Airbus struggles to find recovery path from crisis

9th October 2006, Comments 0 comments

PARIS, Oct 8, 2006 (AFP) - The crisis at Airbus is to feature in a top-level Franco-German meeting in Paris this week amid a blur of uncertainty over cuts to pull the flagship A380 superjumbo out of trouble.

PARIS, Oct 8, 2006 (AFP) - The crisis at Airbus is to feature in a top-level Franco-German meeting in Paris this week amid a blur of uncertainty over cuts to pull the flagship A380 superjumbo out of trouble.

Airbus admits that it will now need 15 years to catch and overtake its main rival, US manufacturer Boeing, which it seemed to be outperforming last year.

Boeing itself faced management upheavals in 2005 and 2004 that saw the removal of two chief executives while defense contracting scandals sent two other top officials to prison.

Now it is Airbus that is struggling, as the European group faces huge cost over-runs and strain on its financial resources to restructure and launch new models.

After 16 months of increasingly dramatic and destabilising announcements, Airbus and its parent the European Aeronautic Defence and Space company are working on a restructuring plan, said to be ambitious but evidently slow to materialise.

An EADS board meeting a week ago rejected recovery proposals, reportedly because they were too radical, and management has now told staff it might need another three months to detail huge cost savings.

Problems were first announced in June 2005, and the crisis has been rumbling on since June this year when the plane-maker, the main part of the EADS aerospace group, doubled the A380's production delay to one year because of wiring difficulties with the giant plane.

It doubled it again last week to two years and forecast a cash shortfall of EUR 6.3 billion.

The view from the Airbus cockpit turned even darker on Thursday when its managers said the plane-maker might take 15 years to catch up with Boeing and that another flagship project, the mid-sized A350, might even be suspended.

The company's descent into crisis, resulting in top management changes, has also raised questions about the way it communicated internally and with investors and customers, and has damaged its credibility as a master of managing complex projects.

Airbus has taken orders across the world for the A380, which presents the combined advantages of high-capacity and long-range, carrying up to 840 passengers over distances of up to 15,000 kilometres.

The mid-size, long-haul A350, initially planned to launch in 2010, was set to be Airbus' top player in the mid-range market and was planned as a competitor to rival Boeing's future 787 Dreamliner, set to launch in 2008.

But this year's crisis with the A380 has dashed Airbus' hopes of dominating the market for many years to come.

Chief executive Christian Streiff said in an interview Thursday: "We must catch up. In 15 years I hope we are ahead of Boeing again."

The co-chief executive of the European Aeronautic Defence and Space Company (EADS), Thomas Enders, meanwhile said last week that he couldn't rule out scrapping the A350 because of the difficulties with the A380.

Streiff, who was appointed after the A380 delay was announced in June, also admitted last week that Airbus' A400M military transport plane, dozens of which have been ordered by European governments, was under pressure too.

Assembly tasks for Airbus are currently split between plants in France, Germany, Britain and Spain to ensure a division of work, which analysts believe raises both the level of complexity and costs of manufacturing.

German Chancellor Angela Merkel and French President Jacques Chirac will discuss the troubled aerospace group when they meet Thursday in Paris, a German government spokesman said on Friday.

The essential cause of the production problems is said to be the complexity of cabling and wiring. Airbus offered a-la-carte in-flight entertainment systems as an important part of the package to attract initial interest in the superjumbo, but apparently under-estimated the extent and complexity of requirements by each customer.

However, many observers believe the problems at Airbus are not merely technical.

They say the company is hobbled by its complicated structure and by frequent political interference, particularly from the French government, which owns a 15-percent stake in EADS.

Britain's minister for defence procurement called last week for European politicians to cease their meddling in EADS.

British group BAE Systems, which makes wings for Airbus, has decided to sell its holding of 20 percent in the manufacturer to EADS, which owns 80 percent, for about 2.75 billion euros.

Airlines have said the latest delivery delays in the A380 will disrupt business planning, and some have already demanded compensation. But no airline has yet decided to cancel its Airbus order.

At the end of September Boeing had received 666 firm aircraft orders against 222 for Airbus at the end of August, according to available figures.

But Airbus is scheduled to deliver 430 planes this year compared with 395 for Boeing.

EADS shares closed 2.95 percent down Friday at EUR 20.43 on the Paris CAC 40 exchange.

Copyright AFP

Subject: French news

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