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3-D computer design programs like Circe and Gilde, while their counterparts in faraway Hamburg were still working with outdated systems.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likely to take at least two years to retrain all engineers in Hamburg, and until then they will continue to use their outdated wiring design programs to configure the A380’s electronic systems — at greater effort and significantly higher costs.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.