Airbus investments in U.S. take off

LOS ANGELES — For decades, workers at McStarlite Co. in Los Angeles pounded billboard-sized sheets of metal into doughnut-shaped lipskins that cover the edges of Boeing Co. jet engines.But about 10 years ago, Boeing switched suppliers after McStarlite refused to cut prices to levels that the aerospace giant wanted. To stay afloat, McStarlite turned to Boeing’s archrival Airbus.

“I felt betrayed when Boeing left,” said Simon Menzies, general manager at McStarlite. “But then Airbus came along, and we’ve been doing business together ever since.”

Airbus now provides McStarlite with about 85 percent of its overall business. Airbus recently awarded the business an additional $10 million contract to manufacture lipskins for the upcoming 300-passenger Airbus A350 XWB. McStarlite expects to add as many as 40 jobs, beginning in late 2010. The business currently employs about 120 people.

“It’s a tremendous boost to our business,” Menzies said. “This new contract will provide us with work for the coming six years.”

Airbus’ contract with McStarlite is a snapshot of the European aircraft maker’s increased investment in the U.S. In the last five years, the Toulouse, France-based company has doubled its spending in the U.S. to $10 billion.

Spending doubles

From 2007 to 2008, Airbus said its spending in California alone has doubled to about $1 billion.

“Airbus has proven to be a strong business partner with more than 100 suppliers throughout California,” said Los Angeles Mayor Antonio Villaraigosa, during the announcement on Nov.17, which took place in front of City Hall. “By doubling its direct economic investment, Airbus’ commitment to the region is commendable and helps ensure that the aerospace industry remains a strong economic engine here in Southern California where it began.”

Airbus has stepped up publicizing its investments in the U.S. as it is vying for one of Pentagon’s largest contracts in decades — and perhaps one of the most intensely sought after. The U.S. Air Force recently launched its third attempt to award a $35 billion contract for 179 aerial refueling tankers. Airbus is competing for the contract against Boeing.

“If you can remind elected officials of your commitment to their area, it’s important,” said Allan McArtor, chairman of Airbus Americas Inc. “We often get demonized. People sometimes think were picking the pockets of the U.S. aerospace industry. It’s not true.”

Critics have contended that Airbus should not get the contract because the company could transfer jobs that were created with U.S. taxpayer money overseas.

Amid these criticisms, McArtor said it was important for Airbus to show that many of its suppliers are in the U.S.

Boeing’s playbook

Analysts said Airbus is taking a page out of Boeing’s playbook. By contracting work with suppliers throughout the U.S., Airbus can build a political constituency with congressional members whose states and districts benefit from the manufacturing jobs. They could sway votes when large defense contracts are under debate.

Indeed. Airbus has been touting how it is moving into California as Boeing has been shrinking its local supplier base for commercial planes.

In 2005, Boeing had more than 7,500 suppliers in the state. By 2008, that number had dropped below 6,000.

“Boeing has been slowly pulling out of the state for a few years now,” said Jack Kyser, founding economist of the Los Angeles County Economic Development Corp. “It’s a typical story of the aerospace industry in California. Aerospace companies have found it to be politically expedient to have a presence all around the United States.”

To be sure, Boeing suppliers in California still outnumber Airbus, which has a bit more than 100. And Boeing spends $6.3 billion on supplier purchases — six times more than Airbus.

Boeing also has a large footprint in the defense sector with a factory that produces C-17 cargo planes in Long Beach. And it has a satellite operation in nearby El Segundo.

But California’s Congressional delegation hasn’t been organized as a voting bloc on defense contracts for about 20 years, said Jon B. Kutler, president of Admiralty Partners, a private aerospace investment enterprise in Los Angeles. This could have an impact on Boeing’s decision to move from California into other states, he said.

“California has been shockingly bad compared to other states’ delegations,” Kutler said.

Airbus may be building up political support to secure the tanker contract, but right now it is a great opportunity for the company to invest in the U.S., said aviation analyst Richard Aboulafia of Teal Group Corp.

The weak dollar

With a strong euro and a weak dollar, Airbus is getting a lot of bang for their euro in the U.S., Aboulafia said.

“If the dollar was at parity with the euro, it wouldn’t make as much sense to invest,” he said. “But looking at where the currency is now, investment becomes a necessity.”

If Airbus is able to take home the tanker contract, Aboulafia said the company probably will increase its U.S. presence. Los Angeles-based Northrop Grumman Corp., Airbus’ partner in the tanker contest, has said the contract award would have created more than 7,500 jobs for California’s struggling aerospace industry, even though the planes would be assembled in Alabama.

With a U.S. plant, Airbus has signaled that there probably will be more U.S. suppliers added in order to streamline the manufacturing process — which could help Airbus make more friends on Capitol Hill.

“Anything that increases manufacturing work in America is music to politicians’ ears,” Aboulafia said. “In the defense business, it’s important to make friends and placate your enemies.”