Airbus struggles: A killer fact analysis

February 23, 2007

791px-farnborough_air_show_2006_a380_landing.jpgStrategic decisions at Airbus have been increasingly mired in political wrangling. Killer facts appear to include serious production delays difficulties in France; job preservation priorities of French and German politicians, share disposals by BAE to Airbus parent EADS, and leadership changes as the political, economic and technological challenges play out. Leader Louis Gallois will have to find some wriggle room to secure the restructuring required for the company.

Update

Considerable changes have occured at EADS since this post was first written. These can be tracked through the Airbus posts, including details of the corporate restructuring. The longer term Power8 plan seems still on the agenda, but delayed. Angela Merkel still visits Toulouse, but with new French President Nicholas Sarcozy. The post has been retained as a useful historical context to more recent developments in the company.

[Original Post follows …]

You know an international company is in trouble when it becomes the topic of discussion between corporate and political leaders. Today, German Chancellor Angela Merkel and French President Jacques Chirac meet with executives of EADS in Germany. The subject on the agenda employment, and potential job losses at the planemaker Airbus. The company’s largest sites, with greatest potential for job losses are at Toulouse and Hamburg.

Last year, A380 project executives, including Airbus CEO Gustav Humbert, were dismissed. Humbert was blamed for the failure to deal effectively with the project delays, but also was accused of concealing the seriousness of the problems.

In the same period, it was revealed that the joint CEO of EADS, Noel Forgeard had sold EADS stock weeks before its Airbus subsidiary announced the Airbus A380 would be delayed again. M. Forgeard resigned, and the stock plummeted.

In a short space of time, Humbert’s replacement, at Airbus, Christian Streiff resigned, which was when Louis Gallois stepped in. Streiff was believed to have failed to secure backing for a financial package he believed necessary to turn things around with the A380. Gallois is a much admired leader with a track record of top-level negotiating skills as well as industry experience. This week, the famed negotiating skills of Louis Gallois have been strained. An announcement of the restructuring with losses of over 10,0000 jobs was postponed, and now will follow the meeting of EADS executives with Merkel and Chirac.

The Killer facts

The killer facts that will pervade the talks are as follows. The mighty and innovative airbus 380 project has been mired in technological challenges (particularly over gigantic wiring problems) at the Toulouse plant. At minimum, these will cause huge compensation payouts to customers. (The financials would be much worse if competitor Boeing were not working to full capacity). The governance of EADS has been an extended story of struggle between French and German interests (in which the Franco-German co-leadership plays a part). British political influence disappeared after UK defense and aviation company BAE Systems announced its plans to sell 20% stake in Airbus to EADS last year.

What will happen next?

Don’t expect to find a neat Business School solution on the strategic issues. The dreaded PEST analysis (Political, Economic, Social and technological factors) seems more relevant than simple SWOTting (analysis of corporate strengths and weaknesses, against external threats and opportunities).

Structural production factors dictate that the pain of job losses will be spread around with greatest potential losers in Germany, France, and England. Interestingly, the share price has had its medium term downward adjustment, and has been remarkably stable over the last six months of corporate turbulence.

There seems scope for some wriggle-room, and political / economic trade-offs. Louis Gallois may yet lead by facilitating some creative (win-win) decisions of national involvement in future business streams. We will soon find out who will be doing the most wriggling, and where.


Airbus leadership challenge

December 21, 2006

Airbus delays put company at risk

According to a BBC report, delays to delivery of its new super A380 plane have put Europe’s major international airplane business at risk. Earlier dismissals of project executives suggests that the Board is opting for a leader bringing political rather than engineering skills to the rescue.

Earlier this year, A380 project executives, including Airbus CEO Gustav Humbert, were dismissed. Humbert was blamed for the failure to deal effectively with the project delays, but also was accused of concealing the seriousness of the problems.
In a short space of time, Humbert’s replacement, Christian Streiff resigned, and a third leader, Louis Gallois was brought in. Streiff was believed to have failed to secure backing for a financial package he believed necessary to turn things around with the A380.

Gallois is a much admired leader with a track record of top-level negotiating skills as well as industry experience. According to a recent Louis Gallois bio

‘In some respects, Mr Gallois’ career reads like that of a typical French bureaucrat ..He studied at the Ecole National D’Administration, the country’s elite college for administrators..[and] has since held a series of top jobs including running engine maker Snecma, as well as heading Aerospatiale and SNCF .. However, it has been his ability to combine strong management skills with a popular touch which has made him valued by politicians from both sides of the spectrum’.

The delays are leading to heavy compensation claims and problems for parent company EADS. Customers have contracts that make switching to competitors costly, and Boeing has such a full order book that they could not offer much in the way of short term replacements, however much they would like to do so.

However, the financial losses put Airbus under considerable threat. Job cuts, particularly in the UK seem likely.

Leaders we deserve?

To paraphrase Oscar Wilde: To lose one leader may be regarded as a misfortune…to lose both seems like carelessness. If we take a simple view of leadership, the company has acted against mounting evidence of poor delivery record and future problems when they removed Gustav Humbert. The decision was linked to the departing executive’s concealment of the seriousness of the situation. This appears to be a cut-and-dried illustration of Board decisiveness, in face of a disappointing betrayal of faith by Humbert. The company was misled, but successfully gets the (new) leader it deserves – i.e. one who is to be trusted to implement the policy of the company.

But in a short space of time, Christian Streiff, the new would-be rescuer resigns. Why? The alleged explanation is that he could not win Board backing for his plans. At this stage we might be excused for recalling Wilde’s dictum, and wondering whether the Board had been doubly unfortunate, or maybe a little careless.

The company may have been seeking the sort of heroic leader who would implement a strategic goal with inadequate resources. Streiff’s resignation would be consistent with a pragmatic view that the problems require more funding, not heroic leadership.

The General leadership point

A board dismisses senior members of a major project which is failing to meet its targets. A new leader is brought in. The leader outlines a recovery plan. The Board faces a dilemma: Board members do not have faith in the plan. They reject what they see as an infeasible plan financially. The CEO resigns. An experienced ‘safe pair of hands’ is brought in to lead the company. Is the rescue of the company dependent on obtaining the sort of leader the board believes necessary to implement their original project strategy? Or does the situation require a different sort of strategy?

[Marginal stylistic editing of the original Blog, January 24th 2006]