Airbus restructuring setback

German Chancellor Merkel will oppose the move of Airbus A 380 production from Hamburg to Toulouse, according to ($link) the Wall Street Journal. Politics may prevent a logical part of the restructuring I described yesterday as a battle for the survival of the company. 

The Journal comments,

...such economic logic doesn't hold up; if anything, the A320 line [being moved to Hamburg] appears to have a surer future than the A380 at this point. Even if protecting jobs were a valid reason for government meddling, preventing Airbus from taking the necessary steps to set things right will jeopardize more jobs in the long run than it will save in the short run.

States, which are largely undisciplined by market thinking, do not want to admit they are wrong. And they especially want to avoid imposing costs on their constituents. There is a huge and visible human cost in such a big restructuring, with some fired, others maybe hired, and a large group of losers.

Meanwhile, the future of Airbus depends on competing with the huge market niche occupied by the Boeing 787, whose order book is full for years at current production rates. Now, in the German version of the Financial Times, comes an interview with Thomas Evers, German co—chief of parent EADS. He calls into question the future of the planned competitor, the A 350 Here is the Babel Fish translation of his answer to a question about its future.

On the question, whether it could also be not to start the development of the long—range aircraft A350 XWB it said Enders of the FTD:

"I cannot exclude that. In view of the difficult situation, in which we are now, and to which consequence of the A350—Entscheidung cannot give it an automatism."

Enders suggested that the entire company would be endangered, if there were similar problems with the A350 as with the A380. Therefore the decision for the new project with development costs must be examined of roughly well 8 billion $ carefully. It is still no decision pleases. The A350—Konzept submitted in the summer is now convincing and the reaction of the airlines positive.

"However naturally we must bring concept and resources for a program start in agreement."

Pretty clearly he is stating that nobody should assume it is a go. That resources must be found with which to accomplish the project. If I were Airbus boss Christian Steriff trying to save the company, I would insist that we do not go ahead without adequate resources.

Translated into current politics, this implies state funding. It probably also includes a message to existing suppliers that they need to take further responsibilities and supply resources for the A 350 development, just as as Boeing has done with its 787. No doubt Russia, whose state bank is taking a roughly five percent share, is listenting. They have petrodollars, a supplier base, assembly, design bureaus, etc.

A UK Times editorial today maintains that state—direction of Airbus is the problem.

...the superjumbo was intended from the outset as a greener way to fly, with lower per—passenger pollution levels than its rivals. This alone made the endeavour worthwhile, however accurate some critics may have been when accusing Noël Forgeard, the ousted chief executive, of seeking to eclipse Boeing's venerable 747 at all costs.

The deeper problems faced by Airbus and EADS, its parent company, are cultural. Though undeniably an effective competitor in certain markets, it is a political contrivance, not a reflection of its own commercial successes. Under M Forgeard, prestige too often interfered with purpose and profit in the decision—making process at Airbus. And the shared Franco—German leadership at EADS is a sop to French and German national pride, not the best way to run an aerospace consortium.

It concludes:

To compete with Boeing, Airbus must become more like Boeing.

It is looking less and less as if that will happen. There is still a chance that M. Streiff can pull it off. I truly wish for him to succeed. If we are left with a Boeing monopoly that would be terrible for airlines, passengers, and the government.

Of course it wouldn't last forever. There are a number of hungry aerospace industries out there in the world, and too many governments interested in subsidizing them.

Update:

Is Airbus ten years behind Boeing?

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