What Does a U.S. Airbus Plant Mean for Boeing?

What might have been one of the worst kept secrets in manufacturing is official: Airbus SAS will open its first U.S. assembly facility, in Mobile, Ala.

"The time is right for Airbus to expand in America," Airbus President and CEO Fabrice Bregier declared Monday morning during a jubilant news conference at the Arthur R. Outlaw Convention Center in Mobile.

Following days of rumors in the press, Bregier and Alabama Gov. Robert Bentley on Monday formally signed an agreement that will bring 1,000 jobs and a $16 million Airbus final assembly facility to the Brookley Aeroplex in Mobile.

It also could bring a world of headaches to archrival Boeing Co. (IW 1000/49) in the commercial-aircraft space.

The Mobile plant, expected to begin production in 2015, provides several benefits to Airbus, said Issaquah, Wash.-based aerospace analyst Scott Hamilton: It provides a hedge against the dollar-euro exchange rate, and it gives Airbus an assembly facility with lower labor costs than other Airbus plants in Hamburg, Germany, and Toulouse, France.

But the biggest benefit of the new facility, asserted Hamilton, will be the added production capacity.

Both Airbus and Boeing are sold out on their bread-and-butter single-aisle jets -- the Airbus A320 family and the Boeing 737 family, respectively -- through the end of the decade. Airbus expects the Mobile facility to have an initial capacity of four planes per month, with the potential to ramp up to eight planes per month.

"And what this plant will do will be to open up production slots that otherwise just aren't there," Hamilton told IndustryWeek. "So Airbus now can go out and offer earlier delivery positions to any airline worldwide.

"Up to this point, [Airbus plants in] France or Germany have had to be the suppliers to fill the U.S. airline orders. So now Mobile comes online and instead it fills the U.S. airline orders, and that frees up an equivalent number of slots in France and Germany to fill orders elsewhere in the world."

That puts Boeing in a tough spot.

The aircraft maker now has two options, Hamilton said. One is to boost production of the Next-Generation 737 in Renton, Wash., to more than 42 planes per month to match Airbus's global production capacity. (Boeing has said that it plans to ramp up production from the current rate of 35 per month to 42 per month by early 2014.)

The other option is to "start dropping prices on airplanes."

"They're already engaged in a price war as it is," Hamilton added.