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Last week EADS announced that it will be building a plant in Mobile, AL to build Airbus airliners. The facility had originally been procured with the goal of building new aerial tankers for the U.S. Air Force but unfortunately for the European aerospace giant Boeing (BA) won that contract. Airbus had also discussed building civil aircraft on the same line as the tankers. Now they have gone ahead with a plan just to deliver their new medium, high efficiency airliner, the A320neo, from that plant.

For the same reason Airbus is building a plant in China the Mobile factory offers some advantages. It will reduce costs first by the use of a non-Union workforce whose overall salary and benefits will be quite a bit less then the heavily unionized French workforce. Alabama is a right-to-work state and already has several plants for Honda, Toyota, Hyundai and aerospace and defense contractors. Airbus will continue this trend. It also places it closer to some of their suppliers as Airbus does use American and Canadian companies to build components and pieces for their aircraft. The American facility will also mean in many cases it is nearer their U.S. customers and will eventually allow it to perform Maintenance, Repair & Overhaul (MRO) work for those further increasing revenue and earnings. Much of this work is done by third party MRO providers in the U.S.

One of their major suppliers is the Wichita, Kansas based Spirit Aerosystems (SPR). Spirit provides large portions of the wings for the A320. It also builds components for Boeing, Bombardier, Gulfstream and Mitsubishi aircraft. Spirit is in the midst of a major expansion of its Wichita facilities primarily to support Boeing's expanded production of the 787 and 737. Although the majority of its revenue from wing structures comes from Boeing Airbus is still over ten percent. Spirit has demonstrated that it is capable to grow production to meet increased demand and supply of customers. As the Mobile plant ramps up it too would if the demand for their portion of the A320 aircraft increases.

Spirit stock has traded in a range of $14 to $26 a share for the last year. They have built back steadily off their low in August. This performance has mirrored much of the aerospace industries which has seen good returns over the last six months but have been stuck recently near their 52 week highs. The last two quarters Spirit has beaten earnings; most recently in May by a nickel. The projection for the current quarter which reports in a month is about 52 cents a share which would track recent performance.

The location of the Mobile plant may make Airbus consider Spirit for more components and parts for the A320 beyond the current wing parts. Spirit also builds fuselage and engine structures for other aircraft including Airbus' A380 and A350WX projects. The shipping costs would be lower then moving them from production plants in Europe or other parts of the world where they are currently made which would further improve the efficiency and cost advantage of the U.S. location to EADS. Spirit could see more then just the growth related to deliveries of the new A320 version.

Airbus is receiving tax benefits and investment form the state of Alabama to aid them in establishing their facility. Spirit could get similar aid from Kansas if they have a need for further expansion. In a blow to that state, Boeing decided not to do any of the tanker work in Wichita despite that historically being their primary military site. Instead they will close that facility and move the work to Washington State to reduce their costs and buy some union peace. Kansas was not appreciative of the move especially as their Congressional delegation and state officials had heavily supported Boeing for the contract over EADS.

Spirit has done well this past year in terms of growing revenue and earnings. The decision by EADS to open their Mobile plant will most likely have a positive effect on the company. High fuel prices and overall costs have attracted airlines to buy more efficient, new designs such as the A320neo and Boeing's latest version of the 737. Spirit will support that production. As the world emerges from its current economic slump over the next few years demand in Europe and the Americas will also increase further spurring new aircraft sales. Sales to Asia have continued at a relatively good clip this year and include a major sale of A320neo's to Malaysia's discount airline, AirAsia, which might increase its order.

Spirit Aerosystems seems well positioned to benefit from recent moves in the airline industry including the opening of the Airbus plant in Mobile, AL. Long term its growth will mirror the future sales of Airbus and Boeing product and will expand as the market for new airliners does.

Source: Will Airbus's Move To Alabama Help Spirit Aerosystems (SPR)?