AIRBUS COMES OF AGE
By Julian Nettlefold, Editor, BATTLESPACE
28 Feb 07. Corporations grow or shrink by their reputation and strength and reliability of product, not where their plants are located. Airbus’s rise to power started with the introduction of the mid-size A300 which was technologically superior with advanced fly-by-wire techniques drawn form the Concorde project. At that time McDonnell-Douglas was struggling in the USA with its range of DC-10 aircraft which had experienced a number of fatal crashes and technical problems, thus it was subsumed into Boeing.
When Airbus passed its first ‘flush of youth’ its size and geography caused the French and German Governments to take a greater interest in the project and that of parent EADS which itslef was anew and young company. Political interference has dogged industry in Europe for years and political pressure was brought to bear to place plants where the jobs were needed not where the skills were. This caused delays and cost-overruns in various projects culminating in the A380 debacle where the wring loom in particular has been devleoped and designed in-house, for the first time.
Yesterday, in recognition of these problems, EADS’ largest subsidiary Airbus rolled-out the details of its turnaround programme Power8, consisting of nine modules. The plan will make Airbus better prepared to face the challenge of the US Dollar weakness, increased competitive pressure, the financial burden related to the A380 delays as well as to meet its other future investment needs. The transformation will happen progressively over several years.
The Airbus management will implement strong cost reduction and cash generating efforts leading to EBIT* contributions of €2.1bn from 2010 onwards and additional €5bn of cumulative cash flow from 2007 to 2010. The measures to reduce overhead cost, and specifically headcount, require a provision of €680m to be taken in the first quarter of 2007. To ensure full and sustainable implementation of Power8, Airbus has put in place a robust tracking system with tangible metrics regarding cost, and cash impact up to their materialisation in the financial statements.
“The core objective of Power8 is to make Airbus more efficient and competitive, so as to produce the most advanced and profitable products, and to serve its customers better in the future”, said EADS CEOs Tom Enders and Louis Gallois.
“Without establishing Power8 quickly, profitability will drift significantly short of industry standards and of reasonable expectations. This is an unsustainable and unacceptable situation. Power8 is designed to reduce that gap,” said EADS and Airbus CFO Hans Peter Ring.
The objective of a lighter and cost efficient management will be addressed by several Power8 programme modules and in particular by the Reduction of Overhead Cost. The Airbus management proposes a progressive headcount reduction of 10,000 overhead positions over four years, thereof 3,200 in France, 3,700 in Germany, 400 in Spain, 1,600 in the UK, and 1,100 in the Airbus Central Entity in Toulouse. 5,000 of these positions are temporary or on-site subcontractors, where reductions will begin immediately. The other 5,000 positions affected will be Airbus employees. Priority is given to achieve reductions through attrition, the negotiated voluntary severance processes and schemes in each country concerned. At this stage, Airbus management does not propose forced redundancies.
A number of measures are being implemented to further increase the efficiency of the Final Assembly Lines (FAL). Toulouse will see a further capacity enhancement of the long-range Final Assembly Line (FAL) as the A350XWB will be assembled and receive its interior furnishing in Toulouse. In Hamburg, a third A320 Family FAL will be set up immediately. It will have full type flexibility, so as to also cope with the demand for additional A320s when the demand for A320s exceeds the rate of 14 per month. Hamburg w