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New management structure at EADS will not solve all the problems
By Karl Schwarz
Mutual back-patting was the order of the day as France's new head of state, Nicolas Sarkozy, and Federal Chancellor Angela Merkel congratulated each other at Airbus in Toulouse on reaching agreement over the new management structure at EADS on 16 July. With the demise of the problematic dual leadership in the Board of Directors and Board of Management, the Franco-German showpiece company will actually move a step closer to becoming a “normal company”. It is to be hoped that, with a clear allocation of tasks and responsibilities, management will now devote more of its attention to customers and competition than to internal power struggles.
The way that the personnel changes have come about shows, however, that EADS is still far from being like any other company – and will not become one overnight either. Virtually up to the last minute “friends” on both sides of the Rhine had been wrestling tooth and nail for influence. Greater efficiency, faster decisions and more simple structures should not be allowed to upset the “balance between French and German shareholders”. And indeed this is to be preserved through rotation of management posts in the future.
On the other hand, any attempt to resolve the problem of balance among the shareholders has been shelved for the moment. Berlin, which is not a direct shareholder as the German shares are owned by a consortium of banks, Federal Government and Länder, has little ammunition with which to counter the French government's ambitions to further increase its 15 percent stake. The introduction of a “golden share” for both states which, irrespective of the actual investment, would confer the right of veto on important strategic issues in this undisputedly strategically important industry, seems a sensible way out.
Strong private shareholders with clear visions should be able to keep the political influence under control, so the argument goes. But DaimlerChrysler and, on the French side, the Lagardère Group, have of late been more interested in the forthcoming disposal of shares or the complete sale of their shareholdings than in demonstrating committed management. They allowed the crisis at Airbus to go on for too long. After all, as EADS's most important subsidiary, Airbus accounts for 60 percent of its turnover.
Surprisingly it is Thomas Enders, hitherto Co-CEO of EADS, who has been appointed the new chief executive of Airbus. His job will not be any easier than it was for his predecessor, Louis Gallois, who will now take charge as the sole CEO of EADS. The huge order backlog and continued high order income are certainly not something to be complacent about, but actually, given the weak dollar (which recently was around $1.37 to the euro), a huge risk. Thus for once everyone agrees that implementing the Power8 cost-cutting programme launched in the spring is imperative if the long-term competitiveness of the company is to be secured.
The forthcoming sales of production facilities in France, Germany and the United Kingdom are essential here, even if this step is extremely unpopular with the employees concerned. On top of this there are plans to give outside partners a larger share on new programmes like the A350 – for cost reasons, preferably companies outside the Euro zone. In this connection it is important to consider carefully how much advanced technology it is desirable to entrust to foreign hands. At any rate Boeing's extreme example over the 787 should not be imitated.
Meanwhile, even if Airbus is currently the centre of public attention, there is plenty to do in other EADS divisions as well. For example, enormous effort is required to ensure that the A400M military airlifter does not turn into the next disaster. The half-yearly results confirm for the first time a delay in the maiden flight to the summer of 2008. The smouldering problems afflicting the NH90 multi-role helicopter are filtering through in the form of Euro105 million of write-offs. Despite these problems, however, Louis Gallois has emphasised that the company has to grow in the military area in order to achieve a more balanced portfolio. But traditional products from ongoing production will not be enough to achieve this, especially as defence investment is stagnating somewhat in the EADS home markets. One possible solution might be a stronger presence in the USA, where the company is pinning its hopes on the A330 tanker.
In this way uncertainties remain. And the environment is not getting any simpler, as the airliner sales boom will sooner or later be over. The management restructuring is thus at best the start of the end of the crisis. At any rate the stock market responded with scepticism. The share price was recently languishing at around Euro 23.
From page 4 of FLUG REVUE 9/2007
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