Sarcozy accepts need for EADS probe

October 12, 2007


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.


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.