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Analysis: Airbus, Streiff and the Inverted Pyramid |
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(Source: defense-aerospace.com; published Oct. 7, 2006)
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By Giovanni de Briganti
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PARIS --- Irrespectively of whether Airbus CEO Christian Streiff has already resigned to become CEO of car-maker Peugeot-Citroen, only given notice, or remains deeply committed to the job to which he was appointed just three months ago, the events of the past week have highlighted so many conflicting views at the top of the EADS-Airbus structure that his job has, at the very least, become an even more complex one.
Thomas Enders and Louis Gallois, the two co-CEOs of EADS, appear determined not to make the same mistakes as their predecessors by giving too free a rein to Airbus. In turn, Manfred Bischoff and Arnaud Lagardere, the two EADS co-Chairmen, do not want to risk being again caught unawares by major problems, as happened in June when Airbus unexpectedly announced a second round of delays for the A380 program that triggered a 30% drop in the company’s share price.
And governments, leery of having been too trusting in the past, are now closely exerting their supervisory rights as EADS shareholders (France), major customers (Germany), financial backers (British government, City of Hamburg), or all three.
Consequently, an inverted pyramid of shareholder oversight now has its apex firmly planted on Streiff’s neck, making his position extremely uncomfortable if not outright untenable. So rumors of his resignation should not come as a surprise, even if they are only deliberate leaks to ease some of the pressure. Looking back at the past week, it is easy to see why Streiff might feel discouraged.
First, the EADS board on Friday, Sept. 29 refused to approve his first restructuring plan because, by all accounts, it was too harsh, and delayed its decision until Tuesday, Oct. 3. This was Streiff’s first board appearance and his first defeat, and he reportedly threatened to resign amid a dispute over the transparency of financial and other reporting by Airbus to EADS.
It was over the intervening Sept. 30-Oct. 1 week-end that he had an extended series of meeting with members of the Peugeot family and of the Peugeot-Citroen board.
Second, the restructuring plan that the EADS board finally approved on Oct. 3 was short on specifics but long on contradictions. It calls for a 30-percent reduction in operating expenses, but apparently excludes both large-scale lay-offs and factory closures. The steps that have been made public, like a hiring freeze and the non-renewal of temporary contracts, hardly seem enough to save 30%. So where will the savings come from?
Third, Streiff is said to want to rationalize and streamline production by concentrating production of each major program in a single factory, with the A380 in Toulouse and the A330/340 family in Hamburg, for example. But the City of Hamburg, which invested 750 million euros to attract the A380 factory, will have none of it, while the German government wants high-tech jobs in high-visibility programs, not humdrum production of older products.
Fourth, Streiff wants to close some Airbus plants to save money and streamline production. Many outsiders agree, and Sash Tusa, a noted financial analyst for Goldman Sachs, suggests it should close as many as seven (out of 16) to restore profitability. But this looks unlikely, given the furore during the summer when EADS announced it was closing the small, loss-making Sogerma plant in Bordeaux but had to back down after pressure from the French government, including a high-profile visit by Prime Minister Dominique de Villepin. And, with France becoming increasingly preoccupied by the May 2007 presidential elections, prospects for government meddling can only increase.
Fifth, Streiff wants to quickly launch the A350XWB, which he says is “fundamental” to the company’s future because it covers 40% of the airliner market. But Enders threw cold water on the prospect, saying that the A350XWB’s launch is by no means “automatic;” it depends on making a rational business case and, more importantly, on whether Airbus and EADS can come up with the estimated 5-6 billion euros required to fund its development.
So, in fact, the EADS board approved Streiff’s plan while watering down, delaying or hiding many, if not most, of the concrete measures it calls for. No wonder the man has doubts about his future at Airbus.
The plan was greeted with widespread scepticism and led to a further drop in EADS’ share price, while on the day after it was announced 99.8% of shareholders voted to sell off BAE Systems’ 20-percent stake in Airbus. Hardly a resounding endorsement.
And the pyramid weighing down on Streiff’s neck got heavier last week, as the German government signaled it is keeping a close eye on things by calling him to account in Berlin, where Economy Minister Michael Glos discussed increasing the German government's role in the group. Berlin also let it be known that it might acquire even more direct clout by having the state-owned KfW (Kreditanstalt fuer Wiederaufbau) bank buy a sizeable block of EADS shares.
Politicians and trade unions of all stripes are calling for calm, deliberate resolution of employment and structural issues, even as analysts are cutting valuations, A380 buyers are demanding financial penalties for late delivery, and investors are selling off their EADS shares.
As a final touch, a German government spokesman on Oct. 6 upped the pressure by saying that the crisis currently plaguing Airbus will be discussed at the meeting between German and French ministers scheduled for Oct 12 in Paris.
Gallois says Enders and he agree that EADS can no longer be managed loosely as a holding company, and that its business units need closer supervision and coordination. This points to a vision of an operating company whose divisions will have only limited autonomy – in fact, much as EADS was before it was reorganized in 2000, and as its predecessor Aerospatiale was when Gallois ran it in the late 1990s.
As a recipe for avoiding surprises and for catching mistakes before they get out of hand, this vision certainly fits the bill. It’s not as clear, however, that it won't stifle initiative at the business units, nor that they would necessarily benefit from subordinating management decisions to the corporate good.
In any case, if this is the way EADS is headed, then it should make things clear by recruiting divisional chiefs, and not CEOs, for its business units. As one French aerospace chief mischievously told your correspondent this past July, there can only be one “führer.”
-ends-
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[N.B.: Streiff resigned on Oct.9] |
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