The Airbus Factor : If Boeing Gives Ground, Southland Aerospace Gains
Southern California’s many aerospace subcontractors and the vast number of skilled workers in this region have cause to cheer that a compromise solution will probably be worked out with the European Union over Boeing Co.’s merger with McDonnell Douglas Corp.
A decision from the EU, which has objected to the merger in order to protect the interests of Airbus Industrie, is scheduled to be announced today in Brussels.
But compromises to allay EU objections and avoid penalties against Boeing and a transatlantic trade war were being worked on all day Tuesday by Boeing, EU industrial commissioners, the White House and European foreign ministers.
Whether a deal is announced today or in the near future, the probable outcome is that Boeing will acquire McDonnell, after shareholders of both companies vote Friday.
And Airbus, the company founded 27 years ago by government-backed French, German, British and Spanish aerospace producers, will get at least some competitive help. Possibly it will be able to go forward with plans to develop a new jumbo jet, carrying 550 passengers, to compete with Boeing’s classic 747.
If the envisioned Airbus project, which could cost more than $9 billion, does go ahead, it’s a fair bet that Boeing will respond with a new jumbo program of its own.
Either way, Southern California’s aerospace industry--supplier to all participants in a demanding global business--will be a winner.
Boeing, of course, is already a major presence here. Following its 1996 acquisition of the defense business of Rockwell International, Boeing employs 13,800 people in the region and spends almost $3 billion among hundreds of subcontractors. Once the McDonnell Douglas acquisition is approved, Boeing may announce that work on its 757 and new versions of its 737 planes will be performed in Long Beach.
But Airbus Industrie also contributes sizable business to this region, as part of the $3 billion in contracts it awards to suppliers in the United States for parts and systems for its A319, 320, 321, 330 and 340 airplanes.
If Airbus launches development of the jumbo jet, now dubbed the 3XX, it will mean considerable new work for local suppliers such as Torrance-based AlliedSignal Aerospace, Cytec Industries and B/E Aerospace Acurex in Anaheim, Rohr Corp. in San Diego, Tiernay Metals in Redondo Beach, Huck International in Compton, American Materials & Technologies in Culver City and many others.
Airbus, which sells planes to American, Northwest, Delta, Continental and other U.S. airlines, gives work to U.S. contractors just as Boeing spreads work among suppliers in most countries in which it sells airplanes.
The supply lines are complex. Tiernay Metals supplies aluminum cross-sections for aircraft frames to Alenia of Italy so that the Italian company can supply Boeing in Seattle. At the same time, Tiernay, a $100-million sales leader of its specialty, supplies cross-sections to Airbus from its headquarters in Redondo Beach or from its warehouse in Toulouse, France.
Commercial aerospace is booming right now. Cytec Industries is working overtime at plants here and overseas to supply adhesives and carbon structural parts to both Boeing and Airbus. Boeing, which has 70% of the world market, is turning out 43 planes a month, and Airbus is building 19 a month, a Cytec spokesman says.
But the business is demanding. American Materials & Technologies, a small company with about 300 employees and more than $40 million in sales this year, supplies composite materials that form the interior wall panels of Boeing and Airbus planes.
Despite competition from larger companies, such as Cytec and Pleasanton, Calif.-based Hexcel Corp., AMT retains the business because 10 years ago it developed a resin that made panels flame- and smoke-resistant, and that quality has become the standard for commercial airplanes. And AMT keeps improving its product and procedures. President Paul Pendorf, a chemical engineer, is grateful for the $100,000 California grant that his company gets for training employees in quality procedures.
“If you don’t continually do the training, you can’t qualify as a Boeing supplier,” he explains.
Southern California currently has an advantage in global aerospace contracting because of the expertise of the people coming here, Pendorf says.
“We have chemical engineers from Russia, Iran, India all working here.”
And the region has an enormous advantage in the legacy of decades of defense work. Southern California has become the world center in development of composite materials, for example, the chemically based plastic-metal compounds that make up so much of the B-1, B-2 and other military planes.
Now those composites have become part of every new commercial airliner. And their production is the heart of Cytec, Hexcel and AMT’s business.
“Uncle Sam paid for the initial research,” observes Philip Cunningham, AMT’s vice president for operations, but Airbus helped too. “From the start, Airbus has used more composite materials to get strength without adding weight in its planes,” he says.
If the EU had carried out its threat to bar Boeing from Europe’s markets, international business would have gone into turmoil. Boeing, McDonnell and Airbus and all their suppliers would have suffered.
Compromise was called for. One concession that Europe demanded was that European governments be allowed to subsidize Airbus for a while longer. The EU needed White House permission for that because of a bilateral agreement phasing out subsidies.
Also, Airbus feared the exclusive supply contracts that Boeing has recently made with American, Delta and Continental, all buyers of Airbus planes. Boeing apparently has agreed to relax the terms of those contracts somewhat.
So if the compromises do materialize, Boeing will get to breathe new competitive life into McDonnell’s Long Beach facilities and Airbus will get competitive relief also. Southern California can’t be unhappy about either of those outcomes.
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