Tanker contract could help Airbus expand U.S. commercial operations

The controversial Air Force contract awarded to Northrop Grumman and the parent company of Airbus could help the European company increase its commercial presence in the United States.

The Franco-German conglomerate EADS , which owns Airbus and partnered with Northrop on the tanker contract, is moving the production of its civilian A330 freighter aircraft to Mobile, Ala., the same place where it will assemble the tankers. The move was conditional on it being awarded the tanker contract in a surprising victory over Boeing.

{mosads}This move is expected to chip away at Boeing’s manufacturing foothold in the U.S. market, which could change the landscape in the cutthroat commercial aircraft market. Making more commercial planes in the U.S. could also help EADS and Airbus win additional support from Congress.

Airbus officials do not suggest that the effort to increase their commercial manufacturing presence in the U.S. is linked to  Boeing’s efforts to overturn the Air Force tanker decision. They do, however, say Boeing fears competition on its turf.

“I think they [Boeing] are competition-averse, period,” Allan McArtor, chairman of Airbus Americas, told The Hill. He said the production of the commercial aircraft in Mobile will break Boeing’s monopoly in the United States.

“We haven’t had a large aircraft, airplane manufacturer, a new one, for a long time,” he said Tuesday before a speech to the Aero Club.

Airbus already sells hundreds of planes in the United States, but the Mobile plant would be the first manufacturing center for the European giant.

Boeing officials say they are not concerned with Airbus building plans in the U.S. as long as they are acting within the World Trade Organization’s (WTO) rules.

“As long as they are in compliance with WTO rules then we do not have any concern, we feel we can compete fully with them no matter where they build their aircraft,” said Tim Neale, a Boeing corporate spokesman. “It’s their business to decide where they want to build the aircraft.”  

Boeing, Airbus and the U.S. and European Union governments for years have been tangled in a WTO dispute over alleged aircraft subsidies. The United States and Boeing charge that Airbus has received illegal launch subsidies while the EU counters that Boeing has received tax breaks as well as research and development money from the U.S. government.

Both Boeing and Airbus recorded strong first-quarter sales in 2008. Airbus outsold Boeing in the first quarter with 395 net orders booked. Boeing gained 288 new orders in the period.

At the same time, not all the news for either company is good.

Boeing is preparing to announce this week what is expected to be a third delay to the B787 Dreamliner program. The company is still analyzing how the delay will affect its 2009 profit predictions.

Building aircraft in Europe, meanwhile, has become financially difficult because of the weak dollar. Paying workers in euros to produce planes while selling those planes in dollars is tough with a weak dollar, and this has caused Airbus earnings to nosedive.

EADS leadership has been talking for more than a year about partly shifting commercial production in the United States to take advantage of the weak dollar. Also as part of a cost-cutting plan, EADS has announced it will shift some production to China.

Building planes in the United States “is part of Airbus’s global industrialization strategy and we have spoken at some length about having to move more of our capabilities into the dollar zone,” McArtor said.

Moving the production of the A330 commercial freighter to Mobile “is just an extension of what we have been talking about for years and it makes it more efficient to put the freighter and the tanker together in Mobile,” he added.

Currently, most Airbus production is done in Germany and France, but EADS leadership is planning to transfer some production aspects such as aircraft doors, fuselage and wing components out of Europe.

When EADS announced that it would bring the production of the A330 freighter to Mobile, the company said that the production site at Brookley Field would be expanded to support the production of up to four aircraft per month, for both the Air Force’s tanker and the commercial orders. The A330 freighter order book is at about 66 aircraft currently.

The EADS commitment to build commercial planes in Mobile hinges on whether Northrop Grumman will hold onto its tanker contract. Boeing filed a formal protest with the Government Accountability Office last month, and GAO will come out with its recommendations in June.