Squabbling Keeps Airbus Plan in Air

PARIS -- Airbus postponed a major announcement on job cuts planned for today, saying European nations could not agree on how to share the work on the company's next aircraft, the wide-body A350 planned as a rival to Boeing's 787 and 777.

The surprise statement Monday followed a stormy board meeting of parent company European Aeronautic Defence & Space (EADS) Sunday.

The board failed to sign off on management's "Power8" restructuring plans, seen as crucial to the future of Airbus, a source close to the matter said.

"All parties involved need to realize the huge risk here," said Richard Aboulafia, vice president of the Teal Group, a Fairfax, Va.-based consulting company. "Failure is in fact an option," he told Bloomberg News.

Sunday's board meeting exposed continued tensions among the four countries that have Airbus plants Britain, France, Germany and Spain as the plane maker's chief, Louis Gallois, prepares to slash up to 10,000 jobs, a fifth of its work force.

The unease is felt most deeply in France and Germany, which between them employ 40,000 Airbus workers in 11 factories.

The cost-cutting plans were triggered by delays in the company's A380 superjumbo, which drove Airbus into a loss last year and bled cash from EADS.

Analysts said the restructuring would also shape the company's longer-term future as it chooses a site to assemble the midsize A350 "Extra Wide Body," or XWB.

The aircraft is a belated rival to Boeing's 787, which has steadily won business from Airbus in the lucrative market for long-range, midsize planes.

But negotiators appeared to have hit an impasse over the principles for distributing pain and gains in the restructuring.

France wants cuts shared on the basis of "fairness," while Germany insists on "equality," implying a one-for-one share of job cuts in each country, the source close to the matter said.

"The board meeting got pretty heated," the source added.

France's two main financial newspapers, Les Echos and La Tribune, reported Monday that Gallois is seeking to centralize assembly of the A350 in France, in exchange for agreeing to build a revamped model of the single-aisle A320 airliner in Germany.

Under the plan, France and Germany would each contribute between 3,000 and 4,000 of the job cuts, Les Echos said. Neither paper named sources.

The political stakes are high in both countries, with France facing presidential elections in 69 days, and Germany keen to avoid a return to high unemployment.

In a rare act of public brinkmanship, Gallois challenged governments to end recent squabbling and postponed both union and media briefings on the restructuring program that had been planned for today.

"I made proposals, which I deem balanced, both from an industrial and a technological point of view, and which serve our objective of economic competitiveness," he said.

"I wish that they can lead to the consensus we urgently need. Airbus cannot delay any longer implementing Power8. Quite naturally, employees are eager to know how the future of their company, together with their own future, is being shaped," Gallois said.

In the same statement, Gallois said talk would resume in the "next days" on the workload for building the A350.

The timing leaves room for a high-level political settlement between France and Germany.

French President Jacques Chirac is due to meet German Chancellor Angela Merkel on Friday, and they are "very likely" to discuss Airbus, an aide to Chirac said.

AMRO analyst Sandy Morris said the high proportion of composite materials in the A350 design could work against Airbus sites in Germany where the metal fuselages are produced and in favor of Spain, which has superior composites expertise.

"Germany's role in the aircraft could be quite small" if Airbus took the most rational approach to building the plane, he said. "But if the governments make it worth your while, then nothing can be ruled out."

Airbus is struggling to recover from a costly two-year delay to its double-decker A380 superjumbo program while funding development of the A350.

The A380 delays wiped about 5 billion euros ($6.5 billion) off profit forecasts for 2006-2010. The Power8 plan seeks to claw back the same figure in savings over that period.

Besides the production crisis, Airbus has been badly hit by the weakness of the U.S. dollar the currency used to price its planes and is expected to shift more of its supplier costs and contract work to dollar-linked economies.

Information from The Associated Press and Bloomberg News is included in this report.

 



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