Will Aircraft Industry Follow Autos with Subsidies and Weakened Unions?

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Guest post by Kenneth Thomas

The growth of subsidized competition that undermined the auto industry and the United Auto Workers may now be happening in the aircraft industry. First came the 2009 announcement that Boeing would build a second assembly line for the 787 Dreamliner in South Carolina rather than Washington state due, at least in part, as company officials publicly stated, to unhappiness with its dealings with the International Association of Machinists. Then, on July 2, it was announced that Airbus would begin assembling its A-320 airliner in Mobile, Alabama. In both cases, the facilities received substantial subsidies to build non-union facilities. This is especially ironic in the case of Airbus, since its European facilities are, of course, unionized.

The South Carolina package for Boeing is thought to be worth over $900 million  to open a new assembly line for the Dreamliner. That project is expected to create 3800 non-union jobs in the state. It was also the subject of a huge labor dispute after Boeing CEO Jim Albaugh said that the decision had been motivated by strikes at its facilities in Washington (http://motherjones.com/kevin-drum/2011/09/quote-day-boeing-vs-nlrb, h/t Matt Yglesias). This was a no-no: the National Labor Relations Act protects workers who exercise their rights to form a union or to strike from retaliation by the company. This prompted a National Labor Relations Board complaint from the Machinists union, which was eventually dropped when the company agreed to locate production of the new 737 MAX in Renton, Washington, and signed on to a four-year contract extension (http://seattletimes.nwsource.com/html/businesstechnology/2016901106_boeingiam01.html, h/t Talking Points Memo).

Airbus’ new $600 million facility in Alabama is projected to create 1000 jobs, also non-union. Initial reports put subsidies to the company at $158.5 million from the state and various local governments (thanks to @varnergreg for pointing out this article). Remember, though, that initial reports are more likely to underestimate subsidies than overestimate them, as in the case of Electrolux in Memphis. However, if this is remotely near accurate, Alabama got a much better deal for Airbus than did Washington state for the Boeing 787 Dreamliner, giving tax breaks equal to an almost $2 billion cash grant, which was 220% of the investment and $1.65 million per job (according to my calculations for Investment Incentives and the Global Competition for Capital), more than 10 times the per job cost in Alabama.

Unfortunately, these developments could repeat the example of the subsidization of new automotive facilities that hastened the decline of Detroit’s Big Three and weakened the UAW. According to economic geographer James Rubenstein (1992, Table 1.1), from 1979 to 1991 there was a 1 to 1 correspondence in the opening and closing of new automobile and truck assembly plants in the U.S. and Canada: 20 new ones were built, 20 old ones were closed. Every one of the new facilities received subsidies from state and local (or federal and provincial, in Canada) governments. Given that the automobile industry was in a position of overcapacity for much of that period, it is no surprise that new production simply displaced older production.

Will the same thing now happen in the aircraft industry? Globally, Airbus has been putting market share above profits since the early 2000s. With its current move to Alabama, CEO Fabrice Brégier said the company hoped to grow its U.S. market share for single-aisle planes (the A-320 competes mainly with the Boeing 737) from 17% to 50% over the next 20 years. If Airbus is successful, it would be bad for the 80,000+ employees in Boeing’s Commercial Airplanes group.

Of course, there is growing global demand for airliners, especially in Asia. But China has already developed its own competitor in the single-aisle market and Airbus is building A-320s in Tianjin, China, making it unclear how much of the global growth can translate into increased U.S. employment.

As was the case with automakers, the competition for facilities allowed Boeing and Airbus to extract rents through the site selection process and getting non-union labor as well as subsidies. By repeating this process for projects large and small, state and local governments deprive themselves of as much as $70 billion per year in revenue, enough to hire all state and local employees laid off since the recession began in December 2007. At the same time, over the long haul, the process in the auto industry replaced well-paid unionized workers with less well-paid, non-union workers.  The prospect that this evolution could be repeated in the aircraft industry is a pretty depressing one, when all is said and done.

(This post is a revision of an earlier version at Middle Class Political Economist, Alabama’s Airbus Subsidy Eerily Reminiscent of Auto “Transplants”.)

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