How the Boeing deal was done

Graham, other lawmakers were key to last-minute negotiations

ASHAIN@THESTATE.COMNovember 2, 2009 

This article was reported by staff writers Roddie Burris, John O'Connor, Gina Smith, Jeff Wilkinson

A week before North Charleston landed a new Boeing jet assembly line, U.S. Sen. Lindsey Graham thought South Carolina had lost the deal.

Boeing CEO James McNerney called Graham’s Senate office, saying what a difficult decision he had to make in choosing between South Carolina and Washington state, where the aircraft maker assembles all its commercial planes.

Graham and McNerney were talking nearly every day as Graham acted as go-between with Boeing and S.C. officials. As they spoke, McNerney was worried about the cost of building a new plant in the South versus using existing operations in the Northwest.

The conversation had the tone of breakup.

“He said, ‘You couldn’t have treated us any better, but we have a big footprint in Washington,’” Graham said last week. “I told him, ‘Do what you think is best for Boeing. We will be the best partners we can be, but we understand this is a negotiation, a business decision.’”

Graham’s reaction was part of an ongoing soft sell he thought would appeal best to the Boeing executives, who were in contentious negotiations with union workers in Washington.

Those talks broke down last weekend, setting into motion a final push by S.C. recruiters and lawmakers.

On Wednesday afternoon, Graham was leaving the Senate gym when McNerney called: “We’re coming to South Carolina.” In the end, Graham figured, “Southern gentility was more attractive.”

South Carolina won Boeing’s new assembly line for the 787 Dreamliner despite the company’s last-minute request for $37 million, losing out on Boeing’s first 787 assembly line six years ago, doubts about the state’s workforce and South Carolina’s history of political friction.

The impact of the Boeing deal is huge for South Carolina, a state staggering under the nation’s fifthhighest unemployment rate:

-$450 million in state incentives to attract a company that will employ an estimated 3,800 workers by the middle of next decade.

-$750 million in initial investment from Boeing — the state’s biggest, topping the $500 million BMW pledged in 1992 for its Greer plant, a number since far surpassed.

-$10 billion in direct and indirect investment over the next 15 years from Boeing and its suppliers, according to a forecast from a state economist.

The timing of Boeing’s announcement was helped by a special session that started Tuesday to correct an unemployment benefits glitch.

That gave lawmakers a chance to approve the incentives package — a show of faith just as Boeing’s board met in Chicago to choose a site.

As the deal became public, lawmakers and lobbyists around the State House last week said they have never seen the leaders of the House and Senate work so cooperatively together as on the Boeing project.

What else but the state’s largest economic-development deal would have Gov. Mark Sanford praising one of his chief nemeses, state Sen. Hugh Leatherman, R-Florence?

State leaders each played a role, stopped politicking — and kept their mouths shut, state Commerce Secretary Joe Taylor said.

Taylor negotiated with the company. Graham and Sanford worked their contacts at Boeing. Leatherman assembled the incentives package. And House Speaker Bobby Harrell and Senate Pro-Tem Glenn McConnell, both Charleston Republicans, rallied their troops. It was a united front.

“That helped foster a sense of trust with Boeing,” said state Sen. Larry Grooms, R-Berkeley.

HELPED BY A FAILURE

Winning Boeing’s new 787 assembly line started when South Carolina lost the last one.

In 2003, as Boeing planned its first 787 assembly line, then-S.C. Commerce Secretary Bob Faith offered the aircraft-maker two S.C. sites, one in Charleston and one in Myrtle Beach. Both were near a port and an airport with the long runways that Boeing requested.

Boeing said no thanks to Myrtle Beach but took Charleston into serious consideration. The company began talks with Faith, Harrell and then-Charleston County Council Chairman Tim Scott.

“I had that first tingle of ‘Man, we may have a shot’ when Boeing executives flew in, and I met the (executive) in charge of the search,” Faith said.

He saw an advantage: The Boeing executive, like Faith, was from Oklahoma.

The Boeing team, along with Harrell, Scott and others, had dinner that evening, overlooking Charleston Harbor.

“It was one of those big dreams,” said Scott, now a state representative. “We had had some unsuccessful bids in bringing some other big industry to the area so we were cautiously optimistic. We started looking at what we considered landing a whale.”

Early on, government officials showed they were willing to make the deal happen.

On County Council, Scott helped push through incentives, including a freeze on the company’s millage rate for 20 years, ensuring its county taxes would not increase.

And Faith threw a party at his house for the executives. On the guest list: lawmakers, Low-country leaders and businessmen, including leaders from BMW’s Greer mega-plant.

“I really felt like we were going to win that assembly plant,” Faith said. “We had tons of momentum.”

Then the bottom fell out of the deal.

“Their (chief financial officer) resigned and, ultimately, their (chief executive officer) stepped down, and they, ultimately, decided to put that first line in Everett (Washington),” Faith said. “We felt like we had won the deal, but because of all of their internal difficulties, moving to South Carolina was a bridge too far.”

Still Faith thought the initial effort proved South Carolina was serious about doing business with Boeing.

It cleared the way for South Carolina to land two Boeing suppliers, Vought and Alenia plants, for North Charleston shortly thereafter with an estimated $120 million in state and local incentives.

The plants, which make and assemble the rear fuselage for the 787, now employ about 2,500.

“It was a heck of a consolation prize,” Faith said.

Because of those plants, an aviation infrastructure began forming. Trident Technical College, for instance, began developing an aerospace training program to prepare workers in aviation.

“We wouldn’t even be in the conversation if we hadn’t negotiated the Vought-Alenia deal,” Harrell said. “Getting to this point has been the goal all along.”

KEEP LOBBYING

South Carolina continued to lobby Boeing after North Charleston landed the Vought-Alenia fuselage work.

Sanford and Taylor, who had succeeded Faith as Commerce secretary, went to the international air shows around the world and met with Boeing officials.

At the time, Sanford wondered why Taylor insisted they go to the shows.

“You go to these events and they’re massive, and it’s hard to get singled out. You question the value,” Sanford said Friday. “Turned out, he was right.”

A couple of turning points came in July.

That month, Taylor met with the state’s Joint Bond Review Committee, which includes members of the House and Senate and oversees debt raised to pay for big projects.

The committee is led by the Leatherman, chairman of the Senate’s influential Finance Committee. Senate leader McConnell also is a member.

Tired of other states beating out South Carolina for business, Leatherman said he wanted to build a ready incentive pool to close a big development deal.

Taylor, who said Boeing was not discussed at the meeting, expressed concerns about the incentives that other states had offered to some companies, saying the investments did not pan out.

Leatherman said Taylor agreed to think about the incentive pool and get back to him.

It didn’t take long to find a project that fit Leatherman’s ambitions.

In July, Boeing bought Vought’s operations in North Charleston — a move that came after complaints about delays at the plant.

That gave Taylor hope that South Carolina might be in the running for a long-discussed, second 787 assembly line: “It just made business sense. But it came faster than we expected.”

The next month, Boeing officials came to the state and “wanted to learn just how quickly they could do it,” Taylor said of a new assembly line.

The state didn’t hesitate.

“We permitted the whole site,” Taylor said.

S.C. A PAWN?

The question on the minds of many S.C. officials: Was Boeing just using South Carolina as a pawn to extract promises from Washington state?

Grooms, a Charleston-area senator who is running for the Republican nomination for governor, said he asked that question when he met with Boeing’s officials in August. Billy Wilkins, a former federal judge now practicing with the Nexsen-Pruett law firm, asked the same question of a friend who is a Boeing executive.

Boeing told Wilkins and Grooms its interest was genuine.

Wilkins pulled together an experienced business law team — one that included a former S.C. Department of Revenue director — to handle negotiations for Boeing. Those relationships were critical because “when I talked about South Carolina, it was believed,” he said. Wilkins’ call to his friend at Boeing set in motion a series of mid-August meetings in Charleston that put the project on a fast track. A group of four state senators — Leatherman, McConnell, Grooms and Sen. Paul Campbell, R-Berkeley — met with Boeing officials.

Meanwhile, Harrell met separately with Boeing executives at the S.C. Research Authority’s nearby offices, not far from where Boeing will construct the new assembly line.

“My very first meeting, I believe, was them trying to figure out if we could deliver the things Commerce said we could,” Harrell said. The S.C. House speaker urged the Boeing officials to call executives with BMW, Nucor steel, Kimberly-Clark and other companies that had located in South Carolina to see if the state lived up to its promises.

“I felt very comfortable after the meeting that we were in the game.”

‘NOT ... A PROBLEM’

But Boeing had its questions, too: Could South Carolina bring the workforce that it needed?

Wilkins assured the company that the state could deliver on its end.

Sen. Campbell said Boeing officials needed convincing that local workers were at least equal to those of Washington, where the aeronautics industry long has been part of the regional culture. Campbell answered questions on labor relations, workers’ compensation and other on-the-ground realities of S.C. manufacturing.

He was able to give Chicago-based Boeing officials a critical insight into the capabilities of the S.C. workforce, having overseen for years an Alcoa plant in Bellingham, Wash., and retired after 10 years as Alcoa’s regional president at its plant in the Lowcountry, just outside of Berkeley.

“They needed that. This is a leap of faith for Boeing,” Campbell said.

Boeing declined to discuss details of its negotiations over the new 787 assembly line.

Graham, familiar with the aircraft maker as a member of the Senate Armed Services committee, suggested Boeing officials speak with executives at Michelin, which has S.C. plants and makes aircraft tires. Graham also touted the state’s skilled exmilitary veterans and its technical colleges, known for working closely with businesses.

There was an opportunity to convince Boeing, Graham discovered.

During a meeting a few months ago in Graham’s Senate office, Boeing boss McNerney talked about how labor relations with workers in Washington state were a problem. A strike last year lasted two months.

“He was openly frustrated about the interruption due to the strike,” Graham said. “I told him, ‘South Carolina was not going to be a problem.’”

And Leatherman said he pitched how South Carolina workers — averse to unions — were capable and motivated, just wanting a day’s pay for a day’s work.

Then, Leatherman pushed to sweeten the pot.

“I found we were at a competitive disadvantage to many states,” said Leatherman of his discussion about incentives with Taylor. “I said, ‘We need to put together a package.’”

That led to creation of an incentives package that eventually included $170 million in taxpayer-backed bonds, eliminating Boeing’s S.C. corporate income taxes, as well as a handful of sales tax exemptions for computers, fuel for test flights, and construction material and equipment.

THE SANFORD ISSUE

A question asked quietly was whether Sanford would go along with the incentive-laden deal.

Sanford was elected twice promising, in part, to reduce government involvement in the business marketplace.

Boeing was not concerned about the governor, Taylor said.

“They wanted to know if this administration makes a commitment that the next administration will keep it,” he said.

Taylor would not disclose his discussions with the governor, but in general, he said, “We’re not in the business of picking winners and losers or offering incentives that give one company an advantage over another company.”

“But,” he added, “there is nobody else in the state making airplanes.”

Sanford — a fiscal libertarian who opposes incentives but now is under siege by scandal and threats of impeachment — was not an issue in the talks with Boeing, Graham said.

“Mark has his philosophical views about recruiting,” Graham said. “At one point, I told him, ‘You have to spend money to make money.’”

Despite his reputation for eschewing incentives, Sanford said he understood Boeing’s potential was different. The incentives did not bother him.

“What we had here is run-of-mill stuff,” he said. “These were normal in the tool kit for the state. ... We went aggressively after it. As a rule, I don’t think (incentives) are the best option.

“But not all your decisions come from what you believe philosophically. My job, in this case, was to govern.”

THE FINAL WEEK

Just days after getting the call that made it sound like Washington would get the assembly line, Graham got a different message from McNerney.

“We want to let you know we’re really, really serious about this,” Graham recalled McNerney saying. “And I said, ‘We’re really, really serious, too.’”

The talks with the union representing workers in Washington were going nowhere. The Machinists union offered a 10year, nostrike pledge, but added other demands that displeased the company, according to reports in the Seattle Times.

Last weekend, Graham got a call from Boeing general counsel Michael Luttig, a former federal appellate judge whom Graham had supported as potential Supreme Court nominee.

Luttig told Graham that South Carolina’s incentive package was great, but Boeing officials had run the numbers again and had a last-minute request. Boeing wanted to make sure that making the request would not anger S.C. officials.

The request wasn’t small: Boeing wanted another $37 million in bond money, Graham said.

“I said essentially, ‘If it makes good business sense, then go ahead. We can ask but don’t be greedy,’” Graham recalled.

Sanford said the final $37 million was money that Boeing would have received in the future anyway but decided to get it upfront.

Still, it was a delicate matter, days before the General Assembly’s special session and an expected final decision by Boeing’s board on an assembly line site.

Graham spoke with Leatherman and Taylor. Both raised their earlier concerns about South Carolina being used as leverage against Washington.

“We never knew how much they were playing us off each other,” Graham said. “I spoke with Leatherman and told him I knew these business people pretty well and they’re honorable folks.”

That convinced the powerful Florence legislator.

“He said, ‘Senator, I stand ready to have the Senate stay in session to get this money,’” Graham said.

Boeing lawyer Luttig came to South Carolina on Monday to finish the details on the incentives package with Leatherman and Taylor. The same day, Boeing’s board met in Chicago to decide where to put the assembly line.

To make sure no one backed out, at the end of Monday, the sides agreed Boeing would announce South Carolina had landed the assembly line after the state Senate passed the incentives.

As lawmakers in special session scurried about Wednesday, some complained about all the waiting around that was taking place. They were aware of afternoon Internet reports that said the contract negotiations between Boeing and the Machinists union “were dead.”

Soon after the final passage on the incentives deal Wednesday afternoon, Leatherman stood at the Senate podium and announced: “Boeing has chosen North Charleston!”

Then, the chamber filled with thunderous applause.

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