Airbus to Build Planes in Alabama, Challenging Boeing

Photographer: Dhiraj Singh/Bloomberg

A model of an Airbus SAS A350-900 aircraft at the India Aviation 2012 conference at Begumpet Airport in Hyderabad. Close

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Photographer: Dhiraj Singh/Bloomberg

A model of an Airbus SAS A350-900 aircraft at the India Aviation 2012 conference at Begumpet Airport in Hyderabad.

Airbus SAS plans to assemble single- aisle aircraft in the U.S. for the first time, encroaching on Boeing Co. (BA)’s home market to tap demand from North American airlines seeking to renew their fleets.

Airbus has chosen Mobile, Alabama, as the site to build A320 single-aisle aircraft that compete with Boeing’s 737, the Toulouse, France-based company said today. Construction will begin by the middle of next year, with deliveries starting in 2016 and output of 40 to 50 planes annually by 2018.

The facility will move Airbus closer to U.S. customers as it tries to widen its lead over Boeing in single-aisle planes, the biggest segment of the jetliner industry. Airbus so far has captured only a fifth of the U.S. market for single-aisle planes, while the global split with Boeing is about equal.

“We’re spending $12 billion a year over there, 40 percent of our procurement comes out of the U.S.” Airbus Chief Operating Officer John Leahy said in a phone interview. “It was a natural next step to do a final assembly line.”

Airbus is building 40 planes a month between its assembly plants in Toulouse, Hamburg and Tianjin, in China, and is ramping up rates to 42 by year-end. There is no effort to move beyond that target for now, Chief Executive Officer Fabrice Bregier told reporters at a press conference in Mobile.

Doubling in Size

Airbus has the option to double the size of its complex in Alabama eventually and add support services or passenger-to- freighter conversions later, said Christian Scherer, Airbus’s head of future programs and strategy.

“Airbus in Alabama is a big headache” for Boeing, said Michel Merluzeau, a consultant with G2 Solutions near Seattle. “It’s a game-changing event. There’s not much Boeing can do other than control costs aggressively in order to be able to compete, and that will be challenging.”

Aircraft are paid for globally in dollars, and moving some production to the U.S. will help Airbus smooth out currency swings. The company may also be eligible for export financing from the U.S. Export-Import Bank, though spokesman Phil Cogan said the bank needs more information before making a decision.

The A320 family of aircraft is Airbus’s most popular program and the foundation of the company’s success. US Airways Captain Chesley B. “Sully” Sullenberger III flew an Airbus A320 in his “miracle” Hudson River landing in 2009.

Industry Lead

Airbus leapfrogged Boeing as industry leader in 2003, a position the company has maintained ever since. The A320 became popular with airlines for its advanced avionics, and Airbus is building on that success with a more fuel-efficient variant, the A320neo, which has become the fastest-selling jet in aviation history since it was introduced at the end of 2010.

Leahy said Airbus’s goal is to have 60 percent of the world market for single-aisle planes within the next few years, with Boeing having 40 percent. Boeing will probably retain 60 percent of the wide-body market given the success of its 777 and 787 models, until Airbus gets its A350-1000 into service, Leahy said. That plane is scheduled to enter service in 2017.

A major portion of the supply chain for Airbus jets is already in the U.S., including parts from companies including Spirit AeroSystems Holdings Inc. (SPR), United Technologies Corp. (UTX), Honeywell International Inc. (HON) and General Electric Co. (GE)

‘Direct Investment’

“With this move, Airbus has highlighted the importance of foreign direct investment in creating jobs in the United States,” said Jeff Immelt, the GE CEO and chairman of President Barack Obama’s jobs council.

An assembly line with planes going directly to local customers would let Airbus, a unit of European Aeronautic Defence & Space Co. (EAD), break Boeing’s monopoly of building large civil jets in North America. EADS gained as much as 63 cents, or 2.3 percent, to 28.57 euros in Paris, the fourth consecutive gain and the longest rising streak in 3 1/2 months.

A final assembly line is where the biggest portions of the plane, including the fuselage, the wing, the tail section, and engines, get assembled. Airbus already has one such non-European line for single-aisle planes, in Tianjin.

The line carries out 5 percent of the total work in building an aircraft. The biggest and most technologically demanding parts of Airbus jets are designed and constructed in Europe. The wings are built in the U.K., cockpits in France, the fuselage and parts of the wing in Germany, and the tail section in Spain. Engines are provided by companies including CFM International, a venture of GE and France’s Safran SA. (SAF)

Alabama Site

Airbus already has a presence in Alabama from its failed attempt to win an aerial refueling tanker competition from the the U.S. Air Force. Building jets in Alabama will allow Airbus to take advantage of the state’s so-called right-to-work laws, which bar union membership as a requirement of employment.

That can hold down employers’ wage and benefit costs. Boeing chose nearby South Carolina, another right-to-work state, for a 787 Dreamliner plant in 2009, its first commercial-jet factory outside the Seattle-area manufacturing hub where the company was founded in 1916.

Alabama plans to open a new university complex next year to funnel jobs to Airbus, Republican Senator Richard Shelby told Airbus executives in Mobile.

“We’re going to do everything to create the environment to make you do well here,” he said.

To contact the reporters on this story: Andrea Rothman in Toulouse at aerothman@bloomberg.net; Susanna Ray in Seattle at sray7@bloomberg.net

To contact the editors responsible for this story: Benedikt Kammel at bkammel@bloomberg.net; Ed Dufner at edufner@bloomberg.net

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