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December 9, 2013

Q&A: Airbus Chairman discusses suppliers for plant

Brad Harper
The Montgomery Advertiser

Airbus Americas Chairman Allan McArtor is high on Alabama, and his opinion of its Capital City is on the rise.

McArtor toured Montgomery, Ala., during a recent visit before being applauded by local leaders for his role in bringing a new airplane assembly plant to Mobile. But that $600 million plant and its expected 1,000 direct employees are just the tip of the iceberg – thousands of supplier jobs could be on the way to support the plant.

Montgomery is probably the most logical, closest and most capable community outside of Mobile to land those suppliers, McArtor said.

People keep telling me how important Airbus is for coming to the Gulf Coast region, and in particular Alabama, he said. I should tell you how important it is for Airbus to have an industrial home in a state like Alabama.

During his visit, McArtor spoke to the Advertiser about Airbus’ plans and what they could mean for central Alabama and the Southeast.

How important will Airbus’ operations in Alabama be to the company as a whole, globally?

It will positively contribute to our (earnings) for sure because we think the cost of production will be lower, even though we have a little higher transportation cost. It will certainly attract, we believe, market share in the U.S. The airlines to whom we sell our A-320 family airplanes are very enthusiastic about taking delivery of those airplanes out of a U.S. facility. All we have to do is get a couple percent market share because of that phenomena and it’ll make the decision enormously successful. Why do we have confidence in that? Well just look at the automobile industry. Look at the market share shift. You kind of get stuck at 17 percent or 20 percent market share when you’ve got cars coming from Japan or from Germany. You bring (production) over here to the U.S. and it goes up to 50 percent market share. It just happens.

How has the Mobile plant announcement changed the mindset for suppliers?

It’s got our entire supply base thinking, `Now wait a minute, we’re shipping all of our components over to Europe, they get assembled into major component assemblies, and we ship them back. Maybe we want to be closer to the final assembly line in Mobile just like we wanted to be closer to Hamburg and Toulouse in the last two decades.’ So they’re rethinking how they want to set up their own capital investment. If we’re going to insist that they expand capacity, do they want to make that investment in a union environment in an economy that’s not all that strong? Or do they want to make it in a right-to-work state in the sun belt, where the quality of life and the work ethic is quite impressive?

And so they’re rethinking how to get closer to this final assembly. We’ve got European suppliers who are thinking maybe they should make that next capital investment in the U.S. for the same reasons that we wanted to: higher productivity, lower cost, innovation, quality of life and some concern over financial sectors and stability in Europe vs. U.S. So I think over the next couple of years you’re going to see a lot of people looking for support communities that can service the final assembly line.

There’ll be a radius of activity that quite frankly will go as far as Atlanta and Tennessee. But Montgomery is ideally positioned as a community that can support this kind of commercial growth.

What is it about Montgomery that makes it ideal?

Montgomery is just the right size. State government is here. It’s a town that’s reinventing itself.

Old Montgomery is coming down and new Montgomery is coming up. There’s a very strong work ethic.

There’s a quality of life. There’s collegial community atmosphere. A lot of young folks come in to Montgomery. It’s close enough that you can go to an Auburn or Alabama game. The business community has really come together to recruit jobs and recruit commerce. That connected with the governor’s office, which sees economic development and job creation as a high priority, I think you’re extremely well positioned. To me it’s a different atmosphere than Birmingham or Huntsville. It’s more like the community that I grew up in.

What is Airbus’ strategy with investing in workforce training programs?

Airbus, with its European heritage, is learning more about doing those things. We are very much committed within Airbus Americas to having extensive relationships with universities and research activities. We’ve adopted some schools down in Mobile. We just had 105 third graders out to the construction site the other day. We took a picture of them with the construction in back of them. When they’re in fourth grade we’ll take another picture, and in fifth grade we’ll take another picture. So we’re going to grow together. And we want to help shape the curricula for STEM schools. We want to both try to interest kids in our industry and we want to provide the infrastructure where they can have both the education and the experience of seeing what goes on at our final assembly line.

Is Airbus planning to make a financial commitment to the two-year college system?

I couldn’t tell you how we will be involved in that, but one of the first things we checked on when we looked around for sites was the network of two-year institutions. That’s where most of the talent that we recruit will likely come from. We are a trained skill at a final assembly line, vs. an educated skill. Clearly we have management and engineering positions and things like that, that are more of an educated skill. But we train good people to become `new-collar workers.’ These are very technical, highly-trained skills specific to the jobs that we want them to do. We’ve got a great relationship with AIDT. They’re putting in a $60 million training facility right next to the assembly line for all high-tech education. Clearly they would be focused on us in the near term, but it’s for any company coming to town or coming to the state that requires high-tech training. But yes, the two-year institutions are the backbone of the business that we and Boeing are engaged in.

How does AIDT compare to similar agencies in other states?

The only other state that I feel comfortable comparing it to is Ohio, and they’ve got a great program.

Ohio is another state that basically has it all wired together. They speak with one voice. They can talk to the NASA centers and the Air Force bases and the educational centers and the aerospace companies in Ohio. We’ve been very impressed with Ohio. If Ohio had been on the coast, you probably would have had some pretty good competition. But they’re not. We took a look at AIDT and what they’d done with Thyssenkrupp and the automobile companies, and we were quite impressed. So far that I can see, they’re doing a great job for us.

How bright is the future for the plane-making business?

The number of people getting on airplanes doubles about every 15 years. It’s been doing that for a long time and is still on that same kind of track. It normally tracks GDP pretty well. On a global basis, aviation is growing very, very impressively, mainly because of emerging markets (such as) China, India, the Middle East and Malaysia. It’s relatively healthy even in the mature markets of Europe and the U.S. In the U.S., the growth is about half true growth and about half from re-fleeting, modernizing the airplanes. There are still a lot of tired airplanes flying with our carriers in the U.S. All are being replaced now with more fuel-efficient airplanes, and fuel has exceeded labor now as the No. 1 operating cost for an airline. So those of us in the airplane-making business, we see over the next 20 years we’re going to demand almost 25,000 new airplanes. It’s a very good business to be in. It’s been healthy for us. Our backlogs are so great that we need to increase our production capacity. That’s why we very much wanted to proceed with a strategy that we developed over several years to create an industrial presence in the United States.




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