities around the U.S. and overseas, moving work outside the Seattle area where the current 777 was designed and is being built.
"It has been decided that much of the detailed design will be carried out by Boeing engineering teams in Charleston (South Carolina), Huntsville (Alabama), Long Beach (California), Philadelphia and St. Louis," Boeing told employees on Wednesday in an internal memo obtained by Reuters and confirmed by Boeing on Wednesday. The Boeing Design Center in Moscow will also perform some of the work.
"However, at this time, no decisions have been made about 777X design or build in Puget Sound," the memo said.
Washington state Governor Jay Inslee called Boeing's decision "disappointing" and vowed to "compete boldly and aggressively to win this work."
Spreading out work on Boeing's biggest new plane program was seen as a blow to engineers in Washington state and a possible sign that the jobs of building the more-efficient version of Boeing's best-selling wide-body plane could migrate to lower-cost, nonunion states, especially Boeing's production facility in South Carolina.
"This is another step in Boeing's war against SPEEA, the engineers' union in Seattle," said Scott Hamilton at aviation consultancy Leeham Co. in Seattle. "Boeing has been systematically moving engineering jobs out of Washington all year."
But the memo left unclear how much design work would move out of Washington, and whether Boeing will retain central design control in the state or put it elsewhere. That could heighten competition for the 777X program between Washington, South Carolina, Texas and other places where Boeing has facilities.
"It certainly implies that they're leaving all their options open, which is a great way of putting pressure on potential site providers," said Richard Aboulafia, an analyst at Teal Group in Fairfax, Virginia.
"It doesn't mean the Puget Sound is out of the running, but it puts pressure on them," he added. "That may be the point."
Gov. Inslee has proposed extending a package of tax incentives, among other measures, to persuade Boeing to put 777X design and assembly work at its giant factory in Everett, Washington, where the current 777 is made, and keep work in the Puget Sound region, which encompasses Everett, Seattle and Renton, where Boeing has facilities.
The governor learned specifics of Boeing's plan on Wednesday morning, said Alex Pietsch, director of the governor's aerospace office.
Union officials said that despite the surprise move, they expected some 777X work will be sourced from the Puget Sound region.
Shifting entirely away from the Everett factory could bring problems similar to those experienced with Boeing's 787 Dreamliner, which suffered a series of glitches, including unstable, overheating batteries and mechanical failures. Design and parts for the 787 were sourced from suppliers worldwide.
"Puget Sound is Boeing's center of experience in commercial aircraft design," said Ray Goforth, executive director of the Society of Professional Engineering Employees in Aerospace (SPEEA), the union representing 23,000 Boeing engineers and technicians.
"As engineering tasks are shared with other talented engineering groups, we fully expect Puget Sound to play the key integrating role needed to avoid a replication of the problems experienced by the 787 program."
Boeing's strategy makes sense and the company is unlikely to spread work around to the extent it did on the 787, said Russell Solomon, an analyst at Moody's Investors Service in New York.
"While you don't want to spread yourself too thin, you never really want to have all your eggs in one basket," he said. "All else being equal I can see the merit to some further diversification of production lines away from Washington state, and particularly into South Carolina."
Boeing has made no secret that it is considering whether to build the 777X at its factory in North Charleston, South Carolina, and it is acquiring about 270 acres of land adjacent to that factory. But the company reiterated on Wednesday that it has not yet decided where to build the jet.
"We are studying our options on build work for the 777X, but no decisions have been made at this point," Boeing spokesman Doug Alder said.
Hamilton, the industry analyst, said the decision to move 777X engineering work was a blow to Washington state's effort to keep all things 777X in Washington and "may well be the harbinger that final assembly will wind up elsewhere, presumably Charleston," he said.
The 777X is undergoing numerous sales campaigns in the Middle East and Asia that are expected to yield more than $50 billion in orders in coming weeks. The biggest order is expected to come at the Dubai Airshow on November 17, when Emirates Airways is expected to place a landmark order for 100 or more 777X jets, worth some $30 billion, according to industry sources.
The memo released on Wednesday was signed by Michael Delaney, vice president of engineering at Boeing's commercial airplanes division, and Scott Fancher, vice president of airplane development.
It said Boeing's goal is to bring engineering skill from across the company to tackle a project as large as the 777X. The company also said it would apply "lessons learned" from the 787 and 747-8 programs. The new structure of design, "will allow for an efficient use of resources and enable Boeing to resolve design issues effectively the first time," the memo said.
(Reporting by Alwyn Scott; Editing by Gerald E. McCormick, Tim Dobbyn and Ken Wills)