UPDATE 2-Boeing picks S.Carolina for 2nd 787 assembly line

* Second site will allow Boeing to expand production
* Facility will have capability to support 787 tests
* Move is a blow to Seattle-area economy (Adds S.C. incentives, background, previous WASHINGTON)

SEATTLE, Oct 28 (Reuters) - Boeing Co (BA.N) selected South Carolina as the site of its second 787 final assembly plant on Wednesday as it plans to increase production of its newest plane away from its traditional Seattle-area base.The first Boeing 787 Dreamliner sits on the assembly line at the company's Everett plant in Washington in this May 19, 2008 file photo. Pressure is mounting on Boeing , and its credibility may hang in the balance, as the aerospace giant races to meet a self-imposed deadline to fly its revolutionary new 787 Dreamliner by the end of 2009.
The move, which has been expected for some time, is a blow for the Puget Sound economy and a rebuff for the machinists' union in the region, which has struck against Boeing four times in the past 20 years.

Boeing is still struggling to get the first 787 into the air, almost a year and a half after the first one was supposed to be delivered, due to a series of production setbacks and a strike last year.

The company now expects the first test flight of the plane, dubbed the "Dreamliner," by the end of this year, and first delivery in the fourth quarter of 2010.

In addition to serving as a final assembly site, the facility in North Charleston, S.C. will be able to handle testing and delivery of the Dreamliner, Boeing said.

Boeing already owns a plant in Charleston that makes parts of the 787 fuselage, which it took over from its supplier Vought earlier this year.

Close by, a joint venture with Alenia, a unit of Italian aerospace firm Finmeccanica (SIFI.MI), puts together 787 fuselage sections and sends them to the main 787 assembly site at Everett, Washington to be assembled into planes.

South Carolina's The State newspaper reported that lawmakers approved at least $170 million in incentives to win the Boeing plant.

A Boeing spokeswoman declined comment on incentives or guaranteed levels of investment. She said only that Boeing planned to create "thousands" of new jobs in South Carolina.

Meanwhile, Boeing said the Puget Sound area would remain the headquarters of its commercial planes where they will continue to be designed and produced.

The major employer in the region since William E. Boeing set up his first airplane factory in Seattle in 1910, Boeing has had a rough time with the local workforce.

The International Association of Machinists and Aerospace Workers (IAM), which represents more than 20,000 Boeing workers, has called four major strikes in the last two decades, costing Boeing about 200 days of lost production.

The plant in South Carolina is not likely to be so disruptive. In September, machinists at Boeing's facility in Charleston voted against representation by the IAM. (Reporting by John Crawley and Bill Rigby; editing by Andre Grenon, Leslie Gevirtz)