Airbus (EAD) has announced that it will set up its first manufacturing facility, an assembly plant for its A320 class of aircraft, in the U.S. The plant is to be set-up in Mobile, Alabama, and is scheduled to begin assembly in 2015 with the first plane to roll out in 2016.

The development is a significant one for Boeing (BA). First, the plant brings production of Airbus's single-aisle A320s to the U.S., which is the largest market for single-aisle aircraft and challenges Boeing's dominant position in this class. And second, the plant shall roll out A320neo in the U.S. market in 2016, nearly two years prior to scheduled roll out of Boeing's competing version, Boeing 737MAX.

Increased competition for Boeing in the US market

Boeing now faces increased competition in the U.S. market in single-aisle aircraft category due to the various advantages Airbus has created for itself with a local assembly plant.

Airbus will now have the capacity to cater to increasing demand for single-aisle aircraft from U.S. airlines, which are looking to replace their aging fleets with more fuel-efficient aircraft in light of persistently high fuel prices. And Airbus A320neo offers 15% fuel savings and lower levels of noise production and emissions in comparison to A320.

In response, Boeing is upgrading its single-aisle aircraft, the Boeing 737 to 737MAX, that it claims will offer even higher fuel savings as compared to A320neo. The first 737MAX shall roll out not before 2017, providing Airbus with crucial lead.

As a result, Airbus has now positioned itself for a larger share in single-aisle aircraft category in the U.S. market.

Airbus goes for cheaper labor

Airbus's planned manufacturing hub in Mobile offers lower wage rates and mostly non-unionized workers, which will help it compete with Boeing on a per head wage basis and help avoid union-activity related production delays.

On the whole, for Boeing to effectively stand up to increased competition from Airbus in the U.S. market it must first avoid any production delays related to roll out of 737MAX; and second, be more proactive in its decision making with regard to upgrade of its aircraft and not let Airbus make the first move as it did with the A320neo.

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