Brain Food: Behind the Spin - Airbus

THE DILEMMA

by
Last Updated: 31 Aug 2010

Things couldn't be trickier for the pan-European airliner business, beset by delays to its new A380 superjumbo, falling demand for its other models and strife at the top. Both Airbus MD Gustav Humbert and Noel Forgeard, the French co-CEO of parent EADS, quit last month. Forgeard went reluctantly after an investigation by French regulators into allegations of insider trading. He and his family sold share options for millions of euros just before Airbus revealed seven-month delays in the delivery of the double-decker A380. The news wiped 26% off the firm's paper value. Humbert fell more readily on his sword, accepting responsibility for a hold-up that could cost Airbus £2 billion in lost earnings. Yet this time last year Airbus was taking more new orders than arch-rival Boeing, and after the A380's successful maiden flight, looked set for a bonanza.

THE SPIN

But the journey from prototype to product is proving turbulent. Wiring the A380's complex technology has been blamed for the delay, made public on 13 June. Yet at its AGM on 4 May, EADS gave no hint of problems. Only days later, an A380 flew from the Berlin airshow to Heathrow, again with no hint of glitches in the delivery schedule. No wonder shareholders and customers complained that they'd been kept in the dark. Investors were further riled by leaked minutes of an EADS audit committee held in May stating that the first A380s delivered would sell at a loss.

THE STRAIGHT TALK

Airbus began as a Franco-German consortium in 1970 but in 2001 became an independent company owned 80% by EADS and 20% by British firm BAE Systems (whose stake is now up for sale). The company still labours under an unwieldy French/German executive structure, with two joint CEOs, one in each country.

EADS investors, including Daimler-Chrysler and French media group Lagardere, hoped the crisis would force a management restructure but this seems unlikely.

Negative publicity has been blamed for a slump in orders for all new Airbus aircraft, down to 117 for Jan-June '06, compared to 487 at Boeing for the same period. Even patriotic French PM De Villepin (the French government owns 15% of EADS) has shown exasperation, storming out of a parliamentary debate on the subject.

THE VERDICT

It's likely that only nine of the planned 20 A380s will be delivered next year - bad news for the firm's finances, as it needs to sell 300 to break even. Such an ambitious hi-tech aircraft was never going to be easy to produce, but Airbus can't afford any more delays.

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