July 17, 2007

Airbus Takes a Baby Step Forward

By Thomas Lifson

It took no less than a summit meeting between the heads of the German and French governments to accomplish, but Airbus and its parent EADS have finally eliminated the ridiculous practice of having matching French and German co-chairmen of EADS and co-presidents of both EADS and Airbus itself. As Spiegel Online International exulted,

"Now the Franco-Germany company will look more like a normal firm, with a mere one CEO each at EADS and Airbus."

The official EADS press release puts a decided spin on the process, as if Airbus were run by its shareholders and management and no politics were involved, and it was just a coincidence that the summit meeting, held in Toulouse, France where Airbus has its headquarters, happened at the same time as the change:

"EADS shareholders have decided - together with the EADS management team - to modify the company's current management and leadership structure. Guiding principles of the modification are efficiency, cohesiveness and simplification of EADS management and leadership structure, towards governance best practices and in the respect of balance between the French and the German shareholders. The German Government has been consulted as well."

In fact, the long overdue change is a positive move. But as this organization chart for the new EADS management structure indicates, the balance between French and German executives has been kept, with the chain of command going from a French directuer generale at Airbus reporting to a German President, reporting to a French President at EADS, reporting to a German Chairman at EADS. The little flags that Le Monde thoughtfully provided ont he organization chart tell the story better than any PR release can obscure.

The really hard work remains ahead, continuing the Power 8 cost reduction program (and gaining and maintaining union acceptance of resulting layoffs and plant closures) and engineering the complex new A350XWB wide body twinjet, getting it to market as promised in 2013. Success will leave it years behind the competition, the Boeing 787, which just had its factory roll-out on July 8^th. Failure to meet schedule, after the debacle of A380 delays, would be catastrophic.

With a monopoly on fuel-efficient composite-fuselage long range widebodies for almost 6 years, Boeing will not only attract plenty of customers, it will get very healthy margins on the planes it delivers from its bulging order book, the most successful marketing campaign for a new airliner in history. Meanwhile, Airbus will have to cover very large costs associated with bringing a brand new plane to market and mastering the complexities of an aluminum skeleton holding carbon fiber panels for the fuselage barrel, unlike Boeing, which is going with an entirely carbon fiber-based barrel.

Many observers were distinctly underwhelmed by the management changes announced. For all the musical chairs, the players remain the same, just moved about the the organization chart.

``I don't think it'll solve anything: It's the same names all over again, and they're just shifting the cards around,'' said Jean Francois Knepper, president of Airbus's European works council, in a telephone interview [with Bloomberg] after the announcement.

Ambrose Evans-Pritchard of the UK Telegraph reports:

Howard Wheeldon, an aerospace expert at BGC Partners, said: "This does nothing to change the French and German political hold over EADS and its hapless Airbus subsidiary. What Airbus needs is the removal of the politics of destruction."

And:

Citigroup said Airbus would remain prone to bitter wrangling between Paris and Berlin. "Until the cumbersome shareholder structure is addressed, we continue to expect stalemate over many EADS issues," it said.

Still, it is positive move. But the tensions between France and Germany remain. France reportedly wants to interfere with the European Central Bank to push down the price of the euro, currently about $1.38, which is an enormous handicap to Airbus in competing with Boeing. Germany, ever fearful of kindling inflation, and currently enjoying a trade surplus, unlike France, is resisting. And both countries fear a loss of influence to the other, particularly since cost pressure from a high euro may result in outsourcing more and more production to non-euro locations, including the new A320 narrow body production line in China.

But Airbus has avoided a confrontation and made a positive move toward a rational business structure. Everyone who benefits from vigorous competition in the airliner business (and that includes nearly everyone who flies), has cause to congratulate Airbus. Just a tiny little bit.

Thomas Lifson is editor and publisher of American Thinker.