Thomas Enders Parachutes into Airbus Leadership

November 23, 2007

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Former Paratrooper Thomas Enders has hit the floor running as leader of Airbus. His new boss at EADS, Louis Gallois, may be happy to leave the German in the limelight

In the wake of recent restructuring at EADS, Thomas Enders, former co-CEO, took on an apparently lesser job as operational chief of the major manufacturing operation of Airbus. The other former co-CEO was Louis Gallois, who assumed sole leadership at EADS.

In a speech to workers at Hamburg [Thursday November 22nd 2007] Enders returned to a familiar theme, the vulnerability of the European company to the continued weakness of the American dollar.

The BBC has been presenting the story as Airbus fearing ‘weak-dollar death’

“The dollar’s rapid decline is life-threatening for Airbus [and]has gone beyond the pain barrier”

Airbus is already shedding about 10,000 jobs and selling plants as part of its Power8 restructuring plan after delays to its A380 superjumbo drove the planemaker into a loss last year. The dollar has hit new record lows against the euro this week.

Enders has taking a higher profile since taking over a new role as head of Airbus. The new structure has less of a feeling of realpolitik about it, even if the whole company had suffered for years through the tensions of Franco-German co-ownership, with minor additional support-roles from the Governments of Spain and the United Kingdom.

Background

Two stories have repeatedly surfaced in press reports. The one story examines possible malpractices within the company. The other is the competitive struggles with arch-rival Boeing for global dominance in civilian and military aircraft markets. We have followed the ebb and flow of events in earlier posts.

The situation has been brilliantly updated by the Speigel team of Dinah Deckstein and Armin Mahler in an extended interview with Enders at Airbus Headquarters in Toulouse, France.

SPIEGEL: Mr. Enders, you are the fifth CEO of Airbus in the space of only two years. As a former paratrooper, how does it feel being in the ejection seat?
Enders: When you’re going into a difficult mission as a paratrooper, you know that success is not guaranteed. The same applies in my job. As the former co-CEO of parent company EADS, I don’t exactly see Airbus as unknown terrain. In other words, I knew what to expect.

Pulling no punches, the journalists probe the potential financial irregularities, the company’s restructuring plans and production difficulties, and the possible difficulties of the relationships between Enders and Gallois. Some of the questioning produced the routine company line. The on-going enquiry was brushed aside. But some answers were more revealing. Enders spoke frankly of the political difficulties that had plagued EADS, and Airbus specifically. This was also indicated in the tardy response of production difficulties of the mighty A380. He also confronted the problems of under-investment for innovation in competitive technology, warning that the decline in the dollar plases the company in an increasingly tough situation.

SPIEGEL: The delivery of the first A380 on Monday of this week marks the preliminary end of an almost two-year cliffhanger. To complete the jet on time, employees had to be transferred to the Toulouse assembly plant from all across Europe. How much longer to you plan to produce the jet using this costly individualized approach?
Enders: The first wave of 25 planes, including the five test aircraft, will in fact be produced in what is essentially manual labor. For the second wave, a modern, harmonized IT system will be used which does, in fact, make industrial series production possible.
SPIEGEL: Your other big problem is the A350, the model that’s competing with the 787. It had to be completely revised, in response to pressure from customers. How could this happen?
Enders: It’s very simple: We had underestimated Boeing. We hope that will never happen to us again.
SPIEGEL: … Boeing seems to be playing with a better hand. Many of your plants lack the know-how to produce the new plastic fuselages in sufficient quantities and at the necessary level of quality.
Enders: Nonsense! Our plants in Stade, Nantes and Illescas in Spain have long been in command of this technology and are not in any way inferior to Boeing in this regard. But we cannot come up with the needed investment money to convert all Airbus operations to carbon fiber production. That’s why we plan to sell some of our plants to new owners.

SPIEGEL: Is there growing political pressure to award the contract to the last remaining domestic contender?
Enders: Of course, when you are dealing with national politicians there are preferences for national solutions. This is no different in Germany than in France or Great Britain. But you won’t be seeing a feel-good or cozy compromise designed to satisfy political interests, which could leave us with some big problems in the medium term.

The Gallois Enders game

Reading between the lines, Enders appears as a non-nonsense leader, more likely to demonstrate toughness, where Louis Gallois would instinctively display a more conciliatory style. This makes the German’s activities in Toulouse all the more interesting to follow. Gallois will be as comfortable out of the limelight, as Enders is in it.

SPIEGEL: Do you confront the employees with uncomfortable truths, if need be?
Enders: I happen to be someone who doesn’t beat about the bush. I like to get to the point. You will not see me changing my style now and tiptoeing around. The important issue is that people realize that I am a hands-on manager — not someone who’s interested in politics, but someone who has the company’s interests at heart

The tough and tender combination of Enders and Gallois may yet turn out to be a formidable team at EADS.

To go more deeply

As well as the informative text, Spiegel has some superb graphics.

Our earlier posts can be followed through the Airbus categories. These include The financial investigation called by Nicholas Sarcozy, and also

the corporate restructuring.


Sarcozy accepts need for EADS probe

October 12, 2007

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The long-running tale of malpractice enveloping EADS continues. Nicholas Sarcozy distances himself from any involvement, and calls for punishment of the guilty

Earlier posts to this blog have followed the various dismissals, resignations, restructurings, and political interventions, at EADS and its Airbus subsidiary.

This week the International Herald Tribune picked up the news agency bulletin:

“If there are people who committed fraud at EADS, judicial officials must get to the bottom of it so that we know the truth and those who behaved dishonestly be punished in proportion to what they did,” Sarkozy said. “I’ll get to the bottom of the investigation to know what the responsibilities of the state were at the time.”

While a major shareholder, the French government does not sit on the EADS board. Its interests are represented by the French defense and media conglomerate Lagardere, which holds a 7.5 percent stake.

EADS shareholders Lagardere SCA of France and Germany’s DaimlerChrysler AG announced in March 2006 that they would reduce their stakes.

There are several inter-related strands to this story. Airbus is a European flagship company with a complex governance structure through its parent EADS which involves particularly French and German Governments. The business theme is centred around the fierce competition between Airbus and Boeing products. The political theme involves unresolved bickering about the ways in which the US and European governments subsidize their commercial interests. There are additional fascinating manufacturing, logistic, and technological issues to do with creating next-generation products across multiple international sites, and meet increasingly drifting deadlines. Oh, yes, and Airbus is struggling to achieve considerable cost-cuttings with industrial relations troubles. Add to all these issues a series of allegations of corruption.

At the start of the year I attempted to tease out the killer facts in the Airbus affair. At the time, it seemed that

[In 2006] 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.

In a few months, the company had begun to unravel some of its knottier problems, and achieved a more convincing organizational structure.

However, the changes left some players with lesser roles.

Arnaud Lagardère (of the media group of the same name) was French Co-chairman of EADS and seems to have been airbrushed out of the wider game. It had been muttered (especially in the French press) that he escaped scrutiny over earlier share scandals, and is ‘protected’ by Sarcozy, who was given a rather soft ride from Lagardère’s media group in his election campaign. M. Largardère, claims that he had no inside knowledge of delays in deliveries of the A380, when his family group sold off 7.5 per cent of the Franco-German planemaker’s shares in April 2006. The possibility remains that he will be in line to return to EADS in the future, when the Chair rotates from German to French hands

According to The Independent, reports from the French press, that

[S]ince taking over the family empire after his father died in March 2003, M. Lagardère has cultivated a chatty and approachable style. He has, however, been plunged into controversies. His group is one of France’s biggest media players, owning a controlling stake in Hachette-Filipacci Media, the company that owns Paris-Match. He also has smaller stakes in Le Monde, Le Parisien and L’Equipe … M. Lagardère has been accused of interfering in editorial decisions to protect his friend M. Sarkozy and especially to prevent discussion of alleged problems in the President’s [private life]. Le Monde quoted a “close adviser” of M. Lagardère [as saying that] “whatever happens” he will be protected by M. Sarkozy.

It now seems, that “whatever happens” M. Sarcozy intends to place himself hors de combat.


VW leadership troubles continue

July 20, 2007

Some stories attract international interest, while others remain almost unnoticed. Serious Volkswagen watchers will be aware of one leadership story that has not gained much international attention.

I picked up the scent of something of interest, because of a little surge of numbers of visitors to this site searching for news about the VW company. That’s when I came across a Reuters report

Volkswagen supervisory board member Guenter Lenz has resigned his seat, becoming the latest casualty of a scandal involving the use of corporate funds to bribe the carmaker’s senior labour leaders. According to a statement from the Hanover works council, Lenz told employees on Tuesday at a plant staff meeting that he would now resign his board seat and his post as the site’s works council boss after previously ceasing to actively execute his duties. The public prosecutor’s office in Brunswick accuses him of aiding and abetting fraud and partaking in parties with prostitutes paid for out of a VW slush fund. Lenz, who has also resigned from the Lower Saxony state parliament, would accept a court sentence for his wrongdoing, the Hanover works council said.

The scandal has already cost the jobs of VW management board member Peter Hartz, group works council chief Klaus Volkert, as well as a member of the German federal parliament.

The Financial Times also commented on the story. As did

Eurotribune a self-declared ‘left-leaning’ publication with communitarian goals. It writes about what it sees as unhealthy industrial arrangements in Germany’s internationals, and is particularly suspicious of the relationships between State, workers councils, and boards of organizations. It sees more trouble ahead for Volkswagen over its leadership and governance.

VW is plagued by a series of corruption scandals involving top union and work council members. Those already netted include the author and name-giver of the infamous Hartz-IV law, VW human resource manager Peter Hartz, as well as an SPD member of parliament. Now the scandal forced the resignation of Günter Lenz, who was at the same time the work council head for VW’s utility vehicle branch, a member of VW’s oversight board, and a member of the regional parliament for SPD. He is under investigation for visits to brothels on company money… Lenz denies the accusation. However, prostitutes have confirmed his story in the case of the top work council man, Klaus Volkert — who now sits in prison. The payments for the prostitutes were approved by Hartz himself.

Leadership lessons

It seems strange that this story was not been followed more closely by the international financial press. Maybe Angela Merkel and Nicholas Sarcozy have found time, in their new-found friendship, to muse over the matter as they explore the equally taxing issues of EADS governance.


The positions change on the EADS chess board

July 16, 2007

A major restructuring is announced at EADS, the parent of the high-profile Airbus organization. The complex double helix of German and French bonds has been split apart. The reconsituted entity is a more recognizable structure. Will it provide for more effective corporate governance and strategy, as it faces severe internal and external challenges?

The announcement on the EADS website was calm, hardly signifying any major changes. It all read as if everything was well-planned.

EADS shareholders have decided – together with the EADS management team – to modify the company’s current management and leadership structure. Guiding principles of the modification are efficiency, cohesiveness and simplification of EADS management and leadership structure, towards governance best practices and in the respect of balance between the French and the German shareholders. The German Government has been consulted as well.

Under the simplified management structure, EADS will be led by a single Chairman and a single CEO.

Rüdiger Grube will assume the position of sole Chairman of the Board of Directors of EADS. In this role, he will be responsible for overseeing the Group’s strategic development and dealings with its Shareholders. In particular, he will chair the newly created EADS strategic committee.

Louis Gallois will assume the position of sole CEO of EADS. In this role, he will be responsible for leading the management team in the execution of the Group’s strategy and managing the company’s interaction with public shareholders.

Thomas Enders will assume the position of CEO of Airbus in the Toulouse headquarters of the company, reporting to the CEO of EADS. He will be supported by Fabrice Brégier as COO of Airbus.

According to the BBC,

The French joint chief executive Louis Gallois will take sole charge at EADS while his German co-head Tom Enders gets the top job at Airbus.

EADS’ complex structure has been blamed for many of its recent problems.

“We need to be a normal company,” Mr Enders said.

Previously, EADS had two chairmen and two chief executives: one French and one German. Daimler executive Ruediger Grube will become sole chairman of EADS, a post he previously held jointly with France’s Arnaud Lagardere.

The implied abnormality by Enders was the double-harnesses imposed on EADS by the influences exerted by two co-chairman, and two co-CEOs This was the heritage of the company’s formation, and reflected the ‘least worse’ way of maintaining cooperation between the company’s two main national interests in France and Germany. No alternative better could be found than the structure which permitted one French and one German chairman, one French and one German CEO on the main board.

But let’s see what can be concluded beyond the formal statement:

One or two commentators suggested that the changes were not particularly unexpected. I will be charitable and suggest that those commentators must have been holding back on the outcome for some reason or other. The details are far from expected.

In ealier posts I had chronicled the various problems at EADS and its the troubles that have piled up for its major subsidiary, Airbus. The recent press reports had led me to conclude that attempts to resolve the complicated dual-management structure appear to be centering on co-chief executive Tom Enders.

Mr Enders is a controversial figure in France after he publicly criticized political interference from Paris and suggested the possibility of sensitive asset disposals. However, Daimler, the core German industrial shareholder in EADS, is determined that Mr Enders should not be sacrificed in any final deal.

Let me put a few pieces on the chessboard. Louis Gallois, head of Airbus, is widely admired, and believed to be needed to stick it at Airbus, and see though Power 8, the strategic plan to streamline the business. This is a production and commercial imperative. He is co-CEO of EADS with Tom Enders at present.

Arnaud Lagardère of the media group of the same name is French Co-chairman of EADS. His German co-chair is Rudiger Grube.

Nicholas Sarcozy and Angela Merkel are also in play, with special concerns for their national interests (and for their own political positions). EADS Shareholder DaimlerChrysler has signaled willingness to increase its holding, a positive gesture to Sarcozy who would like to reduce the holding of the French Government. DaimlerChryser’s bid is linked to their interests in keeping Tom Enders in play.

The rumors in the French press

Rumors suggest the game will involve taking Enders off the board. This has been denied emphatically by the company.

So what is ‘behind the headlines?

The company statement seems to have airbrushed out Arnaud Lagardere, the earstwhile Co-chair of EADS. Strange. So the German Rudi Grube takes over as Chair of the EADS main board. But Lagardere remains a powerful figure and shareholder. It has been suggested that he has escaped scrutiny over earlier share scandals, and is ‘protected by Sacozy, who in turn is aware of a rather soft-ride from M Lagardere in his recent election campaign. And there is the possibility that the media figure will be in line to return as sole Chair of EADS in the future, in an agreement in which the Chair will rotate from German to French holders every five years.

Another ‘solution’ left Louis Gallois as CEO of EADS and Tom Enders in charge of the subsidiary Airbus. This grants Gallois his (alleged) wish to avoid being left to sort out Airbus while answering to Tom Enders. On the other hand, the one figure widely regarded as key to implementing the Power8 plan at Airbus is Gallois, now expected to play a more political role.

The changes are sufficiently complex to warrant a working party investigating them.


Boeing, theater of dreams and Airbus nightmare

July 8, 2007

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Boeing launches its much-awaited Dreamliner 787. For Airbus is must seem more like a nightmare. In this fantasy battle, their champion, the Airbus 380, appears to be as potent as Superman in Kryptonite underpants. Can the European aero-dream still turn out all right in the end?

In Seattle they build planes. And, at the moment they are also very much in the Hollywood territory of selling dreams. The fantasy object is the new Dreamliner. High-tech, high-flying, the i-phone of the skies, the flying apple of the mind’s eye.

Meanwhile, some six thousand miles to the East (well within the 8000 mile range of the Dreamliner), Airbus executives put a brave face on for the ceremonies.

The power of the dream

Who can doubt the power of the dream? Who knows what happens if we stop believing, as James Barrie reminds us in Peter Pan, and Terry Pratchett points out in The Hogfather.

The selling of the dream has been a signal success, with press release claims that the 787 is already the fastest-selling commercial airplane in history with over 600 orders valued at more $100 billion at current list prices.

Even those us immune to the romance of the tale know that the 787 is the next giant leap of a line of aircraft of great consequence in the history of civil aviation. The 707 was a first. The 747, affectionately known as the first Jumbo jet. Now the 787, the star in the theater of aero-dreams.

Airbus versus Boeing

From the American side of the Atlantic the battle is a no-contest. Here’s the view of Lance Winslow, a not totally unbiased correspondent assessing the Dreamliner against its most direct competitor the Airbus A-350

Is the A350 really that spectacular? Hard to say, but one thing is for certain it is certainly no match for the robust, daring and dashing Dreamliner of today. Airbus’s attempt to compete with the Free Market Boeing Company has once again earned itself a distant second place or last place in the battle for the sky. The A-350 will use the same fuselage as the A330, but the wings will be made of composite. This is hardly a reciprocal response to Boeing’s cutting edge technology and advancements in design. But we have come to expect mediocrity from Airbus. When flying do you really want to ride in a bus while traveling at 30,000 feet in the Air? Think about it.

The Free-Market Boeing versus EU-subsidized EADS is important issue which will continue to be brought into the debate. The article also gets to another the key factors in the argument, the technical merits of the competing products.

Meanwhile in Europe …

In Europe, the financial press is more preoccupied with the boardroom battles within EADS, the corporate parent of Airbus. The Financial Times suggests that the efforts to restructure its complicated dual-management structure appear to be centering on co-chief executive Tom Enders.

Mr Enders is a controversial figure in France after he publicly criticized political interference from Paris and suggested the possibility of sensitive asset disposals. However, Daimler, the core German industrial shareholder in EADS, is determined that Mr Enders should not be sacrificed in any final deal.

We will continue to follow the twists and turns of this board-room battle. My point here is that persistent stories of corporate infighting may be indicating that the overall position is highly unsatisfactory. Boeing, we may presume, is doing very nicely. So nicely, that there are few rumors of boardroom clashes. In contrast, EADS leadership is forced to attend to the battles over its international border disputes.

The Chequer Board

What if anything can EADS, and more specifically the larger part of the outfit which is Airbus, do to break out of its nightmare? Incidentally, a deadline is approaching (July 16th) which dragged the New French President into the battle.

Let me put a few pieces on the chessboard. Louis Gallois, head of Airbus, is widely admired, and believed to be needed to stick it at Airbus, and see though Power 8, the strategic plan to streamline the business. This is a production and commercial imperative. He is co-CEO of EADS with Tom Enders at present.

Arnaud Lagardère of the media group of the same name is French Co-chairman of EADS . His German co-chair is Rudiger Grube.

Nicholas Sarcozy and Angela Merkel are also in play, with special concerns for their national interests (and for their own political positions). EADS Shareholder DaimlerChrysler has signaled willingness to increase its holding, a positive gesture to Sarcozy who would like to reduce the holding of the French Government. DaimlerChryser’s bid is linked to their interests in keeping Tom Enders in play.

The rumors in the French press

Rumors suggest the game will involve taking Enders off the board. This has been denied emphatically by the company.

The current form of the EADS/Airbus nightmare will be shared more widely in Toulouse after this month’s summit meeting.


Sarcozy, EADS. Qu’ est-ce qu’il a les demaneaisons?

June 1, 2007

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Nicholas Sacozy may be finding that EADS and its Airbus operations are giving him a most irritating itch that refuses to go away. One of his first acts as President was to visit the Toulouse sight of Airbus. Now the earlier governance problems at EADS may be returning to chafe him, with suggestions of his own peripheral involvement.

Background

Last year, A380 project executives, including Airbus CEO Gustav Humbert, were dismissed, primarily for failure to deal effectively with the project delays. Humbert was also was accused of concealing the seriousness of the problems. In a short space of time, Humbert’s replacement, Christian Streiff resigned, and the current leader, Louis Gallois was brought in. Streiff was believed to have failed to secure backing for a financial package (The Power8 plan) he believed necessary to turn things around with the A380.

The Airbus Power8 announcement

The Airbus Power8 announcement of 28th of February indicated:

A third A320 Family FAL [Final Assembly Line] will be set up in Hamburg immediately to cope with the steep production ramp-up currently under way. This FAL will be established in already existing facilities and will have full type flexibility when demand for A320s exceeds rate 14 per month. The A320 will continue to be assembled in Toulouse up to 14 [per month]. Hamburg will also perform final assembly of the future New Single Aisle family.. Furthermore, in order to allow parts to be fitted in the most logical place to optimize the overall cycle time, some upstream preparatory A320 and A380 cabin installation work will be transferred from Hamburg to Toulouse.

Which did not prevent vigorous opposition to the plan at Toulouse, and an early problem for Nicholas Sarcozy’s Presidency.

The itch that won’t go away

Within weeks of his election, Sarco was at Toulouse. He bought some time, obtaining some wriggle room by promising to return in July with Angela Merkel, thus indicating the international dimension of the problem. But the earlier itch remains.

The French co-chairman of EADS, and known to be close to M Sarcozy has been questioned by financial investigators still exploring into alleged insider trading in EADS last year. M. Largardère, claims that he had no inside knowledge of delays in deliveries of the A380, when his family group sold off 7.5 per cent of the Franco-German planemaker’s shares in April 2006.

According to The Independent, reports from the French press, that

[S]ince taking over the family empire after his father died in March 2003, M. Lagardère has cultivated a chatty and approachable style. He has, however, been plunged into controversies. His group is one of France’s biggest media players, owning a controlling stake in Hachette-Filipacci Media, the company that owns Paris-Match. He also has smaller stakes in Le Monde, Le Parisien and L’Equipe … M. Lagardère has been accused of interfering in editorial decisions to protect his friend M. Sarkozy and especially to prevent discussion of alleged problems in the President’s [private life]. Le Monde quoted a “close adviser” of M. Lagardère yesterday as saying that “whatever happens” he will be protected by M. Sarkozy.

I took this to mean that his friend would continue to conform to the French distaste for airing the personal problems of politicians. Nevertheless, in England, The Independent’s article may be taken for evidence of a political cover-up.

The EADS itch will not be going away for the new President.


Airbus chess battle reaches tense middle-game position

April 3, 2007

The Airbus chess battle reaches a tense middle-game position with both official and unofficial strikes across its European sites. If the corporate Power8 plan has failed to become a shared vision, neither has it become a common enemy against which resistance has been focused and mobilized.

The battle has elements of a multi-dimensional chess game. In France and Germany, Union-backed protests are putting pressure to bear on the works council of the company. In the UK, an unofficial strike was accepted as understandable, but not given formal Union backing. Even in France, two minor Unions did not support strike action, on the grounds that such action might make matters worse at the moment.

According to a BBC report

Workers from CGT and Force Ouvriere unions took part in the strike on the eve of Airbus’ works council meeting .. They marched behind a banner that said Airbus’s best-selling A320 plane should continue to be built in Toulouse … chanting “No to Power8,” an estimated 2,500 workers gathered at the aircraft maker’s headquarters in Toulouse .. One of Power8’s planned measures is for the plane to be built exclusively in Hamburg.
“We are treating [the works council] with caution and we intend to keep up the pressure,” a Force Ouvriere works council representative said.

This did not chime with my recollection of the company’s announcement of its Power8 restructuring plan, so I looked it up again.

The Airbus Power8 announcement

The Airbus Power8 announcement of 28th of February indeed seemed to be saying something different:

A third A320 Family FAL [Final Assembly Line] will be set up in Hamburg immediately to cope with the steep production ramp-up currently under way. This FAL will be established in already existing facilities and will have full type flexibility when demand for A320s exceeds rate 14 per month. The A320 will continue to be assembled in Toulouse up to 14 [per month]. Hamburg will also perform final assembly of the future New Single Aisle family.

Furthermore, in order to allow parts to be fitted in the most logical place to optimize the overall cycle time, some upstream preparatory A320 and A380 cabin installation work will be transferred from Hamburg to Toulouse.

Which suggests that the protesters at Toulouse know something different from the plans outlined by Louis Gallois, or they have been misled about what Power8 is all about.

Killer facts revisited

In an earlier post, I suggested that there were various killer facts associated with the problems at Airbus:

1 The mighty and innovative airbus 380 project has been mired in technological challenges (particularly over gigantic wiring problems) at the Toulouse plant.

2 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.

My assessment of ‘blame’ over the wiring problems was based on UK reporting, and Der Speigel made it clear that the technology at Hamburg lagged behind that in Toulouse. However, the first killer fact remains, namely that Airbus faces technological challenges particularly over gigantic wiring problems. Furthermore, the struggle between French and German political interests continues.

Power8 seemed to be a strategy seeking to remedy the operational frailties of the company, while accommodating its multiple constituencies. Toulouse seems to be coming out of the proposed plans rather well. The strikes this week indicate just how difficult it is for corporate leaders to communicate such change initiatives so as to deflect anxieties and suspicions of a work-force under threat.

The evidence also suggests that there are disagreements among the various unions on the appropriate way to protest against the plans. If the corporate plan is not achieving that much-desired ‘shared vision’, then neither is there a common enemy around on which resistance has been able to focus.

While there is no clear winner emerging from the chess gave, it can hardly be called a stalemate either. It was what the famous Russian school of chess theorists taught was a position full of dynamic tension, requiring the most precise calculation to avoid sudden collapse of a carefully constructed position.


Airbus: Will Louis Gallois find wriggle room to achieve the required corporate transformation?

March 1, 2007

EADS faces a turbulent future as it seeks to resolve the deep-rooted problems within its Airbus subsidiary. The delayed announcement of job cuts has been met with worker protests. But the power 8 plan ducks the main problems. Airbus will remain uncompetitive unless Louis Gallois finds some wriggle-room to escape the stifling effects of its governance structure.

The main thrust of the story at Airbus emerging this week has been the eventual announcement of much-trailed job cuts. Despite much speculation, the outcome was largely anticipated in a brilliant piece of reporting in Der Spiegel some months ago.

The complex political story was explained. In addition it pinpointed the problems arising from the split in production between German and French sites:

If Gallois had his way, he would probably concentrate A380 production, currently divided between Hamburg and Toulouse, in the southwestern French city. Delays in building the A380 were among the main reasons behind Airbus’s current troubles, and executives at the company, both past and present, blame Hamburg for those delays .. “We cannot live with the concept of two production sites splitting all final assembly lines,” said Gallois …

it took years before anyone noticed that the engineers in Toulouse and other locations had long since begun using state-of-the-art 3-D computer design programs like Circe and Gilde, while their counterparts in faraway Hamburg were still working with outdated systems. This discrepancy finally came to light when the first problems with fuselage wiring emerged just over a year ago, leading to a decision to use the newer systems in all Airbus plants in the future. Nevertheless, it is likely to take at least two years to retrain all engineers in Hamburg, and until then they will continue to use their outdated wiring design programs to configure the A380’s electronic systems — at greater effort and significantly higher costs.

The article also highlighted the vulnerability of Airbus to the fluctuations in the US dollar, and pointed out that the possibility of shifting some production to the USA would help address the problem. It appears that former head Noël Forgeard rejected and ridiculed the proposal, although Gallois has signaled that he is well-aware of the issue, this week.

The job-cuts are no more than a political compromise in face of the serious economic problems that the company is facing. But unfortunately, the restructuring plan does not address the fundamental problem of split production between Hamburg and Toulouse sites on its flagship project, and the issue claimed to have triggered the ‘restructuring’.

The story illustrates the forces that can render powerless even the most deft and able leader. It can be argued that the EADS has been instrumental in arriving at a Byzantine form of Governance, and even in appointing a leader that had the ability to work within the system. It is a clear case of a company getting the leader it deserves. It is less clear whether the leader will be able to achieve the kind of transformation that would address even the short-term problems with the ailing and failing Airbus 380 project.

As sometimes happens, the issues are relatively simple to the armchair strategist, in the shape of business journalists or business academic. The delays in production to the 380 arise from the split production lines and the financial turbulence of the dollar. Solutions have to address these points. ‘Equitable distribution of job cuts’ is arguably irrelevant. Creative re-framing of options will be needed to open up some wriggle room for the company.


Is Airbus hard-wired for a crash?

February 26, 2007

Delays in the vital Airbus 380 project have been identified around complex wiring problems. But the crucial problems may be the cultural hard-wiring of the parent company EADS revealed in the job-equity summit between Chirac and Merkel.

Update: I recently suggested that Airbus was struggling in its efforts to secure its future because of some killer facts noting that:

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.

Over the weekend, an official version of the story has emerged via the news agencies. In it, the discussions between Chirac and Merkel have been described as resulting in a concord (is that really le mot juste?). According to a Times article

Chirac said he expected that “in terms of jobs, in terms of technology, there be perfect equity in the sharing of the consequences but, equally, that there be no straight layoffs.”

Did I get it wrong?

My earlier account was ‘off-message’, if M Chirac’s statement is to be accepted at face-value. However, further reading of the reports in the German press suggests that that ‘perfect equity in the sharing of consequences’ is unlikely, and even less likely is there to be perfect harmony between French and German expectations.

I had misled myself in conflating the company announcement to delay its restructuring plan, with the meeting between Jacques Chirac and Angela Merkel. It turns out that the decision to delay the restructuring of the company, although attributed to the political storm brewing, was announced before the ‘summit’

I had also bought the story from English press reports that the wiring at Toulouse had been a major source of the Airbus 380 problems. In contrast, a German report suggests that their Hamburg plant has been blamed for much of Airbus’s operating loss for 2006 due to the delays, and that some of the A380 production could be transferred to Airbus plants in Toulouse, France, which could also be the assembly site for the new A350.

But these remain issues to be cleared up. More obviously, the political meeting was more about finding a political statement of harmony. This may not be unconnected with electoral campaigning in France at present.

Cultural hardwiring

This seems to me to be an example of cultural hard-wiring in the company. I have modified the more familiar terms of hardware and software in cultural theory to suggest that the corporate rigidities, like the wiring of the Airbus 380, may be rather resistant to a quick-fix. The structure is closer to hardware than to software, more hardwired than softwired in nature.

What happens next?

We will learn whether the company will announce steps to address its urgent technological problems which are key to its production difficulties. Or whether the stories will remain focused on the political dimensions of the company’s hard wiring. (No, I still don’t think Concord is the mot juste). Some predictions are still worth offering.

Airbus is not in a position in which traditional ‘strong’ leadership can be expected to make a significant difference in the short term. Louis Gallois was not selected for such actions, and he may as well continue seek a consensus which permits the company to introduce its needed restructuring plan. This suggests that change will be that of the reasonable man rather than the progress which Bernard Shaw argued was achievable only through the efforts of the unreasonable and heroic leader.


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.


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