Airbus Reinvents to Reinvest

The very need to lay off up to 10,000 workers in the midst of a tremendous boom jetliner market and unprecedented production rate increases illustrates the huge funding challenge for Airbus and the A350 XWB.


Clearly, production ramp-up plans can only provide a minority part of the resources Airbus needs to develop the A350. Power8 is a more important initiative, with a longer potential life span than the announced production increases. Its goal is to attain (EURO)2.1 billion in annual cost savings, generating (EURO)5 billion in cash by 2010.

If this ambitious objective is successful, that means Airbus would be more than halfway toward paying the A350 XWB development bill. Power8 calls for job reductions, workshare reallocation between member countries, and possible plant divestitures.

The very need to lay off up to 10,000 workers in the midst of a tremendous boom jetliner market and unprecedented production rate increases illustrates the huge funding challenge for Airbus and the A350 XWB. It is a paradox that could result in the most immediate problem with Power8: the likelihood of industrial action. Already Airbus workers have announced strikes, slowdowns, and protests. Left unresolved, these union grievances could disrupt Airbus' lofty new aircraft production goals.

The clear objective of Power8 is for Airbus to copy Boeing, and become a systems integrator. That would mean outsourcing as much structural work as possible to partners and vendors. This can be accomplished by spinning off Airbus factories, or by transferring work from Airbus factories to outside companies such as GKN, Spirit AeroSystems, or Vought Aircraft.

But this goal produces an even bigger problem with Power8: disagreements between the member countries. France has an equity stake in EADS, and expects returns, in the form of jobs and technology. Germany is acting to protect its industrial investment, too. Both countries have announced possible further equity investments, as a defensive measure.

Even the U.K., which has no government stake in Airbus and no national corporate stake either, has threatened to hold up defense contracts to EADS if significant Airbus work is withdrawn from U.K. factories. But since BAE Systems divested its 20% stake in Airbus last year, those defense contracts represent the U.K.'s last line of defense against Airbus work and jobs reductions.

Assuming Airbus can overcome these considerable labor and political difficulties, Power8 will do its part to create the A350 XWB. Whether it arrives on time in 2013 or a year later, this plane is the key to maintaining Airbus as a manufacturer of jetliners in all major market segments.



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