Tag: Alabama

OM in the News: Airbus Lands in Alabama

The 1st A321 being inspected in the new plant in Mobile
The 1st A321 being inspected in the new plant in Mobile

Mardi Gras came early this year to Mobile, Ala., writes The New York Times (Sept. 20, 2015).  Following a jazz band, a float bearing waving dignitaries and sequined musicians, was a column of flatbed trucks, laden with sections of fuselage, wings and tail components of an A321 jet that had just made the 3-week Atlantic crossing from an Airbus factory in Germany. They were on their way to a new Airbus assembly plant — its first civilian factory in the U.S. “I think Santa Claus has been here, and he’s left us an airplane,” said Mobile’s mayor.

The $600 million plant, on 116 acres, is the culmination of a courtship ritual, one of many playing out across the country as communities vie for attention and investment from foreign companies. Like many states and cities, Alabama and Mobile sweetened the deal for Airbus with generous tax breaks and other financial incentives.  For Mobile, a city of 200,000, the prospect of 4,000 jobs with Airbus and its suppliers proved especially attractive. Unemployment there hovers at 8%, well above the national average.

Airbus’s foray into the U.S. forms part of a longer-term strategy. The company still lags far behind its rival, Boeing, in the U.S. market. As Japanese automakers did a generation ago, Airbus hopes that by producing aircraft that are “made in America,” it will be able to weaken Boeing’s advantage.

Airbus had eyed Mobile for years. The city’s deepwater port could accommodate ships carrying large structural parts from Europe. Freight trains run nearby, and the site, which is equipped with two long runways, is already home to small aviation maintenance companies and parts suppliers. Locating in Mobile would create a natural hedge against exchange-rate swings between the euro and the dollar and reduce some of the cost of transporting the $16.5 billion in components that Airbus buys from American aerospace suppliers each year. Labor costs were also substantially lower compared with Europe, and Alabama has a right-to-work law, which prevents unions from requiring workers to pay union dues.

Classroom discussion questions:

  1. Why Mobile?
  2. What are the disadvantages of opening a plant outside of Europe?

OM in the News: Alabama Opens Its Wallet to Airbus

airbus alabamaFollowing a year of secret negotiations, Airbus broke ground this month in Mobile, Alabama, for its new plant that will produce the popular A320 jet.  Businessweek (April 22-28, 2013) provides the details of the final location decision and incentives: After looking at “just about every site in the US that had industrial capacity,” Airbus promised to bring an estimated $600 million in investment and 4,000 jobs to the state, no fewer than 1,000 permanent. Alabama, for its part, offered incentives totaling $158 million. They include $82 million in funds for capital investments in the plant and other expenses; and $51.9 million for a 40,000-sq.-ft. on-site training center where workers will be prepared, at state expense, for their new jobs. Faculty from the aerospace departments of colleges in the state will provide the training. The deal also includes tax breaks on manufacturing equipment and a state corporate income tax credit.

The State’s governor says Alabama taxpayers will recoup the investment more than 2-fold within 3 years.

Settling in Alabama, a right-to-work state, will mean lower labor costs for Airbus since plant employees won’t be unionized. Yet opening up shop in Alabama isn’t just about saving Airbus money. The facility won’t make entire airplanes—it will assemble pieces made overseas. Partially completed sections, from cockpit to tail, will be transported by barge from the company’s European factories to Alabama, where they’ll be put together. The cost of transporting the pieces means that even with lower labor costs, planes completed in the U.S. will cost more to manufacture than those made start to finish in Europe.

But having a presence in the U.S. is worth the cost and complications if it helps the company to sell more planes. “Being close to the customer always works—in any industry,” says one French industry analyst. “We believe, similar to other industries, including the auto industry, that if we create an industrial presence in the U.S. our market share will go up.”

Discussion questions:

1. Why did Airbus open a factory outside of Europe?

2. Were the incentives provided unusual or unreasonable?

OM in the News: Airbus Over Alabama

When you are teaching global location analysis in Chapter 8, what better way to start a discussion than Airbus’ decision this week to open a new $600 million facility in Mobile, Alabama. The Wall Street Journal (July 3, 2012) reports that the European jet maker’s US facility will  turn out 40- 50 A320 jetliners yearly by 2018, with about 1,000 full-time employees. (State officials say they expect each job to produce at least 4 more in the local economy). Airbus now assembles A320s at plants in Germany, France and China.

Even without the global politics of airline manufacturing, the economic incentives for Airbus to build more plants in France are difficult. With a headcount of 1,000, the new plant  surpasses France’s various thresholds for taking on a welter of worker “protections” and the burden of union bureaucracies. But it’s worth noting that Airbus didn’t just pick the U.S. over France, Germany, or China. It chose Alabama over the rest of the U.S.  Not least, it’s that Alabama is one of 23 right-to-work states, which means workers are free to decide if they want to join a union. That not only makes that labor market markedly freer than France, but also struggling states across the U.S.. Airbus, of course, isn’t the first foreign enterprise to notice Alabama. The state also hosts Mercedes, Toyota, and other auto production facilities.

Alabama is also offering Airbus over $100 million in tax breaks and other incentives such as job training and infrastructure improvements.  Jets are sold worldwide in dollars and since  Airbus’ planes are manufactured with most costs in Euros, US manufacturing will help hedge against currency gyrations. ( Here is a 3 minute WSJ video on the subject).

Discussion questions:

1. Why is Airbus starting production in the US?

2. How was Alabama able to lure the company?

OM in the News: Illegal Immigrants Vacate Jobs that Americans Find Undesireable

When I was a young child, my dad proudly took me for a tour one Saturday morning of the meat processing plant, Dubuque Packing (home of the famous Dubuque ham), where he worked. Decades later, I still recall the stench, the noise from cows being slaughtered, and the massive cold and damp rooms. Jobs in slaughter houses, as are field-hand picking jobs, are unpleasant, with low pay and skimpy benefits.  As our US population has become better-educated, we seek office and manufacturing  jobs that have set hours, higher pay, and safer conditions–things we take for granted. Businessweek (Nov.10-17, 2011) tackles a tough issue of how illegal immigrants have taken over many of the dirty jobs Americans no longer aspire to.

In particular, this lengthy article deals with Alabama, which in September passed a law making it almost impossible to employ illegal immigrants, mostly Hispanic and heavily Guatemalan (the Hispanic population had grown from 1% in 1990 to 4% today). The law follows an anti-immigration sentiment throughout the country that has accompanied the recession. With 211,000 residents out of work and high unemployment rates (18% in some rural counties), the state’s ruling has resulted in an exodus of 1,000’s of  immigrant field hands, hotel housekeepers, dishwashers, and chicken plant employees.

The result:  employers trying to fill a massive number of vacant positions with Americans. But Americans are not interested in these jobs, and it’s not just because of the hard work and low pay. We have come to think of these jobs as beneath us, says a Princeton prof. “It doesn’t have anything to do with the job itself. In other countries, citizens refuse to take jobs Americans compete for. In Europe, auto manufacturing is an immigrant job category”.

Furious employers have bombarded their legislators with complaints of unpicked tomatoes, unmade beds, and uncleaned fish. This is a thoughtful article that you may want your students to read as you teach Chapter 10.

Discussion questions:

1. Why is this an important OM issue?

2. Should illegal immigrants be hired to do the jobs Americans don’t want?

OM in the News: Alabama’s Incentives to Lure Hyundai–9 Years Later

It was April, 2002 when the State of Alabama announced that Hyundai would be opening a new billion dollar plant in 2005 in economically distressed Montgomery. I recall the headlines at the time about whether the $253 million in industrial incentives were sound business or public policy decisions. Indeed, in Chapter 8 we debate the merits of such incentive programs.

OK, so let’s look back with the benefit of 9 years of hindsight. The New York Times (Feb.18,2011) reports that Hyundai and its sister company, Kia (which just opened a plant nearby) have brought 1,000s of high-paying jobs to the region—and have even nurtured a little Korean culture in Montgomery. Hyundai is running its plant flat-out, with 2,650 workers staffing 3 shifts  24 hours a day. The jobs pay about $20/hour and there is so much overtime that workers make more than their unionized colleagues in plants up North.

 Kia has hired 600 workers to ramp up a second shift at its Sante Fe brand SUV plant and plans to add 1,000 more for a 3rd shift. The presence of Hyundai and Kia have kept Alabama’s unemployment rates among the lowest in the SE—this despite the closure of 12 textile mills that had formed the area’s economic base for decades. Most of those textile jobs went to mills in China and India.

More good news: rarely do a few weeks go by without another parts supplier hiring up. Alabama now lists 138 suppliers that support the Hyundai plant, directly or indirectly.(Some also do business with Honda and Mercedes near Birmingham and Toyota in Huntsville). More than 50 companies have followed Hyundai from Korea to Montgomery, bringing 3,000 Koreans to the area. Finally, near the car plant, a Hyundai subsidiary that makes electrical transformers is building a factory that will create another 1,100 jobs.

Discussion questions:

1. Evaluate the incentive program today, nine years later.

2. What are the hidden benefits of attracting a major manufacturer like Hyundai?

3. Why is the company doing so well in this economy?