Donald P. "Rusty" Reed, Vice President, Business Development, South Carolina Power Team (June/July 10)
Editors Note: This article is Contributed Content, authored and paid for by the South Carolina Power Team. The story of Boeing's investment in Charleston, South Carolina, provides insight into the factors important to the location decision of aerospace firms.
The U.S. aerospace Industry has deep ties to the southeastern United States. The first manned flight took place in Kitty Hawk, North Carolina in 1903, and the first manned space flight launched from Cape Canaveral, Florida on a rocket made in Huntsville, Alabama. Many would contend that the latest major milestone for the southeastern aerospace industry came in October of 2009 when Boeing chose a site adjacent to the Charleston International Airport for a second assembly line for its new 787 Dreamliner. The project is expected to produce at least $750 million in direct investment and create at least 3,800 direct jobs, while millions more in investment and thousands more jobs are expected from the suppliers that Boeing will need to locate in the area.
The Labor Factor
More positive news followed in the next few months when Boeing announced that it would replicate production of all the components needed to produce the new aircraft so the new assembly line could operate independently of the current supply chain. In an article in The Seattle Times on December 8, 2009, Boeing spokesman Jim Proulx stated that "repeated labor disruptions have affected our performance.(the second assembly line) has to be able to go on regardless of what's happening over here." Jim Albaugh, CEO of Boeing Commercial Airlines, went further in saying that in choosing South Carolina over Washington State "the overriding factor was.that we couldn't afford to have a work stoppage every three years.and continue the rate of escalation of wages." One estimate has Boeing saving around $4 billion in wages and benefits at the Charleston facility over 20 years when compared to the package that Washington employees receive.
These quotations highlight the major reason that most observers believe led Boeing to select South Carolina as its first assembly plant outside the state of Washington - labor. South Carolina's low unionization rate and skilled manufacturing work force and worker training programs are powerful attractions for domestic and international manufacturers. Unlike Washington, South Carolina is a right-to-work state, meaning employees can't be forced to join a union as a condition of employment.
BMW has operated its only North American facility in South Carolina for two decades, and Michelin also has their North American headquarters in the state. CNBC's "Top States for Business 2009" ranked South Carolina sixth in the nation for the quality of its work force. As of mid-April, the state- funded readySC™ worker training program at Trident Technical College had graduated 1,700 workers for the existing Boeing fuselage assembly plant, and another 1,300 applicants had qualified for the eight-week training program. The state expects to spend up to $33 million over the next 15 years on the program to train workers for the Boeing plant.
Aerospace & Aviation Related Companies In South Carolina - 2010
A Strategic Location
Another major advantage for Boeing and other aerospace companies in South Carolina is the strategic location midway between Miami and New York. A comprehensive intermodal transportation network - including the major port of Charleston, railroads, and aviation facilities - provides ready access to the East Coast and the rest of the world. South Carolina has more miles per capita of interstate highways than any other state, including the vital East Coast transportation corridor of I-95. UPS has its southeastern hub at the Columbia Airport, located in the center of the state. South Carolina's transportation infrastructure allows the aerospace industry to meet its unique transportation needs.
A Pro-Business Climate
When the Boeing announcement was made in South Carolina, many state and local officials pointed to the state's pro-business climate as a major attraction for manufacturers. Among the items sited were no state property tax, no local income tax, no inventory tax, no unitary tax on worldwide profits, and no sales tax on manufacturing machinery, industrial power, or materials for finished products. All state incentives are performance-based, including the Job Tax Credit, which can reduce the state's already low 5 percent corporate income tax by up to 50 percent based on job creation; and the Job Development Credit, which can allow companies to receive a rebate on a portion of new employee's withholding taxes that can be used for their specific infrastructure and facility improvements. In addition, local county councils have the authority to negotiate fees in lieu of taxes that can reduce a company's property tax by more than 50 percent for up to 20 years. The aforementioned CNBC "Top States for Business 2009" gives South Carolina the fifth-highest overall rating in the nation for the cost of doing business.
A May 2010 study by the Alliance for South Carolina's Future estimated that Boeing's South Carolina operations would add $6.1 billion annually to the state's economy. This would generate the creation of more than 15,000 jobs, including the 3,800 announced jobs that Boeing will create directly. These are two powerful incentives for South Carolina to build on its relationship with Boeing in its pursuit to be the East Coast hub of the aerospace industry.