The European aircraft giant is benefiting from popular new planes like the A320neo.
Thomas Enders, chief executive of European aircraft giant Airbus, turned a boyhood obsession with airplanes into a fulfilling career and a thrill-seeking pastime. When he’s not skydiving, the German-born Enders, 58, loves to hang out with test pilots taking the company’s “new toys” for a spin. Test pilots, he says, “really embody the spirit of aviation today.”
Airbus (ticker: AIR.France) offers all the toys Enders could wish for. Based in Toulouse, France, the company is best known for its roster of Airbus commercial jetliners, sold to airlines worldwide. It also makes helicopters, fighter planes such as the Eurofighter Typhoon, and launchers for Ariane space rockets. Airbus reported total sales of 67 billion euros ($70.8 billion) last year.
Since taking the controls on June 1, 2012, when Airbus was still known as European Aeronautic Defence and Space, or EADS, Enders has skillfully engineered much-needed governance changes to reduce the political influence of France, Germany, and Spain, which together own 26% of the stock. He has also presided over a closer integration of Airbus’ corporate structure and workforce, creating what he calls a “truly European company.”
But Enders, a major in the German army reserves, isn’t ready to stop. He wants to build on Airbus’ presence in the Asia-Pacific region, North America, and Europe. “The next prize is to become truly international,” says the CEO, who keeps in a corner of his office three shovels commemorating groundbreakings on new manufacturing facilities, including an assembly line in Mobile, Ala.
Airbus approaches this challenge on a solid footing. It had a backlog of 6,874 aircraft at the end of 2016, worth more than $1 trillion, versus a backlog of 5,715 for
Boeing (BA), valued at $416 billion. For Airbus, which delivered 688 planes last year, that’s almost 10 years of production at the current rate. “This company has never had, in its history, such a competitive portfolio,” Enders says.
AIRBUS SHARES, which closed on Friday at €70.06, have tripled in value in the past five years as scheduled passenger traffic has climbed in the recovery from the global financial crisis, forcing carriers to renew or add to their fleets. Airlines worldwide are forecast to carry almost four billion passengers this year, up from three billion in 2012.
The shares trade for 20 times 2017 estimated earnings and 15 times 2018’s projected figure. Boeing fetches 18 times consensus estimates for next year.
Airbus is expected to earn €2.63 billion this year, or €3.50 a share, rising to €4.64 a share in 2018. Cash flow likewise is projected to increase by double digits, as the company puts behind it problems that hampered production of popular, fuel-efficient aircraft last year.
Reported earnings fell 62% in 2016, to €1.29 a share, due to unfavorable currency effects and €2.2 billion in charges for the A400M military transport aircraft. Airbus is being penalized by European governments, its A400M customers, for late deliveries and insufficient “military functionalities” on the planes it has delivered, including a shortage of critical chips for the self-protection system.
The latest charge prompted Airbus to seek a deal that would cap its exposure. “We need to de-risk the A400M program,” Enders told analysts in February.
THE WUNDERKIND of the Airbus family is the A320neo (“neo” stands for new engine option), a single-aisle, narrow-body jetliner that can carry 186 passengers and offer fuel savings of up to 20% compared with previous versions. Airbus has booked more than 5,000 orders for the A320neo family of aircraft since its launch in 2010, making it the fastest-selling commercial-aircraft family in history.
Boeing was caught off guard by the A320neo’s success. It had planned to replace the 737 by 2030, but pressure from customers compelled it to launch its own fuel-efficient model, the 737 MAX.
The Airbus A350, a medium- to long-range wide-body jet that can accommodate up to 440 passengers, also is gaining traction. But the A320neo and the A350 both encountered production problems in 2016.
United Technologies ’ (UTX) Pratt & Whitney unit, an engine supplier for the A320, struggled to meet delivery targets for its geared turbofan engine. At the same time, a contractor providing cabin interiors for the A350 couldn’t keep pace with demand.
“We have thousands of suppliers,” says Enders. “It is inevitable that some suppliers will face challenges. It doesn’t help when you are in a critical situation to just beat up on suppliers, or insist on contract. You can only increase the ramp-up if your supply chain can follow.” He notes that Airbus has tried to help suppliers that faced issues.
In addition to the A400M, Enders’ other big headache looks to be the A380, a double-decker, wide-body plane powered by four engines and designed to carry more than 500 passengers. It is a big hit with travelers—fan-produced Websites and blogs laud its comforts and amenities—but high operating costs mean that orders have been hard to land. Only 208 A380s have been delivered since the model entered service in 2007, and 109 are in the order backlog.
Ninety-three A380 planes, or half of those flying, are operated by United Arab Emirates-based carrier Emirates; the airline has 49 remaining in the order book. The list price of an A380 is $436.9 million.
Airbus last year said it planned to scale back A380 production, but Enders says the company is committed to the plane even though it isn’t suitable for every carrier. “You need to fill these aircraft,” he says. “If you fill it 80% or more, it is a money-making machine. We are hanging tough with the A380.”
AIRBUS WAS CONCEIVED in the late 1960s by European aerospace executives, who considered a joint development and production program the most effective way to combat U.S. dominance of the industry. The company’s first project was the A300, a short- to medium-range twin-engine aircraft. Plans were drawn up to share the work, bringing the parts together for assembly, with France building the cockpit and control systems; Britain, the wings; Germany, the forward and rear fuselage; and the Netherlands, moving wing parts such as flaps and spoilers. Spain, which joined the group later, built the horizontal tail plane.
Today, Airbus competes chiefly against Boeing, a rivalry that Enders considers fierce and “mostly not unfair.” For more than 20 years, Boeing and Airbus have been feuding over state subsidies each manufacturer receives, with the World Trade Organization adjudicating disputes. Each side has scored victories; in the latest ruling, the WTO ordered the U.S. last year to withdraw tax benefits extended to Boeing related to the production of the 777X. Boeing argues that European government assistance has unfairly enabled Airbus to capture half of the global airplane market.
“Frankly, we need Boeing to drive our competitiveness,” Enders says. “If one of us was way ahead of the other, I don’t think that would be good for our products or for the airline industry that we serve.”
Disruption of the duopoly might not be far off, however. Enders foresees a challenge from a Chinese competitor in the next 10 years, at least in the market for single-aisle planes. That could help to explain why he has been so keen since becoming CEO to reduce Airbus’ reliance on commercial aircraft, which generate more than 70% of revenue.
Just months after taking office, Enders launched a bid to merge Airbus, then EADS, with Britain’s
BAE Systems (BA.UK) in a deal that would have created the world’s largest aerospace and defense company. Negotiations were sunk by German Chancellor Angela Merkel, who questioned sales projections and feared that Germany would be marginalized as an EADS owner. It’s a rare instance of Enders being outmaneuvered.
The upheaval prompted questions about Enders’ suitability to lead the company, but also paved the way for him to push for changes to reduce government meddling. The gambit paid off. In 2013, the French and German governments agreed to retain equal stakes of up to 12% (they currently hold 11% each) and restrict their influence to certain matters of national security. They have no decision-making role at Airbus. Previously, France owned 15%, similar to the interest held by Germany’s Daimler Aerospace, or DASA, a proxy for the state. Spain controls 4%.
OVERCOMING MISTRUST among European neighbors has been a major challenge for Enders and his predecessors. “Everything between the French and Germans can easily be political,” he says. “They have a mantra on both sides of the Rhine—balance. They say it must be balanced.”
Until 2007, he notes, the company had two chairmen and two CEOs, because the French and German governments insisted on having leaders with passports from both nations. “That was ridiculous,” Enders says.
Enders’ announcement in 2012 that Airbus would move its headquarters from Paris and Munich to Toulouse also riled German politicians, but he stuck to the plan. “The headquarters should be where the main activity is, and that is Toulouse,” he says.
The move made life more complicated for Enders, whose family lives near Munich. He maintains an apartment in Toulouse and commutes to his home in southern Germany on weekends. The son of a shepherd, he describes himself as a country boy.
IN THE PAST FOUR YEARS, Enders has taken steps to streamline the business and rebrand it: EADS became Airbus Group and, more recently, just Airbus. The space and defense divisions have been combined, and the corporate headquarters has been merged with the commercial-jet unit. “Merging the largest division fully with the corporate structure should make us leaner, accelerate decision making, and reduce structural costs,” Enders says.
Outsiders laud Enders’ drive to consolidate Airbus, which could also help the company cope better with rapid technological changes. “He was instrumental in changing the way the company works,” says Bernstein analyst Douglas S. Harned. “He did a lot to turn it into a more economic and shareholder-driven company.”
Enders joined
Deutsche (later Daimler) Aerospace in 1991 following a couple of years in the German defense ministry. He rose to head of corporate strategy, and was at the forefront of preparations to unite DASA with its French and Spanish counterparts as one company in 2000. He was appointed CEO of the defense and security systems division in the new entity, and co-CEO of the whole company in 2005. Following governance changes in 2007, he was put in charge of the commercial-aircraft business, a position he held for five years until becoming CEO.
Enders learned to fly helicopters about a decade ago. “I figured I should try to learn to fly at least one of these machines that we are building,” he says.
Nowadays, he pilots a helicopter about twice a month and indulges his passion for skydiving about 20 times a year. Even so, he sounds envious of one of his sons, who jumps about 200 times a year. All four of Enders’ sons have connections to the aviation industry.
“There is a famous saying among skydivers: Once you leave an airplane, you are dead—until you do something about it,” Enders says.
