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10 Dec 04. The FT reported that, “If it ain’t broke, don’t fix it” is generally sound advice. It is a pity the French government did not take it to heart before encouraging a poisonous leadership feud at EADS, the European aerospace and defence group, that threatens an improbable European success story.

For just as it is facing new and difficult challenges, EADS looks set to lose the two men who, in partnership, have piloted the mainly French and German group to profitability and global leadership in the civil airliner market.

Rainer Hertrich, the German co-chief executive, announced this week that he would quit when his contract expires at mid-2005. DaimlerChrysler, which holds 30 per cent of EADS, moved quickly to replace him with Thomas Enders, the tough, youngish head of EADS defence interests and a close associate of Jürgen Schrempp, Daimler’s chief executive. The move smacks of pre-emptive action to hinder a French-inspired corporate restructuring. Some commentators now predict a “balance of terror” in place of the previous balance of power at EADS.

That is because in France, where the dominant shareholders are the French government and the Lagardère group, each with 15 per cent, Nöel Forgeard, the chief executive of EADS subsidiary Airbus, has mounted a campaign to replace Philippe Camus, the French co-chief executive.

Mr Forgeard, who was once a top aide to Jacques Chirac and who is still is close to the French president, last month pitched to become EADS’s sole chief executive. Daimler vetoed that move. But Mr Forgeard, whose company is 80 per cent owned by EADS and which generates 92 per cent of EADS’s profit and 80 per cent of its revenues, still wants Mr Camus’s job. If EADS were a normal company there would be good reason to question its curious structure, with two co-chairmen and two co-chief executives.

But EADS is not a normal company. Its structure was put in place to enable the mainly German and French Airbus project to come under a single corporate roof. Airbus has proved a resounding success. Under the harmonious leadership of Messrs Camus and Hertrich, EADS has gone on to build up a military arm that is now angling for a $10bn share of the US defence market. The power struggle in France has triggered alarm in the German government and among the group’s German workforce. It could weaken EADS’s standing in Washington. It also distracts from challenges facing Airbus, including a decision on whether to go ahead with the A350 airliner in competition to Boeing’s planned 7E7 “dreamliner” and planned certification of the A380 superjumbo aircraft next month. EADS’s success has been against the odds. This fragile achievement is now under threat because of events in France. Although Mr Hertrich is going, it is not too late to prevent further disarray. But that would require restraint, notably from Mr Forgeard, that so far has been lacking.

EADS’s public shareholders, accounting for about 40 per cent of the Franco-German group’s equity, probably felt they were investing in Europe at its best – what with Airbus overtaking Boeing and the promise of greater cross-border industrial integration. But with all the current top management and political turmoil disrupting and distracting the company, they are probably now thinking otherwise.

The problem is that public shareholders, with no vote and no board representation, have little say in the affair, except to get out by selling their shares. If they did have a say, they would tell the company’s core industrial and political shareholders that the best outcome would be maintenance of the status quo. Since going public, EADS’s performance is nothing short of breathtaking. “So why change horses now?” Lehman Brothers asks in a note this week. Good question. The current structure has worked well. Noel Forgeard, Airbus boss, is fully qualified and perfect

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