Exclusive: Boeing unions seek conditions on $8.7 billion in tax credits

By Alwyn Scott

NEW YORK (Reuters) - Boeing Co's (BA.N) two largest labor unions said on Wednesday they are working on a pair of legislative bills that would put conditions on $8.7 billion in tax credits that Washington state gave to Boeing and the state aerospace industry in 2013.

The tax credits were a condition of Boeing's decision to locate production of its 777X jetliner in Washington state, and altering them could change the business case for that decision.

Union leaders said they plan for the bills to be introduced in the current state legislative session. One bill would specify the number of jobs Boeing must maintain in the state to receive the tax credits. A second bill would require companies that receive the credit to pay a "living wage," Larry Brown, legislative director of the International Association of Machinists District 751, told Reuters.

The machinists have teamed up with the Society of Professional Engineering Employees in Aerospace (SPEEA) to develop the measures, both unions said.

Since the legislature passed the tax credits in November 2013, Boeing's employment in Washington state has declined by more than 2,500 jobs, according to SPEEA, as Boeing has laid off workers and moved jobs to other states, in some cases to fulfill job requirements tied to those states' incentive packages.

Boeing said it strongly opposes the efforts. "Attaching arbitrary job creation numbers to an industry that is already boosting Washington's economy is harmful and unnecessary," spokesman Doug Alder said.

Washington's aerospace incentives "have the strictest accountability standards of any incentives in the state" and Boeing has added 30,000 jobs in the state since the original incentives were passed in 2003, he added.

Members of Boeing's senior leadership plan to hold a private briefing with aerospace industry leaders on Thursday to discuss the union efforts and ensure the incentives are maintained.

The state legislature passed the $8.7 billion tax package in November 2013 after Boeing said it was essential for Boeing to locate production of its 777X jetliner in Washington state.

Boeing also required that machinists approve an eight-year contract extension that ended pension contributions after 2016.

The incentives apply to all aerospace manufacturing in Washington, not just Boeing. They extended tax credits originally passed in 2003 that were set to expire.

The state said the credits would increase the number of aerospace jobs in Washington state. However, unlike other states, Washington's law does not require new jobs to be created or any jobs preserved, the union said.

Since 2013, Boeing has reduced employment in Washington to 80,785 from 83,295, according to Boeing's tally.

Unions are especially concerned about the loss of engineering and research and development jobs to other states, Brown said.

Since those jobs are closely tied to production, where they go "manufacturing will soon follow," Brown said.

In the long term, the shift "makes Washington state less competitive in landing the next plane program," he said.

Washington state tax credits to Boeing, and government aid to European rival Airbus Group (AIR.PA), are part of another dispute, which has played out over a decade through the World Trade Organization.

In May, the European Union said it may challenge Washington state's $8.7 billion in tax credits as illegal aid under WTO rules.

(Reporting by Alwyn Scott; Editing by Bernard Orr)