A New Airbus Group
A version of this article appears in the June 9 edition of Aviation Week & Space Technology.
has a new name, Group, a revamped three-division company structure, and it will soon move into new corporate headquarters near the Toulouse airport. In other words, the old days of Paris and Munich are gone. But there is much more: The Airbus Group is implementing an all-new strategy aimed at becoming a “regular” industrial group. It seeks now to achieve profitability well above this year’s 6%.
Scrutinizing CEO Tom Enders’s recent declarations and CFO Harald Wilhem’s public expectations, one can expect the group’s profit to reach 7-8% of revenues as soon as next year. This would still be substantially below arch-rival’s level, but the two commercial transport businesses rely on different accounting methods to calculate aircraft production costs and breakeven points for individual programs.
The Airbus Group’s revised policy means it will now consider the evolution of its product ranges in a new way. No all-new aircraft is expected to be launched in the next several years, as the company avoids increasing its debt burden. No follow-on is in sight and the future of the middle of the narrowbody market will be dependent on the reengined twinjet—a minimum-cost, minimum-change initiative.
Interestingly, Airbus’s strategists are reviewing customer requests to upgrade theand have it evolve into a new-engine-option version. And, again, such hesitation shows the new approach to reducing risk as the production plan evolves. Is the market big enough? Would a modernized A330 hurt the ? This looks like an unprecedented dilemma: The 20-year-old A330 still sells well and its production rate is a robust 10 per month, but the envisioned new derivative could revitalize sales.
The engine manufacturer, most probably, would make a large part of the required investment but Airbus nevertheless is unsure about the plan’s financial feasibility. If previous decision-making processes are followed, the vote to go ahead with the new derivative will come when shareholders are least expecting it.
Superior profitability is now the ultimate goal, making laughable the continuing claims in the U.S. about governmental interference in Airbus. Enders is not German Chancellor Angela Merkel’s friend and he is certainly not indebted to French President Francois Hollande. Today, Merkel’s 2012 ban of the proposed EADS-merger likely would not be tolerated.
Although profitability, stability and the need for a pause are part of the Airbus Group’s leitmotiv, worries loom on the horizon. In contrast with the Boeing Co., the European group, in the wake of the canceled BAE merger, is unable to grow its defense-related businesses, while its space segment is stagnant and faces emerging competitors. More than two-thirds of Airbus’s revenues are generated by sales of commercial transports, as the defense and space units are cutting jobs and their future looks weak. Theprogram, for example, could see the end of its industrial life in the next few years, while the Ariane heavy-lift space launcher program will increasingly experience fierce competition from newcomers such as .
Such uncertainties can hardly be tolerated by a cross-border company that has achieved impressive dimensions. The Airbus Group has 144,000 employees, up from 89,000 when EADS was established less than 15 years ago, and the total job count is as high as 220,000 when supply chain participants are included. The company’s order backlog is valued at €686 billion ($508 billion), much of which comes from a prosperous airline industry.
Also, China and Russia, in the longer term, could gradually put an end to the Airbus-Boeing duopoly, if competitive programs currently in the development phase such as Comac’sand ’s MS-21 short-/medium-haul twinjets become successful market realities. Airbus and Boeing certainly don’t talk to each other but they do try to keep competitors from emerging. And this strategy can explain why they continue to sell twice as many commercial transports than they can produce in a year. By doing so, Airbus and Boeing can capture the market and leave minimum market space to others while making superior profitability the absolute goal. But will innovation and technology breakthroughs remain in their formats within such a conservative context? This is the Airbus Group’s unanswered question.