New aerospace competitiveness study important to winning the next Boeing plane; recognition of changing landscape

The Seattle Times reports that Choose Washington Council appointed by Gov. Inslee last December has contracted for a study to assess Washington’s aerospace competitiveness in an effort to land the next Boeing airplane. Times reporter Dominic Gates writes,

The Governor’s council set up to win Boeing’s proposed next new airplane for Washington state has commissioned well-known aerospace industry analyst Richard Aboulafia to do a $55,000 analysis of the state’s competitiveness.

“We need to know what makes our state strong, and where we need to get stronger,” said Gov. Jay Inslee in a statement. “This independent analysis by some of the most credible experts in the world will help us do exactly that.”

In December, the governor’s office issued a press release underscoring the importance of the effort.

The Choose Washington NMA Council will help make the case that Washington state’s aerospace workforce offers the quickest [route] to profitability and lowest risk location risk for Boeing to successfully design and build the NMA. The council is also tasked with a consensus approach to identify programs, policies, and initiatives to help secure the NMA and also serve the needs of Washington workers and communities. 

Gates reports,

Boeing is still pondering the business case for launching a jet it refers to as the New Mid-Market Airplane (NMA), informally dubbed the 797 by outsiders — a plane larger than the single-aisle 737 and smaller than the 787 Dreamliner widebody.

A launch decision is expected by early next year, and as part of the business case Boeing is already weighing how and where it will be built.

As we’ve seen before, the aerospace industry operates in a highly-competitive market. And states will vie to win the business.

Washington ranked No. 10 in the 2016 Aerospace Manufacturing Attractiveness Rankings. At the time, we noted that Washington ranked No. 29 on taxes, but came in No. 11 for education attainment. Of the relatively low tax ranking we added,

PwC bases the tax rankings on unemployment taxes, property taxes and corporate taxes. Washington has typically been rated a high cost state for aerospace manufacturing. The Washington Research Council in 2014 reviewed the data

There is clear evidence that the state’s tax structure fell heavily on the aerospace industry before 2003. In 1994, DOR’s research department conducted an extensive study benchmarking the taxation of manufacturing in Washington against 11 other states. The result: “Washington is usually one of the top three states for tax liability” (DOR 1994). For aerospace taxation, Washington ranked 4th highest for a large established firm and highest for a new firm.

The WRC pointed out,

Prior to the enactment of tax incentives in 2003, the B&O tax was particularly burdensome for aerospace. An analysis prepared in 2002 for the Washington State Tax Structure Study Committee (which was chaired by Bill Gates Sr.) found that the aerospace industry’s effective B&O tax rate (calculated as the ratio of taxes paid to value added) was 2.63 percent, third highest among Washington’s industries. The average industry’s effective B&O tax rate was 1.53 percent, more than 40 percent lower than that for aerospace…

All told, the 2003 and 2013 tax incentive packages leveled the playing field, making Washington more competitive with other states.

The Ab study, with public and private funding, will offer important insight to policymakers. We closed our post on the 2016 rankings this way:

It’s a useful reminder of the intense competition among states and nations for investment and job creation, and of the factors that influence decisions.

The landscape changes continually. We look forward to learning how the state can best position itself to win the business. The policies that will land the NMA will both help secure the aerospace cluster here and point the way to an improved business climate overall.