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Airbus’s Strategic Plan to Open U.S. Operations

July 1, 2012 by

Airbus has made a preliminary decision to open it’s first manufacturing facility on U.S. soil.  Though not yet approved by the company’s governing body, the board of the European Aeronautic Defense & Space, they plan to build a plant in Mobile, Alabama that focus’s on the production of single-aisle airplanes.  This is due to the United States being the world’s largest market for this type of plan and that the current U.S. fleet is aging significantly.  So signs point to an uptick in demand in the near future.  This would be Airbus’s first attempt to build on the home-soil of it’s main competitor Boeing, and there proves to be many pro’s and con’s to this strategic decision.  Outside of the market demand, the cost of production, labor unions, labor flexibility, and benefits in euro-dollar exchange rates all played a role in the feasibility analysis of this decision.  Likewise, Airbus believes having some of there planes “made in America” will help boost sales with the U.S. airlines.

My main point of interest, when this decision was being made, was how the variables/potential outcomes were ranked.  For interest, did they put labor market relations as the top area of concern of was it the potential to corner a significant portion of the single-aisle plane market.  Similarly, were they able to predict the relationship between multiple outcomes.  For instance the article points out that if another recession was to hit a company based in Europe would have an easier time laying off thousands of workers in the U.S. than in it’s home soil.  However, the publicity that Airbus would face with laying off that many workers in the U.S. would significantly hinder any further attempts to advance in the U.S. market.  With the dominance of labor unions in Europe, I would have considered the company’s image in the eyes of the labor unions as the most important factor in potentially expanding into the U.S.  With a large percentage of Airbus’s workforce being in Europe, I would think the drive to us cheaper non-union labor in America’s South would potentially reflect negatively on the company as a whole in regards to any future labor contract negotiations, relations, etc.

Will this decision prove to be a long-term windfall or gamble for the European Aerospace giant?  How would you rank the various factors mentioned in the article in order of priority/importance?

http://www.nytimes.com/2012/06/29/business/global/airbuss-us-plan-is-a-long-term-gamble.html?_r=1&pagewanted=all

Posted in 1 MGT598-Sum12 | 4 Comments »



4 Responses to “Airbus’s Strategic Plan to Open U.S. Operations”

  1.   ryana599 Says:

    If this plant is built it will be interesting to see the long term effects of labor relations and how it parallels the automotive industry. The United Auto Workers are one of the most powerful unions in the United States and have been since the 1930s. Over these decades they were able to negotiate wages and benefits that were credited with creating a middle class around the Detroit area. However, when Japanese car manufacturers like Toyota decided to build factories here in the US they chose to do so in the non-union south. They ended up paying the workers close to UAW wages so workers had little incentive to unionize. The benefit to these companies was that they did not have to deal with the bloated benefits owed to the workers at the Big 3 that eventually led to government bailouts. Boeing has also pursued a similar strategy to start building planes in South Carolina and put pressure on union wages out of their Washington factory.

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  2.   christopherc599 Says:

    I see the airlines are following the tried-and-true formula of building a plant in the south (made popular by the auto industry). Also, I can’t remember the last time I flew on a “multi-aisle plane,” definitely not in the last ten years. I don’t buy this “made-in America” argument. Many cars produced by foreign manufacturers are made in America. However, they are still viewed as imports (the same is true for beer). Consumers that want American made products, care about where HQ is, not the plant. Also, in the airline industry, consumers are concerned with price, service and reliability. The airline’s fleet is not a major differienting factor.

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  3.   nathann599 Says:

    If airbus does built a plant in the US (southern region) I can see it having a negative effect on the labor unions in Europe. Just like the US automakers exporting manufacturing to lower cost countries, Airbus will be able to manufacture in the US at a higher margin then manufacturing in Europe. This will give Airbus negotiating power with the unions over in Europe. I know that they unions have a lot more power in Europe, but in the end being profitable and surviving the main goal of a business.

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  4.   jacobw599 Says:

    I agree with Nathan’s comments above in that building a plant in the non-labor US South will likely give Airbus more negotiating power with the European unions (addresses the labor union priority). I also agree with Ryan’s comment that it will be alot easier for them to lay off US employees than it would be their European employees due to the labor laws in Europe (increases labor flexibility).

    I doubt, however, that they’ll gain much in the way of lowering production costs. Per the link below, it shows that while the US has a little lower hourly compensation costs than most of the European countries, there are many other options that would have been considerably cheaper.

    http://www.bls.gov/fls/chartbook/chartbook2011.pdf

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