Airbus CEO Enders says challenge to Boeing will grow even stronger
As Tom Enders heads into the sunset after 18 years spent reshaping Airbus into one of the two dominant commercial planemakers, he says his company’s rivalry to Boeing will only continue to strengthen.
In an exclusive interview in London, the longtime chief executive said Airbus has a solid winner in the new small jet it just acquired from Bombardier, its manufacturing complex in Boeing’s U.S. backyard is growing, and its political leaders at home are not fighting a trade war with the biggest customer of the future, China.
The European planemaker has its own vulnerabilities, Enders acknowledged. “I’d call it a challenging moment,” he said.
Enders, who will leave his post as Airbus CEO in April at age 60, is no ordinary executive suit, as indicated by his recreational plans upon retirement.
“More airborne activities,” he said. “More flying, jumping, mountaineering.”
Jumping means parachuting out of airplanes such as the Airbus military transport A400M. That’s something the former German paratrooper has been doing for 40 years, though in recent years only for fun and “not more than 20 jumps a year,” he said.
“When you stand on the big ramp of the A400M and you are the first to jump, that’s . kind of great,” Enders said.
He also pilots helicopters, and shares ownership of two with some friends. That’s a passion he said he shared on Friday night in London with Tom Cruise at the U.K. premiere of “Mission: Impossible – Fallout,” a movie that features Airbus helicopters flown to the limit.
Enders is not just an action man.
He’s largely responsible for the successful transformation of Airbus from a fractious conglomerate bedeviled by national rivalries into a fully integrated multinational company that fought its way to parity with Boeing and built major manufacturing plants not only across Europe but also in China and the U.S.
No longer losing hair over the A380
Speaking on the eve of his last Farnborough Air Show as leader, Enders was philosophical about preparing to leave the stage at a time of such uncertainty for global business and for Airbus.
“In Airbus’s history we’ve had a lot of challenges,” he said. “Each and every time, the company has grown.”
He recalls the 2006 production crisis that delayed the A380 superjumbo jet. Management in the end solved the crisis by restructuring the different national units of the company that had been at odds with each other, “erasing the national fiefdoms and really creating an integrated company,” he said.
Today, the A380 program is barely surviving, yet its fate is no longer pivotal. Airbus did a deal with Gulf airline Emirates in January that will ensure a minimal production rate of 6 aircraft per year for the next five or six years at least.
Though that is an unprofitable rate, and though the big jet won’t survive without further orders, Enders says he’s stopped worrying about it. Airbus can take the losses if needed and wait longer for a turnaround in sales. The losses aren’t big enough to hurt the company’s financial targets.
“The A380 probably cost me a lot of hair over the years,” Enders said. “Now it’s the last concern on my mind. We are not giving up on the A380. But it’s not killing the company either way.”
Seizing the CSeries
More important right now is Airbus’s newest and smallest jet: the 100- to 130-seat A220, which is the new name given to the Bombardier CSeries jet that Airbus acquired in a deal finalized just this month.
With the CSeries program facing closure when it was all but shut of the market after the massive sales success of the Airbus A320neo and Boeing 737 MAX single-aisle jets, the Canadian government asked Boeing to be a partner – and was rebuffed – before Airbus came in and said yes.
Airbus got a screaming deal, taking over 50 percent ownership of the jet for no money down and with Bombardier agreeing to cover up to $700 million if there are cash shortfalls in the first three years.
As industry analyst Richard Aboulafia said in an interview, “Being paid to take a very impressive, all-new jet, with new technology, that’s as good a deal as anyone will ever offer you in this business.”
Pushing that deal toward closure was the pressure from a Boeing legal challenge at the U.S.’s International Trade Commission (ITC) that tried to kill the CSeries by blocking its sale in the U.S. market, and specifically an order from Delta.
The ITC rejected Boeing’s case in January, following Airbus’s decision to build a second assembly line for the plane in Mobile, Ala. Even the attempt left Boeing’s relations with Delta at a low ebb.
“Boeing’s behavior helped us a lot,” said Enders. “One iron rule in business is that you don’t move against your own customer. It certainly created an opportunity for us that we would not miss.”
At Farnborough this week, Boeing will look on as the A220/CSeries at last wins significant sales momentum.
Enders said the takeover of the Canadian jet program is predicated on expectations that the Airbus sales and marketing machine will sell it, that the company’s leverage with suppliers will cut the cost of producing it, and that Airbus’s worldwide support system will attract airlines.
Does he expect high volume sales for these little jets?
“There should be thousands out there,” Enders said. “We should be in a position to capture half of that market. You’ll see some of that happening here around Farnborough.”
He said he expects the two assembly lines, in Mirabel, Canada, and in Mobile, Ala., will have trouble feeding the demand.
And though Boeing has now announced a deal to acquire control of the rival E-Jet program from Embraer of Brazil – not expected to close until late next year – Enders claims first mover advantage.
“It was clear in the industry that whoever makes the first move will force the other to respond,” he said. “We’ve thrown our whole Airbus weight behind the A220 and the other guys still have some way to go.”
His U.S. strategy
Another bonus is the elevation of the Mobile assembly plant, which until now was turning out only A320 aircraft.
It was Enders who pushed through Airbus’s Mobile project, against opposition from some within the company.
“For me it was a strategic decision,” he said. “It cannot be wrong to build a strong industrial presence in the most important markets . Mobile is today an important industrial and political asset in the south of the U.S.”
“We’d be much more vulnerable in these uncertain and protectionist times if we didn’t have this footprint in the U.S.” Enders added. “The A220 will help us enhance that footprint.”
On this subject of protectionism, Airbus faces not only the pressure of Brexit in the U.K. but also President Donald Trump’s threat of U.S. tariffs.
Brexit could, for example, derail the Airbus A320 ramp-up by hurting its supply chain. Enders said Airbus has a lot of “just-in-time” deliveries from the U.K. that could face delays from new border checks.
And if Britain were to leave the European aviation regulatory body EASA, suppliers there couldn’t even certify their parts.
But Enders said he’s encouraged by British Prime Minister Theresa May’s latest plan for a “softer” exit from Europe that would see the U.K. remain in the customs union, minimize cross-border friction and retain membership in EASA.
“Brexit in any form is not a positive development,” Enders said, but with May’s plan, “I’m a bit more confident that we can cope with the fallout.”
As for Trump’s trade policies, Enders said that so far they haven’t affected the aerospace business.
“We are all nervous about rising protectionism and a looming trade war,” he said. “Maybe we are already in a trade war between America and Europe. And there’s a serious possibility that this could go south from here. But it hasn’t had a negative impact so far.”
Enders said his “biggest hope” is that more U.S. companies will follow Harley Davidson in trying to get around tariffs by outsourcing work overseas. That could lead to some re-thinking, he said, and would be more effective than any lecturing of Trump by May or Germany’s Angela Merkel.
Boeing’s NMA. Why worry?
Turning to some of the key airplane programs under discussion at Farnborough, Enders said he expects sales of the Airbus A330neo to pick up.
Boeing sales chief Ihssane Mounir won significant sales campaigns this year that pitted the 787 Dreamliner against the A330neo at American Airlines and Hawaiian Airlines.
“Our competition doesn’t make life easy,” Enders said, “That they are operating that aggressively against the A330neo demonstrates for me that they see it as a threat.”
He said Airbus sales will come later when the “replacement wave” of A330 operators upgraded to this latest version.
One reason for Boeing to go hard against the A330neo is because it borders the top end of the market Boeing proposes for its New Mid-market Airplane or NMA. That plane won’t launch until next year at the earliest.
Enders said making the NMA business case is difficult since the size of the market is unclear, as is the availability of new engine technology in time for Boeing’s proposed entry into service in 2025.
“If it was easy, they would have launched already,” he said.
He said Airbus feels no need to develop an all-new airplane.
In addition to the A330neo at the large end of the segment, at the lower end it has a single-aisle jet, the A321neo, that is already a big seller and can be stretched and made more efficient if need be.
“We feel well positioned in the middle of the market,” Enders said. “We are there already and we know we can improve our products.”
Unruffled by Boeing’s proposed strategic move, Enders instead expresses concern about bigger, longer-term trends, the first being the rise of China.
“Over the next 10 years or so, that’s one of the biggest unknowns – how will that impact the duopoly?” he said, meaning Airbus and Boeing. “Chinese ambitions are flying high. At the same time, they are very realistic they can build this aeronautical capability only step by step.”
China in 10 or 15 years will be the largest aviation market in the world. Already, Enders said, there are more Airbus jets flying today in China than in North America.
Airbus has won success there by cultivating relationships with Chinese companies and by setting up an assembly line for the A320 in Tianjin.
In January, the jetmaker elevated George Xu to be CEO of Airbus China and appointed him to the Airbus Executive Committee – a move intended to signal that China is “our single most important market.”
Turnover at the top
That’s just one of the leadership shifts that have seen the entire top leadership from last year leave the company, save for Enders, who has committed to leave in April.
That wholesale replacement of the leadership was in part a response to disagreements over how to handle the fallout from a bribery scandal that sparked government investigations.
(Enders took a firm line internally, closing the accused sales unit and demanding the company take responsibility and the fines that will follow.)
Enders said the Airbus board will choose his replacement toward year end. (One clear candidate seems to be Guillaume Faury, the newly appointed head of Airbus Commercial.)
Enders said that while “there is reason to be concerned” at the dramatic and sudden makeover at the top of Airbus, “it can be managed.”
He said Airbus has a lot of internal management talent, such as Faury, and can also recruit top leaders from other companies, as it did when it hired sales chief Eric Schulz from Rolls-Royce.
He’s optimistic, Enders said, about where the next leader can take Airbus.