The Airbus March on America Could the Air Force Contract Cost European Jobs?
Part 2: Will the Airbus Deal Cost European Jobs?
The move away from Europe got underway in earnest earlier this year. Just after the start of the year, EADS CEO Louis Gallois gave his traditional New Year's address at EADS subsidiary Eurocopter, located in the Bavarian town of Donauwörth. Gallois was there to convey two messages. First, he said, he wanted to express his gratitude to the workers from Donauwörth. Then he added that the group plans to shift significant portions of its production to the dollar zone.
The Airbus site in Mobile, Alabama, which stands to gain from the new contract awarded to Airbus.
Gallois also said that the group plans to procure both parts and complete subassemblies outside Europe in the future, thereby protecting itself against further decline of the dollar. The US currency remains the principal form of payment in the aviation business today. When the dollar falls, so do the Europeans' profits. Meanwhile, EADS still pays 70 percent of its costs in euros.
Until recently, though, it seemed as though the Gallois speech at Eurocopter was one more intended to indicate what the future might hold than impending reality for Airbus' German, French and Spanish workers. Now his plans, grandiosely dubbed "Vision 2020" within the company, will become reality sooner than expected.
The forerunner of the trans-Atlantic shift is the EADS research and development center in Mobile, Alabama. Roughly 90 US engineers are already engaged in research for the European plane maker. The current plans call for the tanker version of Airbus's successful A330 model to be assembled in Mobile, where Northrop Grumman, the company's US joint venture partner, will install the electronic systems. But the plans go even further than that.
In late January, not long before the US Department of Defense awarded the contract to EADS, Airbus CEO Thomas Enders paid a visit to Alabama to lay additional bait. Should the Airbus and Northrop Grumman joint venture win the Air Force contract, he said, Airbus would also assemble cargo versions of the A330 in Mobile in the future.
But this doesn't necessarily mean that Airbus will stop there. Once production has gotten successfully underway in Mobile, this provincial city could conceivably become Airbus' fourth-largest assembly site for passenger aircraft, next to Hamburg, Toulouse and Tianjin, China. "There are no such plans at present," says and EADS spokesman. Not yet, that is.
The Europeans owe their acceptance as serious contenders for the multibillion-dollar contract to more than just their tenacity and systematic lobbying efforts. Boeing, after all, is no stranger to aggressive business tactics. Rather, the Europeans' success is partly due to luck -- but also to serious mistakes made by the competition.
Early on in the bidding, Boeing's credibility was damaged by a corruption scandal. A senior Air Force employee supplied Boeing with important, but confidential information. In return, she was to be offered a well-paying job at Boeing. The crooked deal was eventually uncovered, partly as a result of persistent inquiries by Senator John McCain.
The Air Force employee and a senior Boeing executive received prison sentences, and a short time later even the company's CEO resigned. Two men, in particular, recognized the opportunity that the corruption scandal held for EADS: Thomas Enders, the current Airbus CEO and the head of the company's defense division at the time, and Ralph Crosby, the then head of EADS's North American defense division.
Crosby, who had lost a bid for the top job at US defense contractor Northrop Grumman, was recruited by Enders and proved to be one of the best personnel investments that the EADS Group has made in its almost 10-year history. Enders and Crosby developed the master plan that eventually enabled the Europeans to secure the contract for the first 179 tanker aircraft -- and the opportunity to produce another 400.
It was Crosby, a self-confessed military buff, who recruited his former employer, Northrop Grumman, as a joint venture partner in the hotly contested bidding process, and then brought US engine maker General Electric on board as the third partner. Using a clever PR campaign, Crosby selected, from among more than two dozen contenders in the United States, the small city of Mobile as the site for an R&D center and for the later final assembly of the tankers. In doing so, he immediately gained the support of neighboring Mississippi. Many workers commute to Alabama from Mississippi, which holds its presidential primaries this week. Mississippi has also recently become the site of vocal clashes between supporters and opponents of the planned Airbus tanker deal.
Will Boeing executives at least prove to be good losers, or will they challenge the decision after all? Boeing CEO James McNerney and his colleagues have 10 days to announce whether they intend to file an appeal against the Air Force decision with the US General Accounting Office (GAO). The GAO will then have 100 days to investigate the deal. There are some indications that the Americans will attempt to block the decision in court.
One of the most perplexing issues is why Boeing selected its technically obsolete 767 long-range jet as the basis for its tanker bid. Jim Albaugh, the head of Boeing's defense division, justifies the decision by arguing that the call for bids never made it clear that the size and cargo capacity of the jets would be the most important factor. But it was precisely these aspects -- in which the A330 trumps the Boeing 767 -- that prompted the Pentagon to choose Airbus.
"We could also have offered our larger model, the 777," says Albaugh, "but we were dissuaded from doing so." Albaugh isn't naming any names -- not yet.
Translated from the German by Christopher Sultan
- Part 1: Could the Air Force Contract Cost European Jobs?
- Part 2: Will the Airbus Deal Cost European Jobs?