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EADS AT A CROSSROADS

25 May 06. Comment in the FT and other journals reflect the growing turmoil within EADS from shareholder sales, the Clearstream affair, problems with the A350 and A380 and site closures and possible redundancies at Sogerma. The peoblems at EADS reflect those at BAE SYSTEMS five years ago where the company was struggling to shed its image as a Company brun by former Civil Servants relying on the cosy relationship with the MoD. Astute and Nimrod blew that apart and Mike Turner has made huge changes in management style and moved into the U.S.

However, following the interview with Dr Stefan Zoller of EADS’s Security and Defence Division to be published in our Farnborough issue, these problems reflect growing and divergent management styles, a reflection of the overall problems in the integration of European businesses, compared to Boeing’s streamlined and successful business, recovering from the hiatus of 2003-4.

Stefan Zoller was quite relaxed with the growth prospects for his Divikson reflecting the generally held view of German industry which concentrates more on internally generated earnings than the U.K. method of ‘growth by acquisition and the French protectionists policies.

The German method has been demonstrated in the huge size of such companies as DaimlerChrysler, Siemens, VW, EADS and Linde. The Editor was interested when talking to Linde at the CV Show that the company’s lift truck business was worth £2bn alone.

Germany has long had a policy of supporting its businesses by local aid and government purchases, whereas the U.K. gives no quarter to local indigenous companies, relying on competitive tendering. France is more protectionist but relies more on Gallic charm and flair than engineering capability for sales. The Gallic charm may be the best way of winning business over Boeing but it creates headaches for the engineering teams struggling to fulfil orders and develop new aircraft. Any downturn expected may well reveal the strength of the order book, many of which come from fledgling airlines which have no pilots or indeed airliners!

This is in stark contrast to the U.S. which has very sophisticated and successful policies for sales and marketing producing such industrial giants as Boeing, Caterpillar, Honeywell, GE and many others. The U.S., in stark contrast to the U.K. in particular sees that a strong industrial segment creates wealth and sustains jobs.

The current problems at EADS could force some management changes bringing in the German influence to overall company strategy. The A350 problems and the need for a re-design could precipitate these changes. All appears well in the German-led Defence Division with the spotlight on the Franco-dominated Civil Division.

A source commented to BATTLESPACE that, “Airbus is not good at handling risk. It had originally signaled this by indicating that it would impose a stricter supplier regime on 380. But the real problem was that it had moved from a careful developmental progression to a situation in which it was required to undertake simultaneous developments on what could have become three divergent paths. In the event certainly two of these (380 and 350) have not been plain sailing. A400M seems OK but Airbus military has to appease OCCAR and the several national governments if they are to keep the cash flow. Moreover, if 400M has problems the political implications could damage the company’s prospects of additional financial support for 350. At present the problem seems to be an accumulation of risk in a risk averse culture.”

The FT said on May 25th that,” The problems of EADS, Europe’s leading aeronautical group, are an object-lesson in the dangers facing a company when a government lacks a coherent industrial vision. EADS, a European multinational but with 15 per cent held by the French government, is caught between classic French interventionism and the demands of the market, and between the competing interests of different government depart

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