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.

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