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Airbus in Mobile – A Brilliant Strategy

With the formal announcement that Airbuswill open a nal 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 andcement its market leadership position.

Apart from the obvious growth in capacity, this movefundamentally changes the competitive dynamicbetween Boeing and Airbus in several ways:

1. Airbus will be assembling aircraft in the US,and with already more than 50% US contentbetween engines and components, nal as-sembly will certainly make this a US aircraft

by content. Will we soon see EXIM bank -nancing for an Airbus Americas foreign saleto Central or Latin American customers?

2. Airlines in the US who worry about theperception of buying US can now safely yAirbus aircraft without a concern aboutexporting jobs from the US, not that this wasmuch of a factor.

3. Airbus will be positioned as a domesticmanufacturer of aircraft in the US, and willbe much better positioned politically for thenext tanker battle, which it initially won be-fore political and “buy US” concerns causedan overturn in Boeing’s favor. Boeingended up “buying the business” and maynd it dicult to deliver with appropriateprot margins.

4. Airbus will offset currency risks betweenthe Euro and US dollar by building aircraftin US dollars locally.

5. Airbus is closer to many suppliers in the US,with a deep water port in Mobile and air-eld for other components, and can take de-

liveries in Mobile from many suppliers andutilize its own logistics to move componentsto Toulouse, Hamburg and Tianjin facilities.

6. Airbus reduces manufacturing risk by ha-

ving three nal assembly facilities on threecontinents, which in the event of a naturaldisaster would not put a single facility com-pany out of business.

7. Airbus gains strategic delivery positionsduring the current narrow-body marketbubble that Boeing simply can’t match —not only will neo beat Max to the market,Boeing is out of delivery positions whileAirbus will have growth capacity to makeanother customer conquest like it did with

American.8. WTO issues will go away, and Airbus mayeven benet from the US government downthe road.

Are there any downsides? Really only two.

One is execution risk, and Airbus has already builta nal assembly line in China – and the US shouldbe easier.

The second is the market bubble for narrow-bodyaircraft. At some point, the high demand has tobreak, and then Airbus will need to cut back threeassembly lines rather than one. However, with theimproved economics of the neo and need for fueland emissions eciency (especially for Europeancustomers under ETS), demand for re-engined mo-dels should continue strong and hit just as the 25year replacement cycle for early A320s begins. Witha large installed base for replacement, the risks arelower for Airbus than for Boeing, whose NG eet is10 years newer and not yet due for replacement.

 July 3, 2012

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Ernest S. Arvai

7/29/2019 Airinsight - Airbus in Mobile – A Brilliant Strategy - July 12

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Airbus in Mobile – A Brilliant Strategy

Airbus has positioned itself a couple of years aheadof Boeing with the neo vis-à-vis Max, and that win-dow will allow it to convert a couple of traditionallyBoeing customers, since Boeing can’t deliver theairplanes 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-positionedBoeing strategically with increased capacity for abetter re-engined model just as the market demandsit, while reducing several risks at the same time.Brilliant.

© 2012, airinsight.com. All rights reserved Innova-tion Analysis Group.

 July 3, 2012

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