Airbus scratches restructuring
Monday was another good day for Boeing Co., not because of anything the Chicago- headquartered aircraft maker did, but for what its competitor did not do.
Airbus Chief Executive Officer Louis Gallois was supposed to announce a corporate restructuring that would cut as many as 10,000 from a payroll of 55,000. Aircraft production would be reshuffled to give the company’s proposed 350 XWB a better chance of challenging Boeing’s popular 787. Dubbed the “Power8,” Gallois’ plan is intended to recoup the $6.5 billion in losses Airbus expects to take on its jumbo A380. The A380 is two years behind schedule.
Gallois is also CEO of the European Aeronautic Defense and Space Co., or EADS, the owner of Airbus. According to reports in the French press, it was the EADS board of directors that gave Gallois a multilingual “no” Sunday when he presented his plan. Layoffs seldom go down well in Europe. Add national rivalries – in a “unified Europe” – and high wages, and matters get stickier still.
EADS/Airbus is a British-Spanish-French-German partnership. The Germans apparently fear that their factories, which specialize in aluminum-based components, will suffer if Gallois turns to Spain for the lighter composite material that will be incorporated into the 350 XWB. Substantial portions of the 787 will also be built using composites, which are a combination of resin and fiber.
The particulars of who gets what as Airbus reorganizes will probably be ironed out soon. Something must be done, or Airbus will find itself flying in Boeing backwash until it makes the same worker reductions that caused so much pain in the Seattle and Wichita, Kan., areas a few years ago. Now, Boeing and its suppliers are rehiring, sometimes constrained only by the lack of skilled manpower.
Gallois would reportedly like to outsource significant portions of work Airbus now does in-house. Boeing decided to rely on international partners for many 787 components as a way of spreading some of the cost and risk of new airplane development. So far, so good. Although some delays have been reported, the company still expects to make its first deliveries next year.
In addition to its internal problems, Airbus has also been frustrated by the weak U.S. dollar, which works to the disadvantage of Europe-based companies. One solution could be increased use of U.S. suppliers, which would bode well for Triumph Composites and Kaiser Aluminum, both of whom already do significant business with Airbus.
Another answer might be resorting again to subsidies from one government or another to keep its plants viable, or make them more competitive. That, traditionally, has been Plan A for Airbus, but the United States has taken the company before the World Trade Organization claiming the subsidies are unfair. The complaint and a counterclaim by Airbus remain unresolved.
In the meantime, the U.S. Air Force has opened bidding for a tanker to replace KC-135s like those flying out of Fairchild Air Force Base. Boeing has announced it will bid, as has Northrop Grumman Corp., with Airbus as a partner. Northrop threatened to remain on the sidelines unless the Pentagon set aside the WTO dispute as a factor in awarding the tanker contract, which could eventually be worth $100 billion. The Pentagon relented. Renewed Airbus borrowing may not sit well if such recourse appears to tip the bidding in favor of Northrop and Airbus.
Northrop must be wondering about just what sort of partner it has. Can it rely on Gallois, or expect displeasure and second-guessing from Berlin, Paris or Madrid? Bids are due April 2, which does not give the EADS directors much time to stop squabbling.
Boeing will pitch its 767, Northrop/Airbus the A330. The Air Force plans to make its choice in October. Whoever wins, the first 32 planes will end up at Fairchild. The sooner, the better.