June 28 (Bloomberg) -- Airbus SAS is poised to announce plans for a commercial-jet assembly line in Alabama, its first in the U.S., to meet demand as North American airlines renew their fleets, two people with knowledge of the plan said.
The proposal may be unveiled at the Farnborough air show, which starts July 9 in the U.K., or even beforehand, said the people, who asked not to be identified because the plan is confidential. The city of Mobile is the preferred site, though Toulouse, France-based Airbus has made no formal decision whether to go ahead with the line, one of the people said.
North America is the biggest market for short- to medium-haul aircraft such as Airbus’s A320, which competes with Boeing Co.’s best-selling 737. With North American carriers needing to replace thousands of planes in coming years, Airbus would be able to tell buyers that its models are put together locally.
“Airbus is trying to do the smart thing, which is to bring production to places that are closer to customers,” said Adam Pilarski, an economist at consultant Avitas in Chantilly, Virginia. “Another advantage is that Americans in general are lower paid, so you can get cheap labor in the U.S.”
A big portion of the supply chain for Airbus planes is already in the U.S., including parts from companies including Spirit AeroSystems Holdings Inc., United Technologies Corp., Honeywell International Inc. and General Electric Co. An assembly line with planes flying off directly to local customers would give Airbus a visible presence and break Boeing’s monopoly of building large civil planes in North America.
China Assembly Line
A final assembly line is where the biggest portions of the plane, including the fuselage, the wing, the tail section, and engines, get assembled to create a plane. Airbus already has one such non-European line, for single aisle planes, in Tianjin, China.
The line carries out 5 percent of the total work in building a plane. The biggest and most technologically demanding parts of Airbus planes 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.
Stefan Schaffrath, an Airbus spokesman, said the company has “nothing to announce at this point.” Chief Executive Officer Fabrice Bregier was quoted yesterday by Spanish newspaper Economista as saying that the Alabama plant is one of “many ideas” being pursued by the company, a unit of European Aeronautic Defence & Space Co.
Win Hallett, president of the Mobile Area Chamber of Commerce, declined to comment yesterday about Airbus’s plans, and calls to Mobile Mayor Samuel Jones weren’t returned.
Mobile City Council member Fred Richardson said on June 21 that the city planned a major economic announcement within two weeks, according to a story that day on the website of WPMI-TV. That would mean an announcement could come before the air show.
EADS rose were little changed at 26.56 euros as of midday in Paris. The shares have gained almost 10 percent this year.
Airbus is now building 40 single-aisle planes a month and will increase that to 42 by yearend. It had considered moving to a rate of 44 though officials recently said supplier difficulties in keeping pace led it to hold off for now.
The planemaker since last year has been marketing single aisle planes with new engines, known as the A320neo, which will begin production from 2017. A plant in Mobile could assemble either traditional A320s or A320neos or both, since the aircraft are the same except for engines.
Lower Labor Costs
Among the advantages of assembling planes in the U.S. would be labor costs, currency advantages, and also political capital, said analysts.
“It would be good politically, as in China, as it gives local identity to the product,” said Nick Cunningham, managing partner of Agency Partners in London. “Final assembly is best for that as politicians can be photographed next to a whole plane, even if there is less value in the final assembly, typically 5 percent of value, than there could be in some aerostructures sub-assemblies” already coming from the U.S.
Almost all commercial aircraft worldwide are sold in U.S. dollars. When the dollar is low relative to the euro -- the currency in which Airbus has most of its costs -- that penalizes Airbus in re-patriating dollar revenues.
Squeezing Out Costs
Airbus in recent years has sought to squeeze out costs so it can compete with rival Boeing even with the euro at $1.35. One reliable way to hedge against currency swings is having more work done in U.S. dollar zone countries.
An Alabama plant for Airbus would expand the state’s base of foreign manufacturers, a group that includes Daimler AG and Hyundai Motor Co. Daimler makes Mercedes-Benz M-, R- and GL-Class sport-utility vehicles in Tuscaloosa, while Hyundai builds Sonata sedans and Elantra compact cars in Montgomery.
Airbus chose Mobile in 2005 to be home to an assembly plant for U.S. Air Force refueling planes, and said it might also build jet freighters there as well. Those plans were dashed when Airbus lost the tanker contract to Boeing, though Airbus may bid again when a different, larger class of tankers is replaced.
The planemaker has three final assembly lines for civil single-aisle aircraft, in Hamburg, Toulouse, and Tianjin. Airbus assembles its wide-body A330 and A380 superjumbo in Toulouse and recently began building the first A350 twin-aisle jet at a new plant in the French city. That plane is scheduled to begin service by mid-2014.
An Airbus engineering center opened in Alabama in 2007, ahead of the two rounds of bidding for the tanker contract, and that center has continued to grow.
Building jets in Alabama would allow Airbus to take advantage of 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.
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