By Tim Raetzloff

For the Beacon

Boeing and county may be at crossroads

I’ve calculated the Abarim Snohomish County Stock Index for 13 years, and have become reasonably familiar with the economic trade winds in Snohomish County.

Boeing is not a component company in the ASCSI, but it’s the single largest economic influence in Snohomish County.  Boeing has contributed substantially to the county’s healthy growth in this decade.

Unfortunately, it appears that Boeing is at a watershed in the short term.  The 787 program is months behind schedule.

Boeing is now promising to have the 787 certified by the end of this year – at least six months behind the original schedule.

Two months ago the Chicago Tribune reported that some Boeing suppliers are feeling the financial pinch caused by the delay in production.  According to the Trib, Spirit AeroSystems had produced only two nose sections by the end of 2007.

This year Spirit will be expected to produce 45 nose sections to meet new Boeing projections, but won't begin to recoup upfront costs until the first plane is delivered to All Nippon Airways sometime in 2009.

Boeing also has political problems.  John McCain is probably Boeing's last choice for President, but he will almost certainly be the Republican nominee.  It was McCain who thwarted the lease of 100 Boeing tankers to the Air Force in 2003.

On the Democratic side, Boeing may not be any happier.  Barack Obama is a senator from Illinois and Boeing is a Chicago company, sort of.  Obama is not known to be favorable to the aerospace industry, and Boeing has used up much of its goodwill in Chicago.

Some time ago Robert Reed, writing in Chicago Magazine, reported disappointment that Boeing had moved barely 40 percent of the promised jobs to Chicago from Seattle, and none of the promised side benefits.

More recently Daniel Gross, writing in Slate, reported that “Chicago's one big win in recent years – in 2001 it convinced Boeing to relocate its headquarters from Seattle to Chicago – has been something of a loser.”

Boeing moved so few corporate jobs to Chicago that, as of today, the SEC still lists Seattle as the business address, and Chicago as the mailing address.

A Boeing failure to deliver the 787 on an already delayed schedule will affect the entire country, but it will have a concentrated effect in Snohomish County.

The entire country will be affected by the stock price adjustment of Boeing shares that will follow another delay.  Boeing is the third biggest component in the Dow Jones Industrial Average – not the third biggest company in the DJIA but, because Boeing has the third highest share price, it has the third largest percentage effect.

For example, if Microsoft, a much more valuable company than Boeing, were to lose half its share value, the result would drop the DJIA by about 115 points.

If Boeing were to lose half its share value, the DJIA would drop by about 325 points.

For Snohomish County the effect would be magnified.  A significant stock market drop would affect everybody and every part of the country.

Hiring for the 787 program has been relatively small compared to the launch of previous Boeing models.  Layoffs would also be relatively small compared to other Boeing downturns.

The number of Boeing suppliers that have located jobs in Snohomish County has also been disappointingly small.  That may turn out to be a blessing.

The critical fact of potential Boeing layoffs associated with a delayed 787 program is that the layoffs will come at a time of already slowing job growth.  Snohomish County will not suddenly be pushed into depression, but the county will feel it and should be getting ready now.

There is no way of knowing if a stock market pullback and a recession will also slow delivery schedules for other Boeing multi-aisle aircraft.  If that were to happen, the effect would be significant layoffs at Boeing Everett. That seems not a high probability scenario, but one that should be watched.

Snohomish County is still highly dependent on the aerospace industry.  A significant delay in the 787 delivery schedule will certainly be felt in Snohomish County.

Of the shareholder-owned companies in the Abarim Snohomish County Stock Index, if seems likely that the companies that would suffer most would be the banks. The three largest banks in Snohomish County have been boosted in their growth by the health of their home county.  All three have grown outside of Snohomish County but the core business, and some of the most profitable business, is here.

Snohomish County went to great expense and effort to attract the 787 program. This year we will discover whether that time and expense were worth it.

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(Tim Raetzloff, who operates Abarim Business Computers, evaluates Puget Sound business activity in his regular column in the Beacon.  In the interests of full disclosure he says, “I own shares in Washington Mutual. Neither I nor Abarim have any interest or conflict with any other company mentioned in this column.”)