Coming to America
Europe's big aircraft-maker is to open a factory in Alabama
THE red imported fire ant first entered America through the port of Mobile, Alabama, in the 1930s. Being more aggressive than most native species, it soon spread across the country. On July 2nd Airbus said it would open its first jet assembly line in America in Mobile. The reaction of Boeing, the European aircraft-maker's biggest rival, suggests it fears a nasty sting from this foreign pest. And with good reason: Airbus says the factory, which will cost $600m and start delivering aircraft in 2016, will help to boost its share of America's civil-aviation market to nearly 50%, up from 20% today.
Airbus's move seems well-timed. With the four biggest airlines in the world, America remains the largest market for civilian jets. Demand has been muted for years, usually accounting for less than 30% of orders worldwide, down from 50% in 2003. But this is likely to change. Jets flying in America are typically several years older than elsewhere. Perhaps 5,000 new aircraft may be needed in the next 20 years. The single-aisle 319s, 320s and 321s that Airbus will put together in Mobile-albeit initially at a modest rate of up to 50 a year-will challenge Boeing's popular 757.
Earlier plans by Airbus to make planes in America were thwarted when Boeing beat it to win a large order for mid-air refuelling tankers from the Pentagon. By selling aircraft that are “made in the USA”, Airbus hopes to win over patriotic locals (just as Japanese carmakers won them over by opening factories in America in the 1980s and 1990s). American politicians have long supported Boeing against its European challenger, though it is unfair to classify Airbus as wholly European. Like Boeing, its supply chain is global. It claims, for example, to be the largest foreign customer of America's civil-aerospace industry.
Airbus says the new factory will bring it closer to its customers in America. It will also create a natural currency hedge, with more of its costs incurred in dollars rather than euros. (Aircraft, like oil, are largely priced in dollars.) Given the uncertainty surrounding the euro, such hedging is doubly wise. Ironically, Airbus will also receive subsidies from Alabama reckoned to be worth almost $160m. Airbus said it noticed what was on offer only when it investigated the subsidies paid to Boeing. (The two firms are engaged in a long dispute before the World Trade Organisation.)
Airbus's new factory is expected to create 1,000 jobs. Part of the appeal of Alabama is that it is a “right-to-work” state, where employees cannot be forced to join a union as a condition of employment. Boeing's factories are largely in closed-shop Washington state. A new Boeing factory in right-to-work South Carolina was blocked by the union-friendly National Labour Relations Board, until Boeing gave a gold-plated pay deal to its unionised workers in existing factories. So far, despite high unemployment in the EU, Airbus's European workers seem to have bought their bosses' argument that the new factory will not take jobs from Europe, but may create some by boosting sales in America.
Some European politicians have interpreted Airbus's move as the latest depressing symbol of Europe's decline. That is a stretch. What is most striking is the self-confident approach to globalisation taken by Airbus, a company that over the years has suffered more than its share of petty squabbles, especially between its French and German tribes.
How Boeing will respond to this rocket-blast of competition in its own backyard remains to be seen. So far it has merely grumbled that the new factory will not change the fact that Airbus has benefited from huge subsidies at home. Perhaps Boeing should open a factory in Europe? That is easier said than done. Few places in the EU can match Alabama's sweet mix of flexible working practices and southern-fried tax breaks.