How Airbus Plans To Cash In On Its Alabama Gamble
The European airplane giant has just opened its first U.S. assembly plant in Mobile, Alabama. Airbus is banking on lower labor costs and an aging American aircraft fleet.
PARIS — Was it wise to invest $600 million to build an A320 assembly plant just to be able to win a few more orders in what used to be the exclusive territory of its chief rival, Boeing?
Fabrice Brégier, the CEO of Airbus, has no doubt. Sure, there was the attraction of both lower employee benefit costs and lower tax rates in Alabama than in Europe, as well as the advantages to increased production in dollars to guard against currency fluctuations.
But most of all, it's the unique prospects of the American market that convinced Airbus to set up shop in Mobile, Alabama. "The social costs didn't come into consideration," the Airbus CEO says. "Otherwise, we would have gone to Mexico."
Even if air traffic increases by only 2% in North America, the region will still remain the world's most important aeronautics market for a long time to come. According to the latest study by Airbus, U.S. companies, which have the oldest fleet in the world after those in Africa, will need 5,880 new aircrafts over the next 20 years, including 4,730 single aisle aircraft, for a total value of $751 billion.
Yet, still today, Airbus' market share in North America is only 20%, against 50% globally. If, as the European aircraft manufacturer hopes, making planes in the U.S. allows it to gain so much as 10 market share points over 20 years, the $600 million invested in Mobile will easily pay for itself.
The outstanding question remains: will the "Made in America" feature of the Airbus output make the difference? Airbus notes that since the announcement of the project in 2012, it has won bids on 40% of American orders.
Still, nothing proves that these results are linked to the Alabama project. Delta Airlines, the geographically-closest to Alabama, did indeed order 30 A321s from Airbus, but also about 100 B737s from Boeing. United also preferred the Boeing 737. As for Airbus' biggest order — 260 A320s from American Airlines —it came before the Mobile announcement.
Lunch still included
But what seems certain is the fact that making planes in the U.S., under the same conditions as its rival Boeing, can't do any harm. These basic economics also appear clear to Boeing, which has just announced that it will open its first industrial site in China, to produce the interior fittings of its 737.
Despite the additional price of transporting parts, the Mobile plant, will eventually be as competitive as the large plant in Toulouse, France, which CEO Brégier says comes thanks most of all to the difference in staff costs.
In the event of a drop off in activity, Airbus will have an adjustment variable that offers endlessly fewer constraints than those faced in European industrial policy. Despite efforts by IAM, the major industrial union, to establish itself there, there are still no unions in Mobile and labor protections are still far fewer. The employer doesn't even have to pay for employees' lunch breaks.
Airbus hasn't gone that far, but it is clear that the aircraft manufacturer will be far less reluctant to hire new workers in Alabama than it would be in France or Germany.
