Monday, July 2, 2012

Airbus is about to get a Green Card.

Plans to build a $600 million plant in Mobile, Alabama to produce A320 passenger planes will give Europe's jet maker a strategic foothold on US soil while breathing life into American manufacturing.


By retracing the footsteps of French settlers who founded Mobile as the first capital of then French Louisiana in 1702, the Toulouse-based company hopes to strike directly at rival Boeing on its home turf and create a springboard for future bids to win US aircraft and defense deals. Monday's expected announcement is the fruit of several years of efforts by parent EADS, Europe's largest aerospace group, to acquire an American identity.

It is a reversal of fortune for Alabama's oldest city and its only port, coming only 16 months after Airbus lost a bitterly fought $35 billion contest against Boeing to build US Air Force tankers that would have been put together in Mobile, and almost seven years after the city was among the places ravaged by Hurricane Katrina.

"It is a long-term strategic move, and anything that allows Airbus to make planes cheaper means they sell them cheaper ... putting more pressure on Boeing," said Alex Hamilton, managing director with EarlyBirdCapital, a boutique investment bank.


The new plans, which include the creation of a plant that will generate up to 1,000 jobs, are seen by some experts as one early sign of a possible renaissance in US manufacturing, which has been in decline for many years.

But by placing the plant in the southeast with its lower wage rates and laws that are less friendly to labor unions, Airbus' plan may not sit well with the unions who have traditionally ruled US airplane manufacturing, and particularly at Boeing's main hub in Seattle. They had already fiercely opposed Boeing's move to set up a plant in South Carolina, saying it was retaliating against the unionised workers in Seattle.

And back home, Airbus is also playing with fire as its own unions weighed in on Sunday, calling for guarantees over European jobs. Indeed, once the U.S. plant is built, Airbus may have more bargaining power with its workers in Europe.

Boeing itself slammed the Airbus plan on Friday, saying the real issue was that Airbus had been found by the World Trade Organization to have been unfairly subsidised by European governments.

FALABAMA

The sensitivity of the deal in both the U.S. and Europe is reflected in the way it came together.

For the best part of nine months, Airbus and state officials were sworn to secrecy and had meetings in locations away from Mobile, such as in New Orleans, to pore over a blueprint known, according to the local newspaper, the Press-Register, as "The Project".

Inside the aerospace firm, the project had another code name: it was not exactly cryptic but it included a pun on the acronym for Final Assembly Line and so it stuck: Falabama.

The confidentiality of the discussions was almost blown apart, though, when Alabama Governor Robert Bentley told local Mobile TV station WPMI-TV four months ago that Alabama was in constant touch with Airbus about building a plant.

For a few hours the project looked in danger of slipping into dangerous waters as participants worried whether it would inflame protectionist rhetoric in French politics - just as the presidential election campaign was heating up. Leaders of both French mainstream parties on left and right had promised to crack down on industrial offshoring amid fears of a wave of lay-offs triggered by Europe's debt crisis.

Bentley told the Press-Register, "there is no contract, there is nothing on the table and there are no negotiations on any kind of deal," and to the relief of both sides the TV report failed to get widely noticed.

And now that France has a new president, the Socialist Party's Francois Hollande, who has pledged to penalise companies for moving jobs offshore, the Airbus move into the U.S. would unlikely have gone ahead without his government's approval since the state owns 15 per cent of Airbus parent EADS.

Airbus is a key European project, now based on the creation 12 years ago of its parent EADS, and held together by a delicate Franco-German power-sharing pact and a mixture of public and private shareholdings that frequently marry business and politics.

Such considerations led EADS's former chief executive Louis Gallois to take a cautious stance on the U.S. assembly proposal, according to several people familiar with the matter.

Gallois' successor, ex-German paratrooper Tom Enders, has ambitious plans to expand the company in the United States as well as India and China. He has also made clear his lack of patience towards European political meddling.

Enders sparked a clash with the German government even before taking office last month by effectively rebasing EADS' headquarters in Toulouse alongside subsidiary Airbus. Out went a political fudge that had seen it split between Paris and Munich.

The move outraged some German politicians and drew a threat to cut off development loans for the next Airbus project and even to reconsider crucial export financing, according to people familiar with the contents of a letter from a Berlin official.

Enders, though, managed to smooth over the row. And by delivering the HQ of one of Europe's biggest industrial jewels to France, he may have insulated EADS against a backlash in France over the Alabama plan.