Op-Ed: Can Subsidiarity Save Airbus?
(Source: defense-aerospace.com; published Feb. 20, 2007)
By Giovanni de Briganti

PARIS --- Whatever one thinks of the current problems at Airbus, it is clear that the proposed fix – the Power 8 restructuring plan – is not going to solve them.

The reason is that, while Airbus may pretend it is an integrated European company, the jobs it provides are still seen, first and foremost, as British, French and German ones. And, as Berlin, London and Paris have recently shown, governments will always fight to protect jobs on their territory, because they’ll be booted out at the next election if they don’t.

So, a plan that depends on having Berlin and London accept job cuts decided in Paris by two Frenchmen, while at the same time asking them to fork up long-term loans to fund development of the A350, is just not going to happen, and especially not now.

But does Airbus really need Power 8? This is, after all, a plan cobbled together in less than three months by someone with no background in aerospace, that no-one outside the company has yet seen, and that is so explosive that it still can’t be made public despite five months of ground-work.

The problem that Airbus needed to fix is a two-year delay in A380 deliveries, which caused a 5 billion euro earnings shortfall. The delay was been attributed to cabling mismatches between French and German factories due to incompatible software. Airbus says remedial action is being taken and, unless other problems suddenly surface, it can be assumed that the problem is resolved.

However, Power 8 goes well beyond the A380: its goal has expanded to include a total redesign of the Airbus industrial model, imposing the latest management ideas such as outsourcing of production, co-ownership of factories with risk-sharing partners, and drastic cuts in the number of suppliers - while squeezing the margins of those that are left. Airbus and EADS, its corporate parent, say that the company must become fully integrated, rationalized, and “globalized” if it is to successfully face the future and out-compete Boeing.

But Boeing is doing exactly the opposite. The production model it selected for the 787 Dreamliner has design, central management and final assembly located at Boeing, but with some design and most production work subcontracted. That may be globalized, but not integrated. In fact, Boeing’s approach resembles the “old” Airbus consortium that existed for 25 years before it was restructured in 2000.

And it is somewhat ironic that, while Airbus dreams of shifting production to factories in the dollar zone to improve its profitability, Boeing is doing the exact opposite by outsourcing 787 production to Japan, Italy, France, Korea and Sweden, and this at a time when the dollar has never been lower.

The “old” Airbus, in which a central entity based in Toulouse designed and sold the aircraft but farmed out production work to Aerospatiale, British Aerospace, DASA and others, makes much more sense than the “new” one, which tries to impose cross-border industrial integration on shareholders and employees that don’t even want to hear about it, let alone about the 10,000 jobs that Airbus says must be shed.

Could Airbus revert to its “old,” pre-2000 organisation? In that, blessedly pre-Forgeard, era, each country owned its Airbus factories and was responsible for keeping them competitive. This forced national governments - and not Airbus central management - to solve problems in their own country, and if a national solution was not forthcoming pressure from partner governments, and the threat of losing the work to another country, made sure the issue was taken care of.

Reverting to the “old” model would leave the restructuring of German factories to the German government, to German shareholders and to German trades unions, while the British and the French would take care of their own factories. No more cross-border disputes, no more talk of “spreading pain” equally: simply national problems to be solved nationally.

Airbus should also temporarily shelve the A350 program, and instead concentrate on delivering the A380 and preparing a successor to its A320 family. This would solve its medium-term cash problems as it would no longer need to spend 10-12 billion euros on the A350, and would avoid the battle for A350 work-share that contributed to the latest French-German deadlock.

In the “old” Airbus model, the A380 cabling disaster would probably have happened anyway, but it would have been seen as a German failing that would have been fixed by Germans in Germany. Airbus would of course have borne the ultimate financial consequences, but would have passed most of them back to the German side by applying contractual penalties or damages. And no-one would have had grounds for complaint.

Incidentally, leaving each country to solve its own problems without supranational interference respects the principle of subsidiarity which the European Union invented to deflect the same accusations of excessive meddling in the affairs of member states that are now levelled at Airbus management.

Airbus still has national subsidiaries in each member country, so it’s a matter of selling these subsidiaries back to national shareholders in exchange for their shares in EADS and, perhaps, a bit of cash. And it’s simpler now that BAE Systems has removed itself from the equation.

Airbus’ central organisation would remain wholly owned by EADS, and would still manage programs and sell the aircraft; its former national subsidiaries would produce them if, and only if, their products and prices were competitive.

Notwithstanding its failings and its unorthodox structure, the “old” model Airbus worked well enough for 30 years. It allowed a disparate mix of European companies, starting from scratch, to outlast McDonnell Douglas and Lockheed, and finally catch up with Boeing.

EADS should stop trying to make Airbus work in theory, and instead adopt a business model that works in practice.


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