Temperatures are set to hit a gentle high of 60 degrees Sunday in Everett, Washington -- and that's not the only way things are heating up in Boeing's (BA -2.20%) hometown.

Boeing's new 777X airliner was supposed to lift the economy in Washington state. But lately, it's been raising hackles instead. Photo source: Boeing.

A little more than a year ago, if you recall, Boeing won a historic victory. Members of the International Association of Machinists and Aerospace Workers voted 51% to 49% to approve a contract guaranteed to boost Boeing's profits for years to come. In exchange for Boeing's promise to build its newest airliner, the 777X, in Everett, IAM agreed to give up a generous pension plan, accept limited contributions from Boeing to employee 401(k) plans instead -- and settle for meager half-a-percentage-point annual salary increases for nearly a decade.

It's hard to imagine a more clear-cut victory for Boeing -- but that wasn't all Boeing got. In addition to the union concessions, Boeing convinced Washington state legislators to grant it nearly $8.7 billion in tax breaks during 27 years to ensure the 777X would be built in the state.

And it's here that our story begins.

It depends on what the meaning of "is" is...
No less an authority than The Washington Post has called Boeing's deal with Washington state "the single largest tax break any state has ever given to a single company." And yet, despite the state's generosity, critics claim Boeing isn't living up to its side of the bargain.

Late last year, Boeing announced plans to transfer about 2,000 high-paying engineering jobs in its defense division from Washington to other Boeing facilities in Oklahoma City and St. Louis. Technically, of course, the 777X isn't a "defense" project, so to that extent that move was kosher -- if not exactly in the spirit of the tax deal.

What really smarts, though, is that, in addition to the defense transfers, Boeing also announced plans to transfer 700 jobs to St. Louis. And these are jobs on the 777X, building the plane's wings and tail.

"We've been had"
That's how Washington state senator Adam Kline describes to the Post Washingtonians' reaction to Boeing's exit, stage Midwest. From Boeing's perspective, it's honoring the letter of its agreement by continuing to do final assembly of the 777X in Everett. Boeing says it's "committed to the Puget Sound region and its ties to the larger community," and denies it's actually moving any 777X jobs out of state. They're simply doing new hiring elsewhere.

Then again, Boeing has an incentive to spin this story this way. This is because, in passing the tax breaks last year, Washington inserted a claw-back provision in its contract that permits it to cancel some of the tax breaks if Boeing is found to have moved 777X assembly out of state, or built another 777X assembly line elsewhere.

So far, Boeing hasn't done either of those things. But tallying up the numbers, local media report that Boeing has shipped "more than 3,000 jobs out of Washington since November 2013." And at least some existing workers say they are, in fact, being laid off from Boeing jobs in Washington, so that their work can be done by presumably lower-paid contractors in other states.

A convenient excuse
How will all this play out? It's hard to say, especially given that Boeing is taking pains to honor at least the letter of its agreement -- if not the spirit. And yet, at the same time as this labor dispute brews, a new threat has arisen in the form of a World Trade Organization investigation, sponsored by European backers of Boeing rival Airbus, which alleges Washington's tax breaks constitute an illegal subsidy.

In and of itself, that's not a huge problem. A similar WTO investigation five years ago that found Boeing partly at fault for accepting unfair government subsidies has had basically no effect on Boeing's business. But it's at least possible that Washington state could use the WTO proceedings as an excuse to revoke Boeing's tax breaks -- even in the absence of a clear-cut violation by Boeing.

What would that mean for investors?

What it means for investors
Well, it wouldn't be good. In the very worst -- but very unlikely -- case of Boeing losing all the tax breaks Washington has bestowed upon it, that's $8.7 billion in profits Boeing would not get to keep, spread over 27 years, or about $322.2 million a year. On one hand, that's certainly a survivable blow for the aerospace giant. (It's about three weeks' profit for Boeing, according to S&P Capital IQ figures.)

On the other hand, $322 million is also about 6% of Boeing's annual profit. If you assume this money has already been baked into analysts' earnings estimates for Boeing, then its vanishing would cut Boeing's projected 12.7% long-term earnings growth rate roughly in half. That is something that investors would certainly take note of, and not in a good way.

As I said, though, this is all both prospective and unlikely to happen. To date, Washington state has not shown any inclination to revoke Boeing's tax breaks. Nor have past EU complaints done much to slow Boeing down.

At this point, I think investors need to be aware of the possibility that the tax breaks might go away. Just in case. Because forewarned is forearmed.