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Lou Washington

Supply Chain

Airbus Plant Lands in Sweet Home, Alabama

Can’t we just enjoy some good news?

Published: Wednesday, October 21, 2015 - 11:23

I came across a couple of interesting articles related to the Airbus plant that recently opened in Mobile, Alabama. The first, by Justin Fox, is found in BloombergView, and the second was written by Jon Talton from The Seattle Times. Both pieces sought to explain why Airbus would build an assembly plant in the U.S. state of Alabama.

I really can’t recall a time when reading “good news” left me feeling so confused. Should I be feeling joy or despair? While both articles stopped short of saying this was bad news, they both were quick to point out that this site selection was largely driven by the lower wage requirements typical of the U.S. South. This was attributed to the anti-union mindset of that region.

I’d like to pause here and clearly state that this column is not about the merits or problems commonly associated with organized labor. I’m personally not anti-union. I’ve actually belonged to a union in my earlier life, and the experience was quite positive. I simply don’t agree with making organized labor the whipping boy for industrial growth in the South.

The Justin Fox piece is considerably more balanced in its analysis than the somewhat shrill tone of the Talton piece. In all fairness this is not surprising, given that Seattle’s Boeing is the hometown team in that piece.

To summarize the main thrust of the two articles, the Airbus plant was located in Alabama because:
• This allows Airbus to put pressure on its own unions back home in Europe.
• Airbus will gain the support of the two senators from Alabama.

Frankly, I think the evidence to support these two contentions is a bit thin. Fox actually cites a number of valid reasons why this site was selected. I find these reasons to have much more credibility than the more sinister motivations that seem to grab the attention of the reader.

Why build jets in the southern United States?

There are actually a number of good reasons to build jets in the South. As was pointed out in both articles, Boeing has been building 787s in South Carolina for several years. So obviously, that strategy has to have some legitimacy if it’s replicated by Airbus.

Cost of labor. No doubt, the cost of labor is less in the southern states. The cost of living is also less than that found in Seattle or Toulouse, I would imagine. Companies have been abandoning northern locations for decades because people work for less in the South. But, the actual disparity in labor costs is really much less than one would imagine based on the salary figures quoted in the Talton piece. The difference is essentially less than 10 percent.

Workforce. One of the more disagreeable implications in these articles is that southern workers are somehow wanting in terms of qualification and experience. To quote Talton regarding the workforce in Alabama, “You get what you pay for.” He goes on to inform us that, “Southern states remain poor and perform worse on almost every measure of well-being...”

I would point out that Alabama has been in the aerospace business for many years. NASA and Huntsville have been partners since the very early days of the space program. Boeing has just opened a new facility in Huntsville as well. South Carolina, home to one of Boeing’s 787 assembly lines, is also home to other aerospace and defense company operations including Raytheon, Northrop Grumman, and Eaton Aerospace.


Airbus breaks ground on Alabama assembly line.

As far as the rest of the South, I’ll point to Florida and Texas—both are aerospace powerhouses in their own right. Tennessee was a major player in the development of atomic power with its historic Oakridge “secret city.” The south is not bumpkin-land.

Supply chain and customer proximity. Again, both articles seem to conflict their own message by mentioning other justifications. If Boeing has learned anything from the 787 program, which was in effect an exercise in redefining the whole process of manufacturing airplanes, it has to be the vulnerabilities of a far-flung supply chain. Airbus understands this as well. Part of the Airbus decision has to be tied to the amount of U.S.-based content used in its aircraft.

Like any large, complex product, airplane parts and supplies tend to come from almost anywhere on the planet. In the case of Airbus, a significant amount of that product comes from the United States; estimates range from 20 percent to almost 50 percent.

Yes, Airbus has its eye on increasing its market share of the U.S. commercial airline market, just as Boeing seeks inroads in Europe and other markets throughout the world. This is a tightly contested market with two huge players controlling almost all of it. So, it only makes sense for both of these companies to be building final-join facilities in close proximity to potential buyers located here as well as on the other side of the planet. Everyone wins with this strategy.

Car companies have been doing this for years without any suggestion of sinister intent beyond gaining market share and better serving customers. Within a hundred miles of me are two Honda plants, a couple of Toyota plants, and hundreds of second- and third-tier automotive supply chain companies. They are here because of each other. Who came first is irrelevant.

Conclusion

I really don’t know if either of these plants, Boeing in Carolina or Airbus in Alabama, signifies the much discussed “manufacturing renaissance,” or if they are merely two examples of moderately good news for the respective local economies. Does it really matter? There’s no magic definition of manufacturing renaissance that can be used to quantify the goodness level of Alabama Airbus-type news stories.

I do know that Airbus and Boeing are both premier companies making some of the most advanced aerospace products in the world. Yes, they are direct competitors in multiple markets. That competition makes both of them better manufacturers, and makes their respective products better than ever.

We should celebrate the fact that both of these companies are building their products here in the USA.

Discuss

About The Author

Lou Washington’s picture

Lou Washington

Lou Washington is the senior marketing manager within the manufacturing business solutions group of Cincom Systems, a developer of software solutions for a wide range of industries, applications, and business sectors.

Comments

Localization Makes Economic Sense

We see many American companies reshoring and foreign companies locating here to be in close proximity to the U.S. market.

Reshoring is a good strategic move for many companies due to rising offshore wages, counterfeit parts, IP risks, quality issues, risks along complicated supply chains, and carrying costs of large inventories. By reshoring and shortening supply chains, companies can greatly improve lead times, responsiveness to customers, quality, innovation and R&D.

As companies adopt a more comprehensive total cost analysis they are finding that rising offshore labor rates combined with other “hidden costs” of offshoring often counterbalance any remaining savings from cheap price or labor abroad. Some of these companies are sourcing in the U.S. because it makes good economic sense for them to do so.

The Reshoring Initiative Can Help.

The not-for-profit Reshoring Initiative’s free Total Cost of Ownership software helps corporations calculate the real P&L impact of reshoring or offshoring. In many cases, companies find that, although the production cost is lower offshore, the total cost is higher, making it a good economic decision to reshore manufacturing back to the U.S. http://www.reshorenow.org/TCO_Estimator.cfm

Airbus in Alabama

If memory serves, Boeing opened in South Carolina about the time they were having difficult negotiations with the union up North. Of course it was presented as a coincidence in timing...   

Airbus Plant Lands in Sweet Home, Alabama

I live in Mobile, Alabama, and have done so for almost 35 years.  I received my chemistry degree at a local university, and there are many well educated individuals in this area.  The local high schools as well as trade schools have been preparing students for this venture as soon as there was a possibility that Airbus would come to Mobile.  There is also a specific aerospace curriculum for training individuals.

We have several automobile manufacturing plants here in Alabama.  We also have many chemical manufacturing plants in the Mobile area (I work for one of them).  All of us are well trained, so it really hurts when people think that there are only a lot of "bumpkins" here in Alabama.

We are proud of our area as well as our state and its industries and its people.  Sweet Home Alabama!