New Airbus Boss Sends Mixed Signals

Oct. 11, 2006
Louis Gallois tried hard to please everybody Tuesday on his first day on the job as the latest executive to head the European aircraft maker Airbus.

Louis Gallois tried hard to please everybody Tuesday on his first day on the job as the latest executive to head the European aircraft maker Airbus.

Investors initially cheered when the former French civil servant declared in a radio interview that "painful" job reductions and cost cuts proposed by his predecessor are necessary. He also vowed to press ahead with a planned A350 mid-sized jet to fill a hole in the Airbus lineup of aircraft.

But trade union representatives said Gallois, Airbus's fourth CEO in 16 months, told them in a subsequent meeting that no decisions had been made on which, if any, plants would be closed or on other measures to streamline Airbus production.

The Toulouse, France-based jet maker separately denied a newspaper report that the company had decided to cut 10,000 of its 56,000 jobs in Europe.

"We're at the beginning of the process. It's too early to talk about exact figures," spokesman David Voskuhl said.

After first jumping more than 5 percent, shares in parent company European Aeronautic Defence and Space Co. ended the day up 3.6 percent at euro20.89 ($26.33). That's still 7.8 percent short of their closing price on Oct. 3, just before the company announced a second year of delays to its A380 superjumbo. Shares of the defense and aerospace company have fallen 35 percent since the start of the year.

Gallois' predecessor, Christian Streiff, resigned Monday after 99 days in the Airbus top job, saying he wasn't given the "necessary operational powers" to push through the kind of cuts required to turn the company around. EADS is tightening supervision of Airbus as it acquires the 20 percent of the company it does not already own from Britain's BAE Systems PLC.

Airbus stunned investors in June by doubling A380 production delay to one year - then doubled it again to two years earlier this month, saying the problems will cost it $6.1 billion in profits over four years. To counter the hit, it pledged $2.5 billion in annual cost cuts by the end of that period.

After concentrating massive resources on its 555-seater flagship A380, Airbus has been outmaneuvered by Boeing Co. Its two-engine 787 delivers better fuel economy than older four-engine Airbus jets in the midsize jet category, giving it a sales advantage that has grown more persuasive as fuel prices rise and helping Boeing more than triple the number of orders won by Airbus so far this year.

Streiff unnerved German politicians and trade unions by suggesting that A380 work could be transferred to France from Germany and the planned A350 assembled entirely in France to save time and cash. "We must prevent everything from going the way of the French," German Defense Minister Franz Josef Jung was quoted as saying by weekly Der Spiegel.

The hostile reception given to his restructuring plans "may suggest that the task facing him was unachievable," investment bank Credit Suisse said Tuesday in a research note. "The level of anger and the calls for political interference in the company will worry many institutional investors."

French Finance Minister Thierry Breton told lawmakers Tuesday that Airbus restructuring measures were "obviously out of the question" before consultations with "all interested parties" were complete.

"No decision will be taken for several weeks or even several months," Breton said. Some commentators say the government is unlikely to agree to any major shake-up at Airbus before elections in spring 2007.

Gallois, 62, headed aircraft engine maker Snecma and Aerospatiale - an aerospace company that later became part of EADS - before becoming boss of the SNCF rail operator in 1996. There he presided over 10 of the quietest years in the state-owned company's industrial relations history, with the frequency of strikes approaching record lows.

"Mr. Gallois reassured us slightly by saying that he envisages cutting jobs gently," said Julien Talavan, a spokesman for France's Force Ouvriere union at Airbus. Talavan and other union officials said Gallois had spoken of reducing employment through early retirement plans.

Jean-Luc Moudenc, the mayor of Toulouse, also said he had been reassured by Gallois' comments when they discussed the potential job cuts earlier Tuesday.

Doubts have been growing over the $10 billion A350 XWB program announced by Streiff in July as a competitor to Boeing's 787 and 777 jets. Tom Enders, the German co-CEO of EADS, said last week that the group would have to decide whether it had "the financial and engineering resources" to build the plane at all.

But Gallois said he favors pressing ahead with the program. "I believe that Airbus has to be present across the whole market, and the A350 is the middle of the market," he said in his radio interview, adding that the A350's mid-size category accounts for "40 percent of the market" by value.

EADS is facing a financial crunch as a result of the A380 program's soaring costs and a weaker U.S. dollar, which affects revenue in euros because plane sales are denominated in dollar.

Gallois, who remains co-chief executive of EADS, said Tuesday that the dollar had fallen 41 percent against the euro since the A380's launch and was now "the main handicap to Airbus' competitiveness against Boeing."

But EADS has yet to feel most of the impact because of currency hedging positions, which will progressively expire in coming months and years.


Associated Press Writer Johanna Decorse in Toulouse contributed to this report.

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