Call this the latest chapter in the saga that will not end.
Airbus, the European aircraft maker that lost out in a bitterly contested Air Force contract to build a new generation of refueling tankers, has announced plans to build a $600 million assembly plant in Mobile, Alabama. It’s a facility the company had always intended to build—if it won the tanker contract. But when Airbus, the largest plane builder in Europe, lost to rival Boeing—the largest plane builder in the United States—last year, the plan was in jeopardy. State and local officials, as well as the Alabama congressional delegation, launched an all-hands effort to persuade Airbus and its parent company, European Aeronautic Defense and Space Company, to build in Mobile anyway. They dubbed it Project Hope.
This week, Project Hope paid dividends. In a ceremony on Monday that looked more like a campaign rally than a corporate press conference, Airbus president and CEO Fabrice Brégier stood in front a red, white, and blue balloon arch amid video images of fluttering American flags and declared Mobile “an American town that we are proud to call home.”
In fact, Airbus’s “home” is Toulouse, France, where the company has its global headquarters. Details, details. Airbus has plants and offices all around the world, and the important thing is now it has an American foothold in its ongoing, epic struggle to unseat Boeing as the dominant aircraft manufacturer in the United States.
The decision is something of a gamble for Airbus. The tanker contract is potentially worth $40 billion, which would have been a strong inducement to build an expensive new assembly plant. But Brégier acknowledged that coming to America isn’t just about money.
“It was first and foremost a strategic move,” he said. “We needed to be visible in the United States.”
The $158 million that the state and local governments kicked in with tax breaks and incentives probably made the decision easier. As did the fact that it’s basically impossible to form a union in Alabama, which could help Airbus keep its labor costs down.
That said, the fact that Airbus/EADS was a European company was always a political strike against it in the tanker war. It gave easy ammunition to members of Congress in Boeing’s camp. For Airbus/EADS, winning the contract was supposed to give the company a de facto seal of approval from the United States government that was arguably of greater long-term value than even the multibillion-dollar contract itself.
State and local officials in Alabama have never had any qualms about Airbus’s European pedigree. “Right after the announcement of the tanker competition, we immediately started talking to EADS/Airbus about opportunities to build airplanes in Mobile,” Mayor Sam Jones told The Washingtonian. He said the package of economic and financial incentives was actually put in place during the competition, and that it’s essentially the same amount of money now that was on the table then.
Politics and corporate rivalry infused nearly every aspect in the long tanker affair, which we chronicled in depth two years ago. But in the end, EADS and Airbus didn’t lose because of a light footprint on US soil. The Air Force, which bought the tankers, ensured that the competition would be a price shootout. And they did that specifically because the contract had been marred by cronyism, political controversy, and procurement shenanigans. In the end, the Air Force wanted to buy the planes and move on.
Clearly, Airbus has other ideas. With the Mobile assembly plant, it gets that strategic foothold it has long wanted against Boeing. (The company first started looking for a place to build the plant in 2005.) But the facility also may put Airbus/EADS in a better position to win the next round of the tanker war. Yes, there will be another. Sorry.
In theory, the Air Force will hold a competition for a second round of new tankers sometime between 2015 and 2020, and then a third round five to ten years later. Boeing, as the incumbent contractor, will presumably have a built-in advantage. But Airbus’s timeline for the new assembly plant happens to dovetail nicely with that of the tanker procurements. Construction will begin in summer 2013, and aircraft assembly will start in—surprise!—2015, with first deliveries from the plant beginning the following year.
Airbus has reason to be hopeful. From the Air Force’s perspective, there’s some logic in not buying all its tankers from one manufacturer. Redundancy offers some amount of protection against backlogs, corporate stumbles, or aircraft failures. And years from now, when Airbus is able to assemble the tankers here in the United States—and in an essentially union-free state—it might be able to beat Boeing on price, something it couldn’t do in round one.
“The decision to build an Airbus manufacturing center in Mobile is a significant addition to our existing industrial footprint in the US,” says Guy Hicks, a senior vice president with EADS. “We currently build military and commercial helicopters in Mississippi and Texas, and shortly will manufacture large aircraft in Alabama. All three investments strengthen our competitive position for future [Defense Department] and commercial opportunities.”
Richard Aboulafia of the Teal Group, an analyst who has closely followed the tanker battle over the years, says both Airbus and Boeing have had success selling on each other’s turf, owing to free trade and lack of import barriers. “Airlines care about making money, not about where their planes are made,” he says. He explains that in moving to Alabama, Airbus is taking advantage of that non-union labor, just as Boeing did last year when it opened an assembly plant in South Carolina. Aboulafia says he suspects labor issues are what drove Airbus’ decision, more so than any long-term strategic plays or the political need for a US presence.
Regardless of who wins the tanker war, or the larger commercial struggle, the new plant is a big win for the state of Alabama.
“This project will create 1,000 stable, well-paying jobs the people of this area need and deserve,” said Alabama governor Robert Bentley. Alabama’s senators, Richard Shelby and Jeff Sessions, praised the decision, as did Mobile’s mayor and county commission president, Connie Hudson, who called the announcement “a real game changer for Mobile County and the whole region.”
So brace yourself for the next round of tanker battle. And if you think you might live to see the end of it, consider this: Today’s tanker pilots are flying airplanes first flown by their grandfathers. By the time the entire fleet is replaced, today’s pilots will be 80 years old. The pilots who will fly the newest planes haven’t been born yet.