Airbus prepares for generation shift at the top in landmark year
Executive departures, corruption probes, and power battles have taken their toll
A joke has been doing the rounds in Toulouse, cradle of France’s aerospace expertise and home to Europe’s industrial champion, Airbus. What does Airbus do? It makes cars that fly and jets that stay on the ground.
The jest neatly encapsulates concerns that have been voiced inside and outside Airbus, as the company prepares for a generational shift in its executive ranks this year after a turbulent 2017.
While Airbus explores new markets with prototypes for futuristic flying taxis, it has struggled to deliver its popular A320neo single aisle aircraft due to problems with its new Pratt & Whitney geared turbofan engine.
Meanwhile, the image of its bread-and-butter commercial jet arm has been tarnished by a controversy over corruption investigations that could cost it billions in fines.
At the same time, a brutal battle for power at the very top of the company was resolved only in December with the announcement that two of Airbus’s most respected senior executives would leave the company over the next 18 months.
And they are not the only ones. The departures of French-born chief operating officer, Fabrice Brégier, in February and German-born chief executive Tom Enders a year later, come as the group steels itself for the retirement of a generation of trusted senior management (see below) who helped to take Airbus from European upstart to a global force rivalling Boeing of the US.
These departures, the corruption probes, and management infighting have taken their toll on morale already shaken by a corporate restructuring aimed at radically changing traditional hierarchies and ways of working.
“People get nervous and confused,” says one senior executive. “Multiple things are happening . . . and you cannot have [the top two executives] trying to kill each other. That doesn’t work.”
Amid the turmoil, some insiders are wondering whether management’s attention has been dangerously diverted from pressing strategic issues, such as how to address weaknesses in Airbus’s core aircraft product range.
While Airbus’s re-engined A320neo is selling like hot cakes, helping it to snatch more than 50 per cent of the high volume segment from Boeing, it is being trounced in the high margin wide-body market by its US rival.
Boeing may this year step up that pressure by launching a mid-size jet, incorporating the latest technologies. Should it do so, Airbus will be under pressure to respond.
The difficulty is that Airbus is only just recovering from the engine and cabin equipment supply problems that delayed deliveries of its A320neo single aisle and the A350 wide-body.
This year it also has to step up production of these aircraft while bringing its re-engined wide-body, the A330neo, into service. Nor has Airbus yet resolved the fate of its poorly selling A380 superjumbo which, without a new order this year, may finally have to be laid to rest.
It also continues to struggle with the ever troublesome A400M military transport aircraft programme, and has had to appeal to its government customers to revise delivery schedules to avoid crippling penalties.
Boeing, meanwhile, appears to be managing its production challenges rather more smoothly than Airbus, even if it too has had a few hiccups, not least on its much delayed KC-46 tanker. The US company has also managed a generational shift of management without the tensions that have wracked Airbus.
“There is no question that Boeing has had the upper hand [in 2017],” says Scott Hamilton of Leeham, the aerospace consultancy. “The distractions at upper end [in Airbus] are there; they are serious. Boeing feels invincible right now. Airbus is under siege.”
Sash Tusa, aerospace analyst at Agency Partners, is concerned that Airbus management may have been too preoccupied with marginal, but headline grabbing projects such as flying taxis and digital innovation, rather than focusing on weaknesses in the portfolio.
“If you don't have sufficient strength across your whole aircraft range it doesn’t matter that you have digital this or that," he says. "The issue is whether Airbus has the ability to think strategically enough at a time of massive management change."
As well as the crisis over the A380, senior management need to address weaknesses in the A350, where the stretched A350-1000 version that should have challenged Boeing’s larger 787 and 777 is not selling as well as hoped, he says.
“The A350 is going in the wrong direction,” he says. “People are switching for the smaller version, not upgrading. Down-gauging is really bad for margins and it is a sign that the A350-1000 is not a good enough product.”
Not everyone is convinced that management is overlooking pressing strategic challenges, however. The deal to acquire Bombardier’s C Series aircraft programme for $1 — expanding Airbus’s product range at the smallest end with a technologically advanced jet — is considered by some in the industry to be a master stroke, given that the development risk is largely over.
“What they did with that was brilliant,” said one supplier. “Bombardier went through all the challenges. Now it works and will have the Airbus infrastructure. They will have a great aircraft in 100-150 passenger range.”
Moreover, Airbus may not have to invest billions in a new aircraft should Boeing launch its new jet, says Mr Hamilton.
“Do they want to launch a brand new aeroplane programme at this time? No,” says Mr Hamilton. “But they could do one more round of improvements to the A321 and . . . then Boeing will have a hard time to close the business case on the new mid-sized aircraft.”
Internally, executives are confident that 2018 will see a big push to market the existing wide-bodies. That job may be made harder, say some, by Boeing’s aggressive stance on pricing the 787, which is hitting Airbus’s A350. But, says one executive, “the A350 and A330neo are both solid planes. We don’t need to cut prices. We need a more aggressive marketing of the programme”.
Another executive in head office dismisses the suggestion that management has been too distracted to think strategically. “Rest assured we are working on all these things,” he says. “We will never ever repeat the mistake we made with the Dreamliner where we were not prepared and got into panic. We are a much better organised and structured company.”
The priority now in the final year of Mr Enders’ leadership will be to “modernise the company” by exploiting the opportunities of digitalisation for more efficient design, development and production.
The turmoil is an opportunity as much as a challenge, the executive suggests. “We are convinced we are on the eve of a new revolution in aerospace,” he says. “Tom Enders is there for 14 months. And he has probably never been freer to act than now.”