Discussion Question: Strategy and Location
United Airlines announced its competition to select a town for a new billion –dollar aircraft-repair base. The bidding for the prize of 7,500 jobs paying at least $25 per hour was fast and furious, with Orlando offering $154 million in incentives and Denver more than twice that amount. Kentucky’s governor angrily rescinded Louisville’s offer of $300 million, likening the bidding to “squeezing every drop of blood out of a turnip.”
When United finally selected, from among the 93 cities bidding on the base, the winner was Indianapolis and its $310 million offer of taxpayer’s money. But in 2003, with United near bankruptcy, and having fulfilled is legal obligation, the company walked away from the massive center. This left the city and state governments out all that money, with no new tenant in sight. The city now even owns the tools, neatly arranged in each of the 12 elaborately equipped hangar bays. United outsourced its maintenance to mechanics and a Southern firm, which pays a third of what United gave out in salary and benefits in Indianapolis.
What are the ethical, legal and economic implications of such location bidding wars? Who pays for such giveaways? Are local citizens allowed to vote on offers made by their cities, counties, or state? Should there be limits on these incentives?
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