Finally the right man for Airbus?

Industry watchers are confident that Franco-German aerospace group EADS has made the right choice in appointing company executive Louis Gallois to take charge of planemaker Airbus. After a year rocked by two profit warnings linked to production problems and an insider trading scandal which forced the resignation of Airbus chief executive Noël Forgeard, the choice of a new chief was a quick fix designed to win back market confidence. The rot that has been eating away at the company since its creation six years ago, however, will not disappear overnight.

As a follow-up to the ignominious departure of Forgeard’s successor Christian Streiff this week, after only three months on the job, the choice of Gallois was one of the only sensible options left open to the group. At an all-time low after angering client companies with the announcement last week of another year’s delay on delivery of its A380 superjumbos, it is clear that EADS cannot afford to make any more mistakes. Career civil servant Gallois, brought in as co-chief executive of EADS this year to ease notoriously difficult Franco-German relations within the group, is also popular among politicians of both nationalities who opposed Streiff’s rigorous restructuring plans.

That Gallois is the right man for the current face-saving exercise, nobody would appear to doubt. "Louis Gallois is a guy who has a history of dealing with politicians in both countries and who did a good job in restructuring the rail industry," said Scott Babka, industry analyst with investment bank Morgan Stanley. "This could have been a crisis if they hadn’t moved quickly." The choice is doubly advantageous since it automatically removes a layer of complex Franco-German management. "It is an initial setback to have a change of management so quickly," said Babka. "But the company made a good step here in the sense that they have streamlined the management structure."

Gallois is no stranger to the industry, having headed engine-maker Snecma for three years until 1992 before moving on to French state-owned company Aerospatiale, one of the entities that then went on to become EADS. He went on to run French national rail service SNCF, battling the powerful unions to turn the debt-laden company round. "Louis Gallois is a well- respected, highly intelligent aerospace guy," said Doug McVitie, managing director of consulting firm Arran Aerospace, who has close contact with Airbus insiders. "He had the respect of the workplace when he used to run the plant in Toulouse back when it was Aerospatiale."

But, McVitie, who used to work in Airbus’s commercial arm, warned that the company needs to stop navel-gazing if it is to turn its fortunes round. "The antipathy between the French and German shareholders in EADS has overridden commercial concerns," he said. "The real problem at Airbus is that they are so focused internally on watching each other that they have lost sight of the marketplace, they have forgotten the bigger picture." McVitie stressed that the now-departed Streiff’s restructuring plan was commercially viable, but not workable due to lack of support from politicians.

Streiff’s much-derided plan aimed at tackling the ‘three taboos’: streamlining assembly lines, sourcing more parts from outside the company and consolidating European manufacturing. Plans for consolidation would have meant moving assembly of the A380, a production nightmare, from Hamburg to Toulouse, where Airbus has its headquarters, a move fiercely opposed by the German government. Stepping into his new position on Tuesday (10 October), Gallois sought to assuage German concerns over the move, but announced that he will proceed with tough reforms, which may include thousands of job cuts. In a pragmatic move that won much support, Gallois also announced plans to push forward development of the A350, a competitor for Boeing’s 787, which is due to enter into service in 2008. Releasing the engineering capacity currently bogged down in development of the A380 to work on something more achievable makes sense.

The A350 plan could succeed in drawing attention away from the current mess, helping to move the company forward in the right direction, but Gallois will not escape from the need to address the real problems afflicting the company. Keeping his word to cut jobs while caught in a tug of war between France and Germany will prove difficult, as Streiff has already found out to his cost. "They’ve got to execute on the A380 delivery plan and show this is the last of the delays," said Babka. "They also have to demonstrate how they’re going to restructure the business and how much this will cost."

All is not lost for Airbus. "In the end, their market strength is still very strong," said Babka. "Last year was all about emerging markets driving demand for aircraft. Right now, they still have a market share." Failure to overcome the Franco-German neuroticism that is poisoning the company, however, could cost the company dear. Competitor Boeing succeeded in overcoming its own production crisis nine years ago by reshaping its assembly lines and outsourcing some work. Airbus can do the same, but only if Gallois succeeds in stopping the rot.

Industry watchers are confident that Franco-German aerospace group EADS has made the right choice in appointing company executive Louis Gallois to take charge of planemaker Airbus. After a year rocked by two profit warnings linked to production problems and an insider trading scandal which forced the resignation of Airbus chief executive Noël Forgeard, the choice of a new chief was a quick fix designed to win back market confidence. The rot that has been eating away at the company since its creation six years ago, however, will not disappear overnight.

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