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May 29, 2024
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With the formal announcement that Airbus will open a final assembly plant in Mobile, it will soon be assembling narrow-body planes on three continents, adding capacity that will enable the company to out-produce Boeing and cement its market leadership position.

Apart from the obvious growth in capacity, this move fundamentally changes the competitive dynamic between Boeing and Airbus in several ways:

  1. Airbus will be assembling aircraft in the US, and with already more than 50% US content between engines and components, final assembly will certainly make this a US aircraft by content.  Will we soon see EXIM bank financing for an Airbus Americas foreign sale to Central or Latin American customers?
  2. Airlines in the US who worry about the perception of buying US can now safely y Airbus aircraft without a concern about exporting jobs from the US, not that this was much of a factor.
  3. Airbus will be positioned as a domestic manufacturer of aircraft in the US, and will be much better positioned politically for the next tanker battle, which it initially won before political and “buy US” concerns caused an overturn in Boeing’s favor.  Boeing ended up “buying the business” and may find it difficult to deliver with appropriate profit margins.
  4. Airbus will offset currency risks between the Euro and US dollar by building aircraft in US dollars locally.
  5. Airbus is closer to many suppliers in the US, with a deep water port in Mobile and airfield for other components, and can take deliveries in Mobile from many suppliers and utilize its own logistics to move components to Toulouse, Hamburg and Tianjin facilities.
  6. Airbus reduces manufacturing risk by having three final assembly facilities on three continents, which in the event of a natural disaster would not put a single facility company out of business.
  7. Airbus gains strategic delivery positions during the current narrow-body market bubble that Boeing simply can’t match — not only will neo beat Max to the market, Boeing is out of delivery positions while Airbus will have growth capacity to make another customer conquest like it did with American.
  8. WTO issues will go away, and Airbus may even benefit from the US government down the road.

Are there any downsides?  Really only two.

One is execution risk, and Airbus has already built a final assembly line in China – and the US should be easier.

The second is the market bubble for narrow-body aircraft.  At some point, the high demand has to break, and then Airbus will need to cut back three assembly lines rather than one.  However, with the improved economics of the neo and need for fuel and emissions efficiency (especially for European customers under ETS), demand for re-engined models should continue strong and hit just as the 25 year replacement cycle for early A320s begins.  With a large installed base for replacement, the risks are lower for Airbus than for Boeing, whose NG fleet is 10 years newer and not yet due for replacement.  Airbus has positioned itself a couple of years ahead of Boeing with the neo vis-à-vis Max, and that window will allow it to convert a couple of traditionally Boeing customers, since Boeing can’t deliver the airplanes they require on a timely basis.

The Bottom Line:

In billiards, Boeing would by snookered, or stymied behind a tree in golf.  Airbus has out-positioned Boeing strategically with increased capacity for a better re-engined model just as the market demands it, while reducing several risks at the same time.  Brilliant.

4 thoughts on “Airbus in Mobile – A Brilliant Strategy

  1. As you said suddenly there are an additional 200 NEO available before 2019. I guess airlines that found out they missed the train will quickly reserve some. (AF, BA, US transcons..)

    IMO the A320 has further development potential. When the bigger regionals will take over much of the below seat market with smaller lighter more efficient aircraft, the focal point will be on the bigger versions. I think Airbus has a few relatively low risk opportunities there with A320 platform the coming 10 yrs.

    The result will probably be Boeing will have to put the NSA team back at work, when it becomes clear the good old 737 cannot maintain a 40% marketshare.

  2. value of seat real estate: logarithmic?
    or did you mean ‘exponential’ growth area value with time ;-?

  3. “Brilliant” suggest a stroke of genius never fore imagined. Yet, Airbus has been working this strategy for years, and even harder lately with the USAF refueling tanker contest.

    Cleverly, they thought the USAF would build their plant in Mobile, but is was not to be. Now, with their persistence and their investment they’ll be there buying there way into the a market they drool to dominate.

    Some comments and rhetorical questions,
    1. Is the A320’s “50% US content” by value, weight, or parts count? Do CFM engines, the largest value parts, count as “US content” or 50% US & 50% French? Surely, Airbus will argue for Exim guarantees, but would it be politically acceptable in Congress? Surely, Alabama representative would agree. The rest?
    2. Which, “airlines in the US … worry about the perception of buying US?” Surely, airlines care more about depreciation/lease expense, operating expense, CASM and the like over this perception. And, rarely do passengers book flights based on aircraft factory of origin, and who can really tell a Mobile A320 from a Toulouse or Hamburg, or Tianjin A320? Will Airbus add “Made in USA” or “Made in China” under the aircraft’s “Airbus A320” logo?
    3. Is a foreign factory, although welcome in the US, does make it a wholly “domestic” company. Also, this argument is a non-sequitur which assumes 1. and 2. are true. Politicians may know the true difference even under tremendous spin and propaganda, yet they are welcome to compete.
    The statement, “it initially won before political and ‘buy US’ concerns caused an overturn in Boeing’s favor,” is a total fabrication, a false statement. The record is clear: the US Congressional General Accountability Office (GAO) independently discovered the USAF violated their own RFP guidelines. To paraphrase just this one finding, the RFP stated no extra credit would be given for a product that exceeded the requirements, yet the USAF gave such credit tipping the selection in the A330-MRTT’s favor.
    Then, many businesses low bid anticipating revenue & profits from subsequent contracts. Surely, Boeing and others, especially Airbus, present predatory pricing for strategic or even tactical reasons. They calculate an, “appropriate profit margin,” in longer terms.
    4. Yes, most, but not all commercial aircraft are sold in USD and Airbus suffers to a degree in today’s monetary environment. But, are all US made parts and assemblies combined to create those aircraft’s large shippable sections purchased in USD’s or Euro’s?
    5. Does Airbus plan to use Mobile as part of their supply chain to Toulouse, Hamburg and Tianjin even when the source of the Tianjin (and Mobile) large assemblies are from Hamburg? Will Mobile be a supply depot, a sub-assembly value added factory? EADS’ Mobile FAL can benefit by supplying flying copies of A320’s and, yet more importantly, they’ll leverage their investment justifying bids to the US Defense department. Thoughts of expanding the use of Mobile are premature.
    6. Airbus reduces manufacturing risk by having three final assembly facilities? Actually there will be four A320 FAL’s once Mobile is active. But, is Tianjin (and Mobile) designed to create those fuselage sections, to build wings from smaller parts like they do in Broughton, UK?
    Then, when the Comac C919 flies China can decide against renewing the A320 Tianjin FAL after they have gleaned all the process techniques from Airbus.
    Moreover, since a big part of each A320 is assembled in large sections in Hamburg and Toulouse before shipping said sections to Tinajin or Mobile the manufacturing risk is surely weighted mostly in Europe
    7. Yes, “Airbus gains strategic delivery positions during the current narrow-body market bubble.” As the airline industry has always been fragile and in continual flux, we can only hope that, “market bubble,” doesn’t burst leaving the Mobile plant wishing as mentioned.
    8. Will the, “WTO issues will go away?” Most of the WTO fight surrounds not the A320, but their wide-body aircraft.
    The key to Mobile is to allow, “Airbus [to] even benefit from the US government down the road.” This is the true reason for the Mobile plant. The EADS “2020 plan” states it clearly, “Achieve $10bn revenues in North America in non-Airbus businesses and gain a prime position with US Government.” Airbus needs to seem more “American” than it is.

    Yes, “Airbus has positioned itself a couple of years ahead of Boeing with the neo vis-à-vis Max,” but we shall see if and when Airbus assembles the NEO in Tianjin or even Mobile. There is still a huge backlog for the traditional A320. If the NEO is assembled outside Europe, the wholly owned Mobile plant could qualify first before partially owned Tianjin plant. Yet, some may bet assembling A400M’s in Mobile may precede the NEO.

    Finally, a more farfetched strategy based on some history. After the Mobile plant becomes a fixture in Alabama EADS could hold that plant and workers as political hostages in a possible loss of some US government contract, or even for post contract demands for added funds (although the US Defense Dept have made progress in prevention, this technique was commonplace. Recently, EADS demanded a billion or more from their A400M customers under threat of closure).

    The Mobile decision isn’t really “Brilliant,” but continued execution of an existing plan. They hope Mobile will offer them the leverage into the US Government they plan for. The old A320 is just a lead-in towards that strategy.

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