Jeff Horwich: In the next hour, the European airplane maker Airbus is expected to announce a new assembly plant in Alabama. Airbus is going to make the Airbus A320 there, with an investment of $600 million. Now, at first blush, “Airbus in Alabama” — Airbus in the U.S. at all — that just does not fly. Here to talk it through I’ve got Allen Michel. He’s a professor of finance at Boston University’s School of Management. Good morning.
Allen Michel: Good morning.
Horwich: Why would Airbus want to build in Alabama?
Michel: They’d like to build in Alabama for a number of reasons. They’d like to win more U.S. business; in particular, getting defense deals. They lost a big defense contract about a year and a half ago for the U.S. Air Force for tankers. Defense is a big business for any airline producer. So they’re very interested in competing with Boeing on the commercial front, competing with Boeing on the defense front.
Horwich: Does it have anything to do with labor costs in the South of the U.S.?
Michel: I think that becomes certainly one issue. I don’t think it’s a decision that’s made solely on labor costs, but labor costs don’t hurt them. It’s more than just labor costs — it’s labor inflexbility in Europe. When you take a look at producing a plant in Europe, you’ve got all kinds of labor restrictions. You can’t close down that plant very easily. You can’t make work rule changes very easily. Even with unions in the United States, it’s much easier than in Europe. So there’s a leg up that any manufacturer has producing in the United States.
Horwich: But this seems crazy to me and probably to lots of other people. Airbus is the European airplane maker. Weren’t they founded to create airplane-building jobs for Europeans?
Michel: They were initially founded to create jobs over in Europe, but over time things change. And now they realize that they’re losing contracts because they aren’t in the United States.
Horwich: How can Boeing respond to something like this? They’re not likely to set up a plant in France, I suppose.
Michel: No, I don’t think Boeing will set up a plant in France. I think Boeing understands that manufacturing in Europe is not a big winner. Boeing is probably going to have to retool its efforts at being more service drive and cutting costs.
Horwich: Finance professor Allen Michel at Boston University, thanks a lot.
Michel: You’re very welcome.
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