Oct. 28 (Bloomberg) -- Boeing Co. will build an assembly line for the 787 Dreamliner in South Carolina, reaching for the first time outside its historic Seattle manufacturing hub to set up a new commercial-plane factory.

The North Charleston facility, adjacent to a parts plant Boeing bought in July, will be used along with one in Washington state to build, test and deliver the aircraft, Chicago-based Boeing said in a statement today.

“Establishing a second 787 assembly line in Charleston will expand our production capability to meet the market demand for the airplane,” said Jim Albaugh, chief executive officer of Boeing Commercial Airplanes. “We’re taking prudent steps to protect the interests of our customers.”

The new line will help Boeing recover from delays that have set the 787 back at least 2 1/2 years. The planemaker’s board picked South Carolina, a less unionized state, after failing to reach a no-strike deal with Seattle-area workers. The International Association of Machinists and Aerospace Workers shuttered Boeing factories four times in 20 years with walkouts, including a two-month strike in 2008.

“Boeing has betrayed our loyalty,” Tom Wroblewski, president of Machinists Local 751, said on a conference call. The union offered Boeing a 10-year labor agreement and floated ideas on health-care costs, wages and pensions, he said.

“Most of the time, they didn’t even take notes,” Wroblewski said. “It’s now clear that Boeing was only using our talks as a smoke screen, and as a bargaining chip to extort a bigger tax handout from South Carolina.”

Tipping Point

The tipping point was the union’s demand that Boeing not communicate with employees if the labor group tried to organize in any non-union plants, including North Charleston, said Yvonne Leach, a Boeing spokeswoman in Everett, Washington. “We would be giving up the right to address our employees, and that wasn’t something we were willing to give up.”

The union’s economic demands during the proposed 10-year agreement “just weren’t anything we could sustain,” Leach said, declining to give further details.

Anything that would reduce the risk of another strike would more than compensate for the cost of setting up a plant in North Charleston, Richard Aboulafia, vice president at the Fairfax, Virginia-based Teal Group aerospace research group, said in an interview before the decision was announced.

Construction Plans

Boeing plans to start construction by the end of November, spokeswoman Leach said, declining to comment on how much the company will spend. There will be “several thousand” new employees, she said.

The 787’s rear fuselage is already made in North Charleston, where Vought Aircraft Industries had a contract to ship sections to Boeing for final assembly in Everett. Boeing bought the operations from Vought in July, and workers there rejected membership in the machinists union last month. Unlike Washington, South Carolina is a right-to-work state, meaning it forbids requiring union membership as a condition of employment.

The new plant, added to the one Boeing just bought, will give Boeing its first assembly center outside Seattle and could siphon more jobs away from Washington as the company considers other new aircraft models.

South Carolina’s legislature approved an incentives package today that would provide infrastructure, equipment, training facilities and tax breaks, Leach said, declining to put a value on the deal. The package, which does not specifically name Boeing as the beneficiary, is valued at about $170 million, according to the unions.

Governors React

The decision “represents not only enormously good news for our state’s economy, but also a telling dividend from our state’s continued efforts to better our business climate,” South Carolina Governor Mark Sanford said in a statement.

Washington Governor Chris Gregoire called it “obviously a very disappointing day” in her state.

The Puget Sound area has been home to the planemaker’s commercial operations since 1916, when lumberman Bill Boeing built a wooden float plane on the shores of Lake Union. The company moved corporate headquarters to Chicago in 2001, and its military operations are based in St. Louis. The industry supports more than 200,000 jobs and generates $36 billion for Washington state.

“Everett will continue to design and produce airplanes, including the 787, and there is tremendous opportunity for our current and future products here,” Albaugh said. “We remain committed to Puget Sound.”

Dreamliner Delays

Boeing is the world’s second-largest commercial-plane maker by 2008 deliveries, trailing Toulouse, France-based Airbus SAS. Boeing rose 4 cents to $47.26 at 6:40 p.m. after the regular close of New York Stock Exchange trading. The shares have dropped 52 percent since the first of five 787 delays became known in October 2007.

Boeing has 840 orders for Dreamliners, making it the most successful new-plane sales campaign ever. The 787 is made mainly of lightweight composites in a new manufacturing process that relies on vendors to make large parts of the aircraft for Boeing to later assemble.

The plane has been beset by delays ranging from parts shortages to unexpected stresses in engineering tests. The jet is due now to fly for the first time by year-end and be delivered by late next year. The original target was May 2008.

“We are astounded that Boeing has chosen to compound the problems of the 787 program by further fragmenting the supply chain,” said Ray Goforth, executive director of the Society of Professional Engineering Employees in Aerospace-IFPTE Local 2001 in Seattle. “There was no credible business case for this decision.”

To contact the reporter on this story: Susanna Ray in Seattle at sray7@bloomberg.net.

Last Updated: October 28, 2009 21:19 EDT