Airbus adopts global supply chain as Boeing exec decries it
By THE ECONOMIST
Both aviation giants are moaning loudly that their production systems and supply chains are flawed, albeit for ostensibly different reasons.
This week Louis Gallois, the boss of EADS, the Franco-German aerospace consortium that owns Airbus, added substance to warnings a week earlier by the planemaker's chief executive, Tom Enders, that the dollar's decline was "life-threatening" for the firm. Gallois said it was no longer just a possibility that Airbus would have to move a large part of its production to "the dollar zone" or low-cost countries, but a certainty.
Airbus is already in the middle of Power8, a big restructuring plan that involves the loss of 10,000 jobs and the sale of several plants, which is meant to offset the losses caused by the delays in delivering the A380 superjumbo. But Power8 assumed that a euro was worth $1.35, not today's $1.47. Gallois estimates that each 10-cent rise in the euro costs Airbus 1 billion.
At present, Airbus makes 76 percent of its purchases within Europe, but generates more than 60 of its sales elsewhere. It must now shift some production abroad--known in French as délocalization.
Until now, Airbus has mainly used délocalization as a means of drumming up orders or investment. Next year it will open an assembly line for the single-aisle A320 in China, which will be followed by a second site for making composite components. The conversion of A320 passenger aircraft into a cargo variant will take place in Russia, which will also get 5 percent of the work on the new A350. And in November Airbus, which has yet to penetrate the Japanese market, revealed that it was in talks with Japanese companies to take on more than 5 percent of the A350 program.
Airbus is now likely to forge ahead much further. Gallois suggests that when the A350 enters service in 2013, 70 percent of it will have been "purchased" in dollars, against 50 percent for the A380 and an average 24 percent of Airbus production today.
Airbus maintains that exchange rates are not the only reason for outsourcing: It is keen to tap into composite-manufacturing expertise wherever it exists. It also insists that it will not repeat the mistakes Boeing has made with its new 787 Dreamliner, about 80 percent of which has been outsourced.
A few weeks ago Mike Bair, the executive responsible for the 787 program, who was recently moved sideways after mounting production delays, launched a withering attack on some of the companies recruited to build the plane. He said that in the future Boeing would not entrust design work to partners who "proved incapable of doing it," and would make suppliers build factories close to Boeing's main assembly operation, rather than flying semi-finished sections of the aircraft round the world on huge Dreamlifter transporters.
It is too early to conclude that the two rivals are heading in opposite directions -- Boeing renouncing the global supply chain just as Airbus adopts it. Each company has its own ax to grind. Airbus needs greater flexibility, and the weak dollar provides helpful cover as it takes on its grumbling unions.
Boeing, for its part, wants to shift the blame for delays in the 787 onto its partners. The logic of global outsourcing in the aerospace industry remains powerful. Whatever they may be saying now, Airbus and Boeing are more likely to converge than to diverge.