Fabrice Bregier PresidentCEO Airbus

Airbus CEO Discusses Strategy Behind Mobile, Ala., Final Assembly Line

Sept. 21, 2015
Airbus CEO Fabrice Bregier discusses the challenges and opportunities involved in opening the U.S. base, which coincides with an unprecedented ramp-up in production.

The decision to establish a final assembly line for the A320 in Mobile, Ala., was formally announced only weeks after Fabrice Bregier became Airbus President/CEO, and he has long advocated for an international footprint. The opening of the U.S. base coincides with an unprecedented ramp-up in production, which he calls a major challenge. Mobile provides additional capacity and more visibility in the U.S.

Bregier, 54, was named Airbus CEO in June 2012 following a career in French government and industry. He began his career in the aerospace industry in 1993. Aviation Week Managing Editor-Commercial Jens Flottau interviewed him in Toulouse.

AW&ST: When Airbus opened a final assembly line in China, the goal was clear: market share in a state-controlled environment. What benefits do you expect from the Mobile line?

Bregier: We believe that for an international group like Airbus, it makes sense to have a global footprint in key markets. Beyond Europe and China, this means America. Together with China, this is the biggest market for single-aisles. With Mobile, we are achieving a strategic goal. Additional benefits include natural hedging, which makes sense long-term. You are near your customers, you create jobs and value, you improve your image. We have 1,100 employees in the U.S. right now, and that is not well-known. Mobile will be our flagship site in America.

Are you betting on gaining better access to the U.S.'s big defense market, as well?

Mobile aids the positive image of Airbus Group (IW1000/52), but basically this was an investment decision by Airbus Commercial.

Do you think the fact that Airbus is building aircraft in the U.S. will resonate in Washington?

Well, we are talking about commercial aircraft, so there is very limited U.S. government involvement except by the local players. Clearly, this investment will create a lot of visibility; after all, we are only the second manufacturer to invest in a U.S. final assembly line. We will demonstrate that we can make it a success and that might positively reflect our image in the U.S. We are well-known to U.S. airlines; we don't do this because  we plan to invest in a military product in a few years. It does not work like that. If there is a new program or campaign, Mobile will be one potential site for cooperation.

Can U.S. suppliers hope their role will be strengthened?

They don't need that and they know it. Our supply chain is international, and the biggest part of it is American. We procured goods and services worth $15.9 billion here last year. But clearly being industrially present in America will bring us even closer to some U.S. partners.

Your plan is to eventually build four aircraft per month in Mobile. That cannot be as efficient as a much bigger line in Hamburg or Toulouse. What are the efficiency and cost targets?

We expect to achieve four airplanes a month by the end of 2017, so that is a quite aggressive ramp-up. But we have the experience of [our line in] Tianjin, China, and Mobile already has some aerospace capabilities. Our goal is to have a competitive final assembly line when we take all the factors -- foreign exchange rates, logistics, salaries and learning curve --  into account. That means the same overall costs as we have in Hamburg or Toulouse. We did not undertake this for cost reasons, but we don't want to degrade our efficiency either.

So any efficiency disadvantage will have to be compensated for in other areas.

Yes, it will come as no surprise that salaries in Europe are high, especially when social taxes are taken into account. On the other hand, we face logistics costs and a learning curve in the U.S.

When will the line be at its targeted efficiency?

Sometime after we have achieved a four-per-month rate, maybe at the end of 2018. By then, costs should be optimized. And by the way: We don't do this against Hamburg. I made clear some months ago that if we needed to ramp up production faster, beyond rate 50 -- and we are studying that -- we would establish an additional assembly line in Hamburg. But we also need some international deployment to be stronger.

There has recently been a lot of talk about the crisis in emerging markets -- China, Russia, Brazil. Is that starting to affect your production planning?

Not at all. In spite of all that has been said, there is still a lot of growth in air transport -- especially in Asia. On top of that, we were so successful with the NEO that our challenge is to deliver to the customer. The trend remains positive; look at the confirmation of the IndiGo order.

But there was also the Air Asia X A330 cancellation.

I'm talking global trends. Even if globally the airlines are growing profitably, you face difficulties with some customers. The bankruptcy of Skymark affected us. You know the difficulties in the Russian market, and we are pleased that Aeroflot managed to take over Transaero. We also have had some requests to defer deliveries, and Air Asia X is an example. But I believe this is temporary.

Are you seeing a rise in deferrals?

No, we have fewer today than a year ago -- around 40 cancellations and a limited number of deferrals. Some were very visible, notably Skymark, because it affected the A380.

So if you increased the rate to 60 or higher, would you go beyond rate four in Mobile or Tianjin?

No. So far, we are very pleased to go up to rate four in Mobile, but we can always adjust. Toulouse and Hamburg are stretched in production, but we believe that the next step would be to increase  production in Hamburg.

How political is that decision?

Decisions are multi-fold -- based on economics, or vision in some cases, as well as competitiveness. Our employees and unions understand.

But the idea of collecting all the parts in Hamburg as well as shipping them does not sound very cost efficient.

It is efficient from the logistics standpoint. We are used to doing this for Tianjin. At rate four we have one shipment per week. I would say it is competitive. Of course, if everything were produced  in Mobile or Tianjin we would avoid these logistics costs, but we would have a lot of capital expenditure that would not be justified.

In Tianjin, some major parts now arrive directly without going to Hamburg first.

Yes, and we will do the same in Mobile. Cabin equipment, engines, nacelles, all of that will go direct. We have a partnership with Avic in China to assemble and equip wings for the A320, so of course these wings go direct from Xian to Tianjin.

For example, all the cabin-equipping  of single-aisles is done in Hamburg, including for every aircraft assembled in Toulouse. From a purely competitive stance, this does not make sense. So if we decide to invest in another assembly line in Hamburg, we will concurrently equip the Toulouse-made aircraft in Toulouse to optimize our costs. It is not done for political or balance reasons.

If you wanted to go beyond four aircraft per month in Mobile, would you have the space?

In principle, yes. We always make sure there is space for potential expansion. Look at Tianjin: We did not increase the A320 final assembly line, but we decided to establish the A330 completion center. And in Mobile, yes, we could expand for us or for Airbus Group or another program and would try to maximize the investment made for the A320 line.

Will aircraft built in Mobile go only to U.S. airlines?

They could go anywhere, but they are geared  for the U.S. market. And with the success of our A320neo family and sales to Delta Air Lines, American Airlines or JetBlue, we don't intend to export aircraft for the foreseeable future.

It would seem to make sense to focus on just the A320 and A321 in Mobile, given the strong demand for the larger family members.

It does not make a big difference if you build an A319 or A320. But you are right, the market in the U.S. is now largely A321s. And by the way, we start deliveries with an A321 for JetBlue.

Now that you are active in Mobile, could you move more subassembly work to the U.S.? The logistics of the operation look quite complex.

We expect something similar to Tianjin. The final assembly line will be a kind of a magnet. Suppliers will be working directly with us and investing in the region because they think it is attractive. Look at Tianjin and you'll see an aerospace park that did not exist before we came. Transferring subassemblies requires a lot of investment. From a business point of view, this is probably not the best approach, especially at rate four.

So Mobile is a great tool in two ways: It is easier to ramp down than European factories because of labor laws, and it gives Airbus more leverage in labor negotiations in Europe.

We have managed  to negotiate competitiveness and flexibility agreements with our unions prior to the Mobile decision. Your reference to more flexibility is theoretical because we need Mobile to achieve rate 50, and if we go above rate 50 we will need an assembly line in Hamburg. It would be a mistake to consider Mobile as [a negotiation ploy]. It will, like Tianjin, belong to our production network. We have established a mature dialog with our unions in Germany and in France. They understand that this is a win-win strategy.

Do you see any substantial advantage for Airbus from the current Ex-Im Bank suspension?

No, I think Boeing is as aggressive in campaigns as always. There is no difference. And right now, the financing of aircraft is pretty easy without government guarantees.

If you decide to export Mobile aircraft, could you use Ex-Im, provided it was reinstated?

In theory yes; but we plan to deliver all the aircraft to U.S. airlines.

Looking beyond A320, what is next for Mobile?

We just decided to place the A330 completion center in Tianjin and are satisfied with that. These are not easy projects to manage; we are the only one to do so. You need long-term vision and internal skills to implement such arrangements. Airbus culture helps. We know because we did something like this between the French and the Germans.

Is it fair to assume your global system of final assembly lines is complete for the foreseeable future?

Yes, that is a fair assumption.

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