Airbus foresees lower costs with A320 plant in Alabama

MOBILE, Ala. — In the battle to dominate the global aviation industry, European aerospace giant Airbus announced on Monday its first assembly plant in the United States, a symbolic and significant step in the competition with archrival Boeing Co.

Airbus will use the site to assemble A320 single-aisle aircraft, the Toulouse, France-based company said at an event here. Those planes compete with Boeing Co.’s 737, which is built in Renton.

Construction of the venue in Mobile will start by the middle of next year, with deliveries from 2016.

The facility will give Airbus greater proximity to U.S. customers as it seeks to gain a larger slice of the single-aisle market, the most popular category in civil aviation. The A320 is flown by Delta Air Lines, US Airways and others in the U.S. The 150-seat plane is generally used on short- and medium-haul flights, and Airbus makes more of them than any of its other planes.

A final assembly line in Alabama also will let Airbus cut labor costs and help match dollar revenues with dollar costs, and hand the company more marketing clout to appeal to national carriers.

Airbus said the Alabama plant is expected to cost $600 million to build and will employ 1,000 people when it reaches full production.

“We are going to create great jobs and generate growth right here,” Airbus CEO Fabrice Bregier said at the convention center in Mobile, where many of the 2,000 people in attendance waved American flags as music played in the background.

“We know in aerospace, when we create one job, there are about four related jobs so we could bring as many as 5,000,” Bregier said at a later news conference. “The management to the blue collars will be 100 percent American.”

Said Airbus Chief Operating Officer John Leahy, in an interview from Airbus’s headquarters in Toulouse: “Why did Mercedes go to the U.S. to build? Why did BMW, why did Toyota? You become more American. We’re spending $12 billion a year over there, 40 percent of our procurement comes out of the U.S. It was a natural next step to do a final assembly line.” Leahy is a U.S. citizen who has headed Airbus’s sales for two decades.

Boeing already has a big presence in Alabama, employing 2,700 people in defense and rocket operations near Huntsville.

Airbus planned to build aerial-refueling tankers for the U.S. Air Force in Alabama, but its parent company, the European Aeronautic Defense and Space Co., lost the contract to Boeing in 2011. Those tankers now will be built in Everett. The companies also have had a long-running international trade dispute over commercial airplanes. Each has been critical of subsidies received by the other.

Airbus, jointly run by French and German management and with plants in several European countries, wants to expand in China and India as well as the United States.

EADS shares have being climbing on European markets since news of the Alabama deal surfaced last week.

Building jets in Alabama will 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.

The southern region of the United States is traditionally unfriendly to unions, which will likely mean lower labor costs compared with the company’s other factories in France and Germany.

“Clearly we selected a competitive environment and we are businessmen so we don’t go to the worst place,” Bregier said.

Airbus unions have expressed concern about European jobs lost to the U.S., a particularly thorny issue in France as new President Francois Hollande tries to re-invigorate manufacturing at home.

Other big manufacturers have found homes in the South. Boeing has a 787 plant in North Charleston, S.C., and Alabama is home to plants owned by Mercedes-Benz, Honda, Hyundai and Toyota.

“It is truly a great day in the history of Alabama,” Gov. Robert Bently said. “It is the result of a lot of hard work and cooperation. This day will shape the future of the region for years to come.”

The dean of the business school at the University of South Alabama, Carl Moore, said attracting a company like Airbus could have a transforming effect on Alabama like Mercedes-Benz had when it picked Alabama for its first American assembly plant in 1993.

“It’s a prestige name that’s internationally known,” said Moore.

Today, Airbus has only a 20 percent share of the U.S. market for single-aisle planes, while the global split with Boeing is about equal in that category.

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 widebody market given the success of its 777 and 787 models, until Airbus gets its A350-1000 plane into service, Leahy said. The plane is scheduled to enter service in 2017.

A major portion of the supply chain for Airbus planes is already in the United States, including parts from companies including Spirit AeroSystems, United Technologies, Honeywell International and General Electric.

Mobile is already home to several aerospace companies, including ST Aerospace Mobile, Goodrich Aerospace and Star Aviation, and much of the business is based at the 1,650-acre Brookley Aeroplex, where the new plant will be based. The aeroplex was an Air Force base until its closure in 1969.

The Mobile plant will produce 40 to 50 planes annually by 2018, Airbus said. Currently, Airbus is building 40 planes a month between its assembly plants in Toulouse, Hamburg and Tianjin, in China, and is ramping up production rates to 42 by year-end. Leahy said the Mobile plant could help Airbus move to a rate of more than 50 single-aisle planes eventually.

Airbus Chief Executive Fabrice Bregier told reporters at a press conference in Mobile that for the time being there is no specific plan to move to a rate beyond 42 planes a month.

While Airbus looks to boost production of its A320, Boeing is ramping up production of its 737. Both companies are putting new, more fuel-efficient engines on the planes, hoping to extend their appeal as airlines try to cut fuel costs. Airbus made its A320neo (“new engine option”) decision earlier than Boeing did for the 737 MAX and got a big jump on orders.

The U.S. is a growing market for Airbus. American Airlines ordered 260 A320s last year, and US Airways is buying them, as well. However, Delta went with Boeing 737s in a 100-jet order in August.

Airbus already has a facility in Mobile that employs about 230 people designing and installing interior items such as seats and cabin equipment for its big planes.

The Airbus announcement comes as Alabama struggles to recover from the recession. Unemployment has dropped from 10.0 percent in July 2011 to 7.4 percent in May, but part of that drop came from people leaving the work force rather than finding jobs.

Alabama plans to open a new university complex next year “to feed a lot of jobs” to Airbus, Sen. Richard Shelby, R-Ala., told Airbus executives in Mobile. “We’re going to do everything to create the environment to make you do well here.”

The Associated Press and Bloomberg News contributed to this report.

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