After 30 years, Airbus is ready for its new life as a grown-up, integrated company
Max Kingsley-Jones/LONDON
On a December day in Paris 30 years ago, a group of European aviation professionals were formally united under French law, laying the foundations for what is today the world's "second force" in airliner manufacturing - Airbus Industrie.
The unique French legislation under which Airbus was first registered provided the perfect framework for the partnership to set up shop and set about rebuilding Europe's airliner industry. But 30 years on, as Airbus launches its $11 billion A380 programme, this legal structure has exceeded its "genetic limits".
Airbus is poised to be reborn as an integrated company (AIC), with two shareholders and arms in the four European countries of its shareholders - France, Germany, Spain and the UK.
"We are going from an 'all partners equal' mentality to that of 'efficiency together'," says Airbus financial controller Ian Massey. "We aim to develop a 'one Airbus' corporate culture as opposed to the previous 'partner' mind-set."
And it won't just be the structure that will be simplified - so will its name: Airbus Industrie is dead - long live Airbus!
Thirty years ago it was the glamourous Anglo-French Concorde supersonic airliner that was making the headlines. Despite its failure as a commercial enterprise, the legacy of Europe's first major airliner collaboration lives on today within Airbus Industrie.
As the Concorde prototypes were flying from Toulouse, Filton and Fairford, the embryonic Airbus Industrie consortium was busy setting up shop in a small Paris office and getting on with more mundane things - the development and marketing of a 250-seat short-haul "people mover" or "air bus".
Despite initial industry scepticism - much of which was generated by established rivals such as Boeing - over the next 30 years, the consortium developed three distinct families of aircraft, seating from 100 to 400 people. In 1999 it generated sales of $16.7 billion. "I don't think that even the founding fathers could have imagined that by 2000 we would have sold over 4,000 aircraft," says Massey.
In spite of its success, Airbus still has to come of age and this will be achieved with the introduction of the giant 555-seat A380 in six years' time. Only then can Airbus proudly boast that anything the USA can do, Europe can do too. But in doing so, Airbus must ensure it does not lose the pioneering spirit that got the project off the ground in the first place.
Non-political beginnings
It all began on 29 May 1969, when the French and German partners signed the original agreement that would create Airbus. "Significantly, this was signed during the six weeks between the tenure of French presidents de Gaulle and Pompidou," says Massey. "Right from the start, the politicians really had to step back. They have been allowed to support Airbus but not to interfere. It's the best partnership for the industry."
The UK headed the original "air bus" studies with the French in the mid-1960s. It had a 37.5% lead share in the project, but the UK Government was concerned that it would not see an early return on its anticipated £60 million investment, and formally withdrew in April 1969, just before the founding agreement.
So it was the French and Germans who recognised that, despite different individual national objectives, the only way forward for Europe to achieve large-scale success in civil aircraft manufacturing would be to work together. "There was no European manufacturer that had ongoing designs or manufacture of an aircraft that could effectively compete worldwide with the American products," says former Airbus president Roger Béteille.
An experienced French engineer, Airbus managing director from 1975 until he retired in 1985, Béteille is recognised as one of the four "founding fathers" of Airbus. Others are Aerospatiale chairman Henri Ziegler, who took charge of the partnership at the start; strong, sometimes controversial German politician Franz-Josef Strauss; and Felix Kracht, the German aerospace manufacturing genius.
The French and Germans decided to proceed with each country taking a 50% shareholding. But the UK retained involvement in the programme through Hawker Siddeley, which signed an agreement in June 1969 to design, develop and manufacture the A300's wing as a private venture.
Airbus' formation continued through 1969 and 1970, with the Netherlands joining the programme through Fokker-VFW. As noted, Airbus Industrie was formally created on 18 December 1970 under French law as a GIE (Groupement d'Interêt Economique) to market a 250-seat widebody twinjet - the A300.
France and Germany united
The GIE format provided the perfect legal framework for the consortium to get up and running, says Massey. "The GIE structure is a bit strange - if it wasn't for this French legislation, Airbus might never have happened. France said 'we have a legal structure-we can do it'. The GIE provided joint liability, fiscal transparency, operational flexibility and no dominant partner."
The GIE ensured that Airbus management was allocated to an individual organisation, without interference from government services, although governments were to be called upon to provide development funding for programmes in the form of re-imbursable loans.
Although the structure of the Concorde joint venture provided the framework for Airbus, there were certain important differences: There was to be no duplication of assembly lines, or marketing effort. "Concorde marketing was split geographically between the French and UK - it was a disaster," says Massey.
From the start, the decision was made to adopt the US dollar for all the consortium's accounts and contracts between partners, making all subject to US dollar escalation indices.
Another important part of the original mission statement was to seek sales success from non-national markets. The ultimate objective was to take a 30% share of the entire jet airliner market. The small Airbus marketing team initially operated from an office in Paris on the Avenue de Versailles before later moving to new headquarters alongside the Aerospatiale plant at Blagnac airport near Toulouse.
It was decided that partners would all specialise in particular areas, with French partner Aerospatiale being responsible for the technical and industrial co-ordination and final assembly, Germany's Deutsche Airbus the fuselage and cabin furnishing, and Hawker Siddeley the wings. Aerospatiale and Deutsche Airbus were each allocated about 36.5% of the production work. Fokker-VFW had 7% of production and Hawker Siddeley 20%.
Spain's CASA joined Airbus in October 1971 as a minority partner, taking a 4.2% stake in the consortium, and the two existing partners reduced their holdings to 47.9% each. HS was merged with the British Aircraft Corp in 1977 to form British Aerospace, which joined the consortium as a full member, with a 20% shareholding, on 1 January 1979. The French and German shareholdings were reduced to 37.9% each, while CASA retained its 4.2%.
UK back on board
The HS wing subcontract eventually provided the UK with the opportunity to get back on board. "Maybe if the UK had been more visionary, it would have a greater share of Airbus today," says Massey.
Throughout all the consortium's shareholder revamps, the GIE structure remained. After a slow start, the Airbus concept succeeded with its challenger "David versus Goliath" spirit, says Massey. The product line expanded with initial A300-based variants, being joined by a new family of single-aisle jets and long-range widebodies. A second production line was created in Hamburg.
As the consortium expanded its product line, it had also been sharpening up its act, with production cycle time and inventory-control initiatives introduced in the early 1990s yielding substantial financial improvements. Annual output was now heading towards a regular 100-150 aircraft, and the manufacturer began to outgrow the GIE structure.
"By the mid-1990s, the low dollar value and anticipation of a price war started cost-cutting at Airbus," says Massey. "Boeing was making noises that it was going to reduce costs and blow Airbus out of the water. There was a realisation that 'this [GIE set-up] ain't going to work much longer'." Massey's response to the Boeing threat was to tell the Airbus shareholders: "I don't care what your costs are, but cut them by 25%." This started the whole process of reorganisation.
It was the consortium's former managing director, Jean Pierson, who first told the world's press that the GIE format had reached its "genetic limits" in the mid-1990s. Pierson, who took the helm from Béteille in 1985, was renowned for his "scruff of the neck" approach to business and this revelation was one that upset the shareholders - at the time, not all of them agreed with him.
Despite disagreement in some quarters, the partners set up a "team of wise men", as Pierson termed it, to examine ways of reorganising the consortium's structure. "We had achieved market recognition and the child had grown up - there comes a time when daddy can't go on paying," says Massey.
Attempts in 1996/97 to convert Airbus into a so-called single corporate entity (SCE) were in tatters by 1998. It failed because of a "lack of maturity and diverging interests at shareholder level", says Massey.
There were disputes among the shareholders over the value of their parts of the business, but insiders say the SCE failure was largely because the French partner was concerned that its position within Airbus would be marginalised by a potential BAe/DaimlerChrysler merger that was being discussed at the time.
Industrial meltdown
"Then in 1998 Boeing suffered its industrial meltdown as it struggled to accommodate the take-over of McDonnell Douglas and ramp up output across its product lines," says Massey. "This undermined Boeing's credibility, and financial people started to believe that Airbus was credible, and take us seriously." But Airbus was well aware that its arch rival was not going to give up and would not make the same mistakes again, he adds.
Two things then happened. A "private sector spirit" reigned within the partners as CASA and Aerospatiale shed their state ownership, and Airbus decided that it had to develop an ultra-large airliner - the A3XX (now redesignated the A380). "We had an overwhelming need to fight the Boeing 747 - our competitor has used it to cross-subsidise other markets," says Massey. "We couldn't do this $11 billion programme under the old structure."
The GIE structure was unsuitable for a "top player" company, says Massey. "It lacks transparency on product-by-product profitability and 'real costs' bases. The board's unanimity principle hampers reactivity and soundness of major business decisions. We set ourselves two objectives for 2000 - to create an integrated company and launch the A3XX."
Although it was Pierson who first floated the idea of a united Airbus, it was Noel Forgeard, who succeeded him in 1998, who took it forward. Forgeard was helped in his efforts by the merger of three of the partners - Aerospatiale Matra, DaimlerChrysler and CASA - to form EADS (European Aerospace, Defence and Space). "This gave a new impetus to the integration and simplified negotiations," says Massey. "Instead of four partners, there were now only two - BAE Systems and EADS."
The deal to form the AIC was finally inked last June, with the process due for completion early in 2001. EADS takes an 80% stake in the merged company, while BAE retains 20%.
The structure will see the new Airbus run by an integrated multinational management team with four European arms - Airbus France, Airbus Deutschland, Airbus España and Airbus UK - employing some 41,000 people. A total of 74,000 jobs now depend on the company's success. Forgeard remains at the helm, and will also run the Airbus division of EADS. All operational and business decision-making power is vested in the Airbus executive management.
Airbus is integrating all its main internal procedures as far as possible in the light of current regulatory approval. "We are working with the authorities to agree new regulatory approvals to allow us to integrate programmes, engineering and manufacturing functions into new 'transitional' organisations during the first quarter of 2001," says Massey, who is expected to depart Airbus once the re-organisation is complete. "We aim to realise an internal value creation of c350 million from 2004 onwards."
Source: Flight International
