Airbus and Boeing sign Gulf supply chain deals

Boeing signs expanded pact with Mubadala, production facility deal with Tawazun

ReutersNovember 19, 2013 

Sheikh Ahmed bin Saeed Al Maktoum, chairman of Emirates Airlines, shakes hands with Boeing Commercial Airplanes Chief Executive Ray Conner, right, as Boeing Chairman James McNerney, left, looks on Monday during the Dubai Airshow.

CAREN FIROUZ /REUTERS

DUBAI — Airbus and Boeing agreed to triple purchases of parts and materials from Abu Dhabi in deals worth over $5 billion on Monday, as Gulf states seek a reciprocal boost to their economies from huge orders they have placed with the planemakers.

A shift of emphasis on day two of the Dubai Airshow accelerated the growth in aircraft parts manufacturing in countries where demand is strongest and will spread part of the profits generated by $150 billion of brand-new plane orders.

“We have always had industrial partnerships in countries where we have done business,” said Boeing’s Chairman and Chief Executive Jim McNerney.

“It is not just a marketing quid-pro-quo; it benefits us and so reduces our risk to have more partnerships around the world,” he told reporters at the Middle East trade gathering.

Airbus agreed to a new deal with Abu Dhabi’s state investment fund Mubadala, whose aerospace unit already builds lightweight parts for Airbus and Boeing.

Separately, Boeing said it had signed a deal with Mubadala for Abu Dhabi to supply as much as $2.5 billion in advanced composites and machine metals to the U.S. planemaker. The deal with Mubadala Development Company won’t affect employment levels at either Boeing’s Frederickson or Salt Lake City plants where 787 and 777 composite parts are made, said Boeing spokesman Doug Alder.

The expansion of production rates for both planes requires greater supply of the composite parts being produced at both plants, he said.

“We had always envisioned obtaining those parts from multiple sources,” he said.

The deals will benefit the mainly female workforce of a $250 million plant in the remote oasis town of Al-Ain. Competition also from South Korea and Japan is intense, but Mubadala Aerospace, owned by Abu Dhabi’s sovereign investment fund, aims for a top-three spot in the industry by 2020.

“These deals make us three times bigger than what we were yesterday, which is important to us because it brings us closer to being one of the top three in the market,” said Badr Al-Olama, chief executive of Mubadala’a Strata manufacturing unit.

Boeing said it had also reached an agreement with Abu Dhabi’s Tawazun Precision Industries, a state-owned manufacturing investment company, to set up a facility in the United Arab Emirates for producing composite materials. The facility will be up and running by 2016 and will produce parts for other manufacturers as well as Boeing, the two parties said, without disclosing financial details.

Sunday’s record opening-day orders included over 140 jets from Boeing and its European rival Airbus for Abu Dhabi’s Etihad Airways, and an even larger number for Dubai’s Emirates.

The buying spree underscores a shift in power in the aviation industry as oil-rich, fast-growing economies of the Gulf take advantage of their strategic position between East and West to draw more travelers from hubs in Europe and Asia.

While the orders drove up share prices in Boeing and Airbus parent EADS, the world’s dominant civil aircraft manufacturers, workers at their traditional aerospace factories are worried they will suffer from the growing globalization of the aircraft supply chain, in which Gulf companies are playing a part.

Machinists in Washington state last week rejected a new labor contract that would have kept production of a new model of 777, launched at the Dubai air show, in Boeing’s traditional base in return for a restructuring of pensions and benefits.

The Washington State Labor Council called a rally for Monday afternoon at Seattle’s Westlake Park. The council says it wanted to show Boeing and state leaders it supports Machinists union members who voted last week to reject contract concessions Boeing said it needed to build the new 777x in Washington.

McNerney said Boeing had been open with workers about the need for global partnerships. The company has acknowledged however that it overdid outsourcing of its 787 Dreamliner.

Elsewhere in the Gulf, few have been as aggressive about promoting aerospace manufacturing as Abu Dhabi, but Qatar has tilted towards a “knowledge-based” economy and cooperates in areas such as data analytics, an industry official said.

The hub cities in the Gulf — Dubai, Abu Dhabi and Doha — are spending billions on infrastructure in a bid to attract travelers and diversify their oil-based revenues, at a time when faltering Western economies are struggling to invest.

McNerney dismissed concerns that the latest spate of orders indicated that the region was overreaching itself economically.

“This region is for real,” he told reporters.

Staff writer John Gillie contributed to this report.

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