Airbus' Tangled Wires

By PETER GUMBEL / PARIS

What a difference four years make. In 2003, Airbus outsold its archrival Boeing for the first time, sparking a mood of triumphalism for those who saw the four-nation consortium as a model of European industrial cooperation. Today Airbus workers are demonstrating, and financial losses are mounting as a result of disastrous snafus that have delayed its flagship new plane. Cooperation? Major private shareholders of parent company EADS can't dump their shares fast enough. And to complicate matters, jousting among its government shareholders--exacerbated by the French presidential elections--is casting doubt on a restructuring plan that includes 10,000 job cuts across Europe, a measure agreed upon only after months of board wrangling.

The immediate cause of the trouble is the A380, a $14 billion, 555-seat, double-decker plane that is one of those bet-the-company ventures, so beloved by the aerospace industry, that either succeed spectacularly--as the Boeing 747 did--or risk sending a firm into a tailspin. Remember Lockheed's L1011? Mechanically, the A380 works. But Airbus has had to tear up its delivery schedule several times because of nagging manufacturing problems, primarily involving wiring. That has enraged launch customers; some have canceled their orders. FedEx and UPS walked, which killed the cargo version of the plane.

Airbus' ability to climb out of the crisis has been severely restricted by its cumbersome and intensely political management structure. The French, German, Spanish and British consortium is backed by billions of dollars in taxpayers' money. But it's a nightmare of corporate governance because management and blue-collar jobs have traditionally been divvied up among its various state and private owners. Horse trading trumps efficiency, so many operations are needlessly duplicated. The wiring muddles behind nearly $3 billion in cost overruns are a classic example: plants in Toulouse and Hamburg wired different parts of the A380 in different ways, using different software. That turned final assembly into an impossible puzzle.

Louis Gallois, a Frenchman who was appointed CEO of Airbus last October, is trying to maneuver out of that mess. It's a perilous undertaking. Gallois replaced Christian Streiff, who lasted just 100 days after replacing Noel Forgeard, who was fired last summer. The restructuring plan Gallois unveiled seeks to eliminate duplication and reduce the 16 manufacturing plants to 10. His plan carefully distributes the job cuts. Immediately, politicians and unions in France and Germany started sniping over which side should bear the biggest burden. The three main candidates in the current French presidential-election campaign then promised more intrusion in Airbus' affairs.

Another big uncertainty concerns future ownership. Airbus' private owners are fleeing: Britain's BAE sold its 20% stake earlier this year to EADS, and both of EADS's big holders, Germany's DaimlerChrysler and France's Lagardere, are trying to reduce their stakes.

Airbus' other planes, including the A320, are still selling well, and EADS's helicopter and other military divisions reported strong sales and earnings this year. Ulrich Horstmann, an aviation analyst at Bayerische Landesbank, reckons there's an 80% chance that Airbus will be able to bounce back. "But there is a danger it'll get sucked into a vicious circle of job cuts, sinking morale and political infighting," he says. As for Airbus as a model for industrial cooperation, James Foreman-Peck, a professor at Cardiff Business School who specializes in European industrial policy, says it remains valid. But, he adds, "these days, Airbus just confirms Anglo-Saxon prejudices that governments waste large amounts of taxpayers' money even when they have a good idea."