PARIS --- EADS management seems to have chosen a strangely inauspicious time to announce the company’s much-heralded restructuring plan which, for the first time in its 11-year history, includes forced layoffs for 1,450 employees – and possibly more, if not enough employees take up the buyout packages on offer.
The first negative reaction was not long in coming. EADS has a duty to avoid job cuts, French Labour Minister Michel Sapin insisted Dec. 10. "Its duty is to put in place measures to avoid all layoffs and in France, it will not be accepted, because it is not acceptable for a company like EADS to cut jobs globally," the minister told Europe 1 radio. Others are sure to follow, as no European government can today appear complacent when high-value industrial jobs are cut.
Germany’s Economics Ministry took a softer line, saying in a statement that “We call on [EADS] to implement the planned job cuts as gently and in as socially balanced a way as possible and assume that this won't burden German sites one-sidedly." But it also cautioned that “Germany will continue to closely monitor the planned changes” and reminded the company that the German federal government is providing it with direct and indirect aid, the Wall Street Journal reported Dec. 10 from Berlin.
The company’s trade unions are also likely to look askance at the premise that the company must cut 5,800 jobs to “enhance competitiveness,” as it announced on Nov. 14 that its 9-month revenues had increased by 7% and its Ebitda by +36%.
This, furthermore, at a company that employs 140,000 people, and has an order backlog of 642 billion euros ($880 billion) – about ten years of production work – so whose survival, in other words, is hardly at stake.
Given that EADS also announced Nov. 27 that it was “ramping up” its footprint in Poland, trades unions and governments in France and Germany, where most jobs are being cut, are likely to view this as a provocation, since transferring production work and jobs to Eastern Europe is now a particularly sensitive subject in both countries.
Waving a red cloth at the trade unions
This is why the French and German governments, despite being unlikely political bedfellows, joined forces to successfully pressure the European Council to agree on Dec. 9 to modify the Directive which allows EU workers to be posted throughout the Union, and which was allowing jobs and work to shift to Poland, Romania and Bulgaria.
France and Germany also happen to be the two EU countries where EADS has lost most defense orders. While it may appear entirely appropriate to cut jobs there, the cuts are likely to be seen as a challenge to the two governments or as “payback” for the lost defense orders, something that the political opposition in both countries, and the trades unions, will undoubtedly seize as a political weapon.
And opponents also will look askance at the cost of rebranding EADS as the Airbus Group (effective Jan. 1, 2014), a marketing exercise whose cost has not been made public and which can appear an unnecessary expense at a time when it is necessary to cut 6,000 jobs.
What of the other measures?
Apart from its timing, EADS’ restructuring plan includes few measures that can be challenged, as it mostly consists of closing and consolidating smaller facilities across the group’s four home markets.
The other big point, of course, is the merging of several business units (space company Astrium, Airbus Military, Cassidian, missile company MBDA) into a new Airbus Defense and Space (DS). This could generate substantial savings, in terms of both costs and manpower, as the number of plants and legal entities is drastically reduced.
It is, however, still not clear how putting the space, military air transport and defense business in the same bag will “create synergies in our operations and product portfolio and better focus our Research and Development efforts,” which company CEO Tom Enders said is “what the restructuring and integration plan… is all about.” Nor, indeed, why they would be more profitable together than separately, given the wide diversity of their businesses.
If anything, the restructuring plan and the job cuts appear timid, given the scale of the problems facing the space and defense units as described in a “strictly confidential” memo leaked to the French monthly Challenges.
The memo, internal to EADS top management, forecasts that, by 2018, the company’s defense order book will drop by one-third, and its “book-to-bill” ratio will drop to 0.8. Stagnation is forecast for the company’s satellites and space launchers businesses, while turnover at Eurofighter will drop by half without new export orders.
A note by Paris broker Oddo, quoted by Challenges, estimates that the Airbus DS consolidation could save about 300 million euros in 2014 and 2015 – i.e., 150 million euros/year -- thanks to synergies and simplifications. But this is little more than a rounding error compared to EADS’ annual sales of 53 billion euros.
Others observers maintain that each division could have continued to operate independently after slimming down, and that combining the M51 nuclear missile, the A400M airlifter, civil telecoms satellites and cybersecurity will not necessarily make Airbus DS more rational, more effective or more profitable than its component parts.
It will be interesting to see whether Enders can persuade trade unions and his French, German and Spanish government shareholders that his restructuring plan is warranted, and that it will, indeed, make the company more competitive.