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Washington state set to build Boeing 777X

The Boeing logo is seen at their headquarters in Chicago, April 24, 2013. REUTERS/Jim Young

By Alwyn Scott and Bill Rigby

NEW YORK/SEATTLE (Reuters) - Boeing Co is set to build key parts of its newest jet, the 777X, in the Seattle area providing Washington state passes legislation extending financial incentives for the plane maker and Boeing machinists approve a long-term work contract.

A provisional agreement between Boeing and its main workers' union paving the way for a deal was announced by Washington Governor Jay Inslee in Olympia on Tuesday, likely ending one of the most keenly awaited decisions in global aerospace.

Inslee called for a special state legislative session beginning on Thursday to approve a transportation package extending tax breaks for Boeing and improvements to state infrastructure.

"If we can do this in the next seven days, we can be certain that Washington's aerospace future will be as bright as its past," said Inslee at a press conference that was webcast from the state capital.

Boeing welcomed the agreement with the union.

"This is important to everyone with a stake in Boeing - including our employees, the community and our customers," said Ray Conner, head of Boeing's commercial airplanes unit, in a statement. "We look forward to the ratification (of the contract) and a long successful future as the global leader in aerospace."

The agreement is crucial to the Seattle area, which is increasingly competing with non-unionized workers in southern states where wages are lower.

Inslee said he spoke with officials from Boeing and the machinists union earlier on Tuesday, who told him that they had reached a tentative labor agreement to be voted on next week.

The machinists union said its members will vote on a proposal guaranteeing that fuselages and wings for Boeing's new 777X jet will be built by union members in the Puget Sound region.

In exchange for keeping the work in Boeing's traditional labor base, the machinists' union must ratify a new eight-year contract expiring in 2024 that includes $10,000 signing bonuses for all workers, and would make changes to the pension plan. It would also halt additions to workers' pensions and set up a different retirement plan funded by the company, the union said.

Three sources close to the matter cautioned that details of the agreement remain subject to change. But it provides "a path" to bring the program to the state, one of the sources said. The sources spoke on condition of anonymity because details of the discussions are still confidential.

Inslee's proposed transportation package - which must pass before Boeing agrees to locate 777X work in the state - includes the extension of all commercial airplane tax incentives until 2040 and expansion of current tax exemptions on construction of certain aerospace buildings to include all commercial airplanes and suppliers of wings and fuselages.

Reuters reported on Monday that Boeing was in advanced talks with its machinists' union to assemble the 777X and build its wings in the Seattle area, according to several people familiar with the negotiations.

(Reporting by Alwyn Scott and Bill Rigby; Editing by Leslie Adler, Phil Berlowitz and Ken Wills)