Airbus Announces Plans to Build an Assembly Plant in Mobile, Alabama

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.