Premium #189 – What does Airbus Opening a New US Production Facility Really Mean? |

How big a deal is Airbus opening a manufacturing facility in the US? What does Airbus opening a new US production facility really mean for the market? The answer, short and sweet, is that the impact is huge. Of course, the news is not new, and everyone in the industry has known Airbus was coming to Mobile, Alabama since the groundbreaking for the facility back in 2012. The key is what impact that decision has, and will continue to have, on the marketplace now that the factory is up and running. Any event that can change competitive dynamics is significant, and Airbus new factory does just that. The Impact on Competitive Dynamics from Local Manufacturing Airbus market share has grown in the US market since that announcement, and their largest single customer globally is American Airlines. Their A320 family is outselling the 737, and with the re-engined models, the A320neo family is outselling the 737MAX by quite a margin. The key question is how important local production has become in equipment decisions. There are a number of factors that influence fleet planning decisions, and logistics and geography are included in those factors. An airline based in the US would certainly rather pick-up its aircraft in Mobile rather than in Toulouse, Hamburg, or Tianjin, simply from a cost and logistics basis. Having a factory nearby also means having the support and expertise nearby to ensure smooth operations of an airplane. With a “made in the US” sticker on the aircraft, the argument of not buying local or contributing to the local economy is now moot. Since airlines are required in the US to identify the country of manufacture of the aircraft on the safety cards placed in each seat pocket, politicians and regulators apparently want customers to be aware of economic contributions and where aircraft are built. New Airbus A321s built in Mobile will be able to state that they are made in the USA. The bottom line is that where an aircraft is made clearly matters to local buyers, and Airbus international strategy to locate facilities in the two largest markets in the world is resulting in increased sales in those markets. Tipping the Scales in Airbus Favor In terms of overall market, Airbus globally is now the equal of Boeing, and has won the order book races in recent years. Boeing, however, still has an advantage in the US, the world’s largest market, which it has long dominated. But times are changing. Airbus has increased their market share in the US from 20% a decade ago to 40% of orders in the most recent demand cycle. Quite simply, Airbus is rapidly catching up to Boeing in the US market. Their goal is to achieve 50-50 parity in market share, which their new manufacturing facility should help them to achieve. Given that Airbus currently has a market share advantage over Boeing in the rest of the world, if they equal Boeing in the US, Airbus will firmly secure the #1 global position in commercial aircraft. Airbus now has manufacturing facilities in the world’s two largest markets, the US and China, in addition to its facilities in Europe. Boeing remains primarily US-centric, albeit an interestingly timed recent announcement that it is examining a potential facility in China. Culturally, it is easier for a company that began multinationally to expand production across borders than one that has been centered in one country for most of its existence. While Boeing has multiple international suppliers, it has not produced its commercial jets internationally. The Added Benefits With aircraft sold in US dollars, having a manufacturing facility in the United States allows Airbus to better match costs with revenues, without currency hedging. In addition, US labor laws are more flexible than those internationally, enabling Airbus to better flex its workforce, should that become necessary. However, given the strong current backlog and the fact that Airbus has never decreased production rates, that flexibility is unlikely to be needed. Economic development and tax benefits are a part of any package today, and Mobile has become a true economic partner with Airbus in locating the US plant. Initially, Airbus planned to build the refueling tanker for the US Air Force here, but after it won, and then lost the contract after an appeal by Boeing, Mobile and Airbus continued to discuss how they could cooperate, and the A320 family manufacturing facility is the result. The A321 and the US Market The market for US narrow-bodies is upsizing, and the A321 and A321neo appear to be the aircraft of choice to replace aging 757s, most of which are operated by US carriers. The first 9 aircraft produced in Mobile will be A321s, Airbus best selling model in the US. Mobile could rapidly become an A321 center of excellence for Airbus, and given current backlogs, produce exclusively A321s for some time. The Bottom Line With strong US content and final manufacturing in the United States, a US produced A321 will have similar US content to Boeing products that rely on Japanese suppliers for major elements of the aircraft. The made in the US sticker will be equally meaningful, and positively influence fleet planning decisions for US operators. Airbus has out-flanked Boeing, and competitive pressures will ramp-up for 737MAX as Airbus aircraft made in the USA enter service early next year. Airbus already has an economic advantage with its A320 family over the 737 series by its capability to handle larger-diameter engines, which are more fuel efficient. (The 737 first entered service in 1967 when cigar shaped engines were the norm, and doesn’t have the ground clearance to handle today’s modern turbofans.) Having aircraft built in the USA can only add to Airbus competitiveness for narrow-body sales campaigns in the Americas.

US Flight Planner	Airbus vs Boeing
US Airline Schedule Performance	Daily Production & Deliveries

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