Last year it was Buy American. This year, outsourcing.Jobs are again on the political agenda in the USA. Thistime European industry believes it holds a trump card
Outsourcing is becoming a dirty word in this US election year. Although aerospace has so far escaped the political furore over American jobs going overseas that is engulfing other industries, that may not last as more US firms look at moving work abroad to lower their costs.
Europe's aerospace industry, meanwhile, is moving work into North America to improve market access by increasing the US content of their products. At the same time, firms are reducing the impact of a strong euro on their prices by taking advantage of a weak dollar to reduce costs. Significantly, this "insourcing" is increasingly proactive. Companies are not waiting to win business before moving work into the USA.
"Actions speak much louder than words," says Ralph Crosby, chief executive of EADS North America. "It is clearly understood that for European companies to participate in the US market they have got to participate as responsible citizens. There is recognition that we have to create citizenship by investing here in the US."
While BAE Systems has the largest North American presence of any European company, it has been achieved through acquisition. EADS is leading the charge to bring work into the USA from Europe. Subsidiary Eurocopter will begin assembling AS350 helicopters at a new plant in Columbus, Mississippi by year-end; and EADS Casa will soon open a facility in Mobile, Alabama to deliver and support CN-235 transports for the US Coast Guard.
There is more to come. EADS Casa plans to assemble C-295s transports in Mobile, if it wins a US Army competition for between 25 and 128 aircraft, and the European giant's Dornier subsidiary has chosen Kenai, Alaska as the assembly and test site for its Hellas helicopter obstacle-avoidance radar, on offer to US special operations forces.
Opportunities
EADS is eyeing other US military opportunities from light utility helicopters to aerial refuelling tankers. "As well as investment, we think we bring a superior product to the US," says Crosby. "But it is not enough to have a superior product. You have to be prepared to work against the trend and try to insource. We are bringing investment and high-quality jobs into the US."
EADS is not alone in its strategy. AgustaWestland is moving A119 light helicopter assembly from Italy to Philadelphia, Pennsylvania; while Grand Prairie, Texas-based Turbomeca USA produced half of the Arriel turboshafts delivered worldwide last year. Rolls-Royce and Turbomeca are planning to assemble their RTM322 turboshaft in the USA, if they win a newly launched competition to re-engine US Army special-operations Sikorsky MH-60s.
AgustaWestland's biggest push is to establish its EH101 as a US product, pursuing a market for more than 200 helicopters - including the VXX presidential aircraft. With Lockheed Martin as prime contractor; Bell Helicopter to assemble the helicopter in Amarillo, Texas; Kaman Aerospace to fabricate airframe parts in Connecticut, Florida and Kansas; and over 200 other suppliers selected, AgustaWestland argues the US101 will be a US product. "Over 90% of the value will remain in the US," says Steve Moss, president of the UK/Italian joint venture's US arm.
Moss says the company has worked closely with US manufacturers and the US military since Agusta began licence-building Bell 47 helicopters in 1954. "AgustaWestland has always been considered an adjunct to the US industrial base. Agusta has done over $750 million in US government business," he says. "Now we have developed our own product line, and it is not unnatural that we would want to partner with US companies to sell into the US."
In the helicopter arena both AgustaWestland and Eurocopter believe they offer products that are technologically superior to their US rivals. Columbus-assembled AS350s and Philadelphia-assembled A119s will be aimed principally at US law-enforcement operators, including the potentially huge but frustratingly elusive homeland security market. Both companies are bidding for a US Immigration and Customs Enforcement (ICE) requirement for more than 100 light single-turbine helicopters.
In addition, AgustaWestland is offering the A109 and Eurocopter the EC135 in a US Customs and Border Protection competition for more than 30 light twin-turbine helicopters, with a winner expected to be announced in June. The A109 is already operated under lease by the US Coast Guard, as the armed MH-68, and AgustaWestland has indicated its willingness to assemble the helicopter alongside the A119 in the USA. Agusta managing director Guiseppe Orsi says there will be no reduction of jobs in Italy as a result of work moving to the USA, as it is being offset by ramped up production of the AB139 medium helicopter and final assembly of the NH Industries NH90 military helicopter. "All the increase in activity is in outsourcing," he says.
Developed under the Bell/Agusta Aerospace joint venture with US manufacturer Bell Helicopter, the AB139 was certificated in Italy last year. With US approval expected later this year, Bell has announced plans to begin assembling the AB139 at its Amarillo, Texas plant in 2006. "US assembly was always planned," says Bell/Agusta managing director Paul Bartolotta. "The timing depended on how well the aircraft sold. We now have a substantial level of orders, so the second assembly line will be established."
Moss, meanwhile, believes there is a US government market for the AB139. "The helicopter already has over 60% US content. That will rise to 80% when it is US-assembled," he says. "It will be a US product for the US market." Bell/Agusta plans to offer the AB139 for an ICE medium-lift helicopter requirement, with a request for proposals expected soon. The helicopter has been selected for the USCG's Deepwater programme, but a contract is not expected for several years - and is not guaranteed.
Tiltrotor
AgustaWestland, meanwhile, has come to its US partner's aid with additional resources to ensure the Bell/Agusta BA609 civil tiltrotor stays on track for certification in 2007. "The planned Italian participation in the BA609 has been advanced to maintain the time to market," says Bartolotta. Two of the four Bell-assembled prototypes will be shipped to Italy for flight-testing by Agusta, which will assist with European certification and eventually assemble the tiltrotor in Italy.
Given its close links with Agusta, it is not surprising Bell was selected to assemble the US101. "The US101 strategy was clear from the beginning," says Moss: "For all programmes, not just VXX, bring the helicopter to the US and make it a US product that stands alone from the EH101." The strategy was formulated "long before" the VXX presidential helicopter competition was launched, he says, and is aimed at a wider range of potential US medium-lift requirements.
"Our sourcing strategy is based on a larger vision," says Moss. About 35% of the EH101 is sourced in the USA: the goal for the US101 is that 90% of the total programme life-cycle cost will go to US suppliers. Award of the 23-aircraft VXX contract has been delayed several months, but the US Air Force has accelerated its Personnel Recovery Vehicle (PRV) requirement for up to 132 combat search-and-rescue helicopters, for which the US101 is a candidate.
Crosby says EADS has not decided whether to enter the NH90 in the PRV competition, requiring a US prime contractor and US assembly. Boeing and EADS had talks on the NH90 in 2002, when the Bell Boeing V-22 was in trouble, but these ended when the US Department of Defense reprieved the tiltrotor. "We are taking a hard look at the PRV," he says. The V-22 is not a candidate for the new requirement.
Helicopters are the initial focus of European industry's push into the USA because their manufacturers believe they have better products than their US competitors as a result of more recent research and development. The fly-by-wire NH90, just now entering production, is one example. The commercial AB139 and EC135 are others.
With the cancellation of the Boeing/Sikorsky RAH-66 Comanche, Europe sees a new opportunity. The US Army wants to replace the Comanche with 303 light utility helicopters (LUH) and 368 armed reconnaissance helicopters (ARH), both to be acquired essentially off the shelf. While Bell will offer to upgrade the US Army's existing UH-1Hs, AgustaWestland believes its US-assembled A119 is the ideal LUH candidate.
For the ARH, the US Army has its sights set on the AH-6 Little Bird, based on the commercial MD 530 produced by MD Helicopters (MDHI). But Phoenix, Arizona-based MDHI is European-owned and may have to team with a US prime, which could open the door to European-sourced solutions. AgustaWestland sees its A129 International as an ideal ARH candidate. "It would be produced in the US, and we would need a US prime," says Moss. "Hopefully we will be able to present [the helicopter] to them."
Helicopters need engines, and European powerplant manufacturers are also realising the value of placing work in North America. Turbomeca USA has undergone a recent expansion to handle 50% of worldwide Arriel turboshaft production, and will now assemble the Arriel 2C2-CG selected to re-engine US Coast Guard Eurocopter HH-65s. More than 200 engines are required, and Eurocopter's Columbus plant will be responsible for the urgent upgrade of some 95 helicopters over two years from August.
Rolls-Royce president - helicopters Stuart Mullan says the company has yet to decide where to locate US assembly of the RTM322 turboshaft, although its engine plant in Indianapolis, Indiana is a likely candidate. As the CTS322, the engine is a candidate to power upgraded Boeing AH-64s and Sikorsky MH-60s, as well as the US101 - although Lockheed Martin's VXX proposal is based around the competing General Electric CT7-8.
Job numbers
Sceptics could argue that the number of US jobs so far created by European insourcing is small, but that could change quickly if EADS is given a chance to compete for the US Air Force's tanker requirement. The company has remained quiet while the investigations into Boeing's controversial tanker lease/purchase deal are conducted, but is encouraged by USAF comments that it would welcome an Airbus bid if there was to be a competition.
"There are beginning to be discussions within the government about moving to a competitive procurement," says Crosby. "This fits well with our posture that when there is a competition, we will be a competitor." EADS may not wait for a tanker competition to be launched. "You will see us doing more visible things to reiterate our commitment to do a significant slice of the work in the US," he says. "We will begin to do the things associated with developing a tanker industrial base in the US."
Declining to comment on rumours that Airbus will establish an industrial presence in the USA, Crosby says: "We will talk specifics when we have specifics to talk about." Airbus has a design engineering centre in Wichita, Kansas and EADS Sogerma Services performs Airbus maintenance at its EADS Aeroframe Services joint venture with Northrop Grumman in Lake Charles, Louisiana. Both are relatively small, but growing.
Transatlantic relations do not always run smoothly, and Europe's decision to develop the Airbus Military A400M transport ruffled more than a few US feathers. Perhaps to avert another confrontation, and to avoid duplication, Europe is making overtures to the USA on joint development of a heavylift transport helicopter to replace the Boeing CH-47 and Sikorsky CH-53. France and Germany have a requirement that is similar to the emerging US specification for an air manoeuvre transport. Eurocopter sees the need for a strategic partnership because of the limited aircraft numbers and available budgets, but industry sources say the DoD is not keen on co-operation.
Today around 10% of the US industry is European-owned, and transatlantic acquisitions occur almost weekly, but the insourcing phenomenon is new. "A lot of people are focusing on outsourcing, and there is not yet recognition for insourcing," says Crosby. It will come, he believes. "We are not trying to supplant US suppliers, we are trying to become a US supplier."
GRAHAM WARWICK / WASHINGTON DC
Source: Flight International
