LOS ANGELES — Boeing could decide to pursue out-of-state manufacturing locations after its union workers in Washington State rejected a contract extension, which would be a credit negative for the state and the Puget Sound region, according to a report from Moody's Investors Service.

The aircraft manufacturing company's machinists rejected the offer on Nov. 13, increasing the likelihood of a new location for production of Boeing's new 777X jetliners.

"The regional economy would lose a potential engine of growth and the local and state government would forgo potential tax revenues," Moody's analyst Andrea Unsworth said in the report, released Friday. "Boeing currently employs approximately 84,000 people in the Puget Sound region."

The rejected proposal would have extended to 2024 a November 2011 labor agreement that is set to expire in 2016. As part of the 2011 agreement, the union withdrew a complaint lodged with the National Labor Relations Board over Boeing's decision to locate a production line in South Carolina.

The union's main objection to the proposal is that it would significantly alter the current pay and benefits structure supported by the union. Boeing would stop contributing to employees' defined benefit pension plan in 2016, and pensions would be frozen for current employees and eliminated for new hires.

The pension would be replaced by a company-funded, defined contribution retirement savings account.

Boeing is the largest private employer in the state, accounting for 2.4% of the state's labor force, according to Moody's. Extending the expiration date of the agreement would have ensured that thousands of aerospace manufacturing jobs stay in the reason.

"The jobs have been crucial to the region's vibrant labor market and its rebound from the economic downturn," Unsworth said. "The company and its suppliers, employees, and other related companies generated approximately $76 billion in economic activity for the state in 2012."

Since the state does not levy an income tax, it relies heavily on sales tax and business and occupation tax. In 2012, Boeing and other supporting companies paid the state a total of $476 million in various taxes.

In an attempt to keep company production in the region, Gov. Jay Inslee approved a large tax break for Boeing earlier this month. The $8.7 billion deal is the largest corporate tax break any state has ever bestowed a company, Moody's said.

The agency rates Washington at Aa1 with a stable outlook.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.