WSJ Column: How Airbus Lost Its Bearings
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WSJ Column: How Airbus Lost Its Bearings
WSJ(5/24) Column: How Airbus Lost Its Bearings
From THE WALL STREET JOURNAL)
By Holman W. Jenkins Jr.
(Editors Note: Mr. Jenkins is a member of The Wall Street Journals Editorial Board and author of the weekly Business World column.)
Airbus partisans weren’t pleased with a column here [in the WSJ] a year ago suggesting it was time to grow up and dispense with government handouts. This would not be an act of charity to Boeing or the U.S. government, we said. It would let Airbus run its business like a business.
That’s exactly what Boeing has done, even as management has stepped in more than its share of scandal over recent years (costing two CEOs their jobs and sending a senior executive to jail). Bad behaviour is bad behaviour, but along the way, Boeing dramatically cut costs, built up its defence business and resisted the temptation to squander shareholder capital by going toe-to-toe with Airbus’s forthcoming superjumbo. Instead, it stole a march of its own by launching its mid-sized 787, with a fuselage made of composite materials (rather than aluminium) to allow greater fuel economy while giving passengers more elbow room.
Boeing is thriving. Production slots for the 787, which will fly next year, are sold out well into 2011. Its board, one of the best in business, has kept its eye on the ball, namely building shareholder wealth.
Airbus has had its scandals too, with a telling difference: These have mostly involved a political tussle for control of its vast patronage levers. Last year was consumed in a murky intrigue by French President Jacques Chirac to get Airbus executive Noel Forgeard named sole chief executive of both Airbus and its parent company, the growing defence giant EADS. The French vs. German battle dragged on for months, until Mr. Forgeard was finally confined to a co-CEO’s position at EADS, a job he shares with a German -- though not before the then-head of DaimlerChrysler, which owns 30% of Airbus’s parent company, called him a "compulsive liar."
Phew, that’s over, thought Airbus supporters. Or is it? Last month, French police raided Mr. Forgeard’s office and several others looking for the culprit behind an anonymous letter and faked evidence linking French political and business notables to defence kickbacks and secret offshore accounts. Mr. Forgeard’s close adviser, Jean-Louis Gergorin, now admits to being the anonymous informant (but denies forging evidence). At least one more EADS executive has been implicated. The investigation continues.
Don’t put it past the French establishment to find a way to pull the carpet over a matter that says much about how the elite conducts its battles for preferment (this one seems to have involved as much the question of who will run France as who will run Airbus). In the meantime, however, Airbus has gotten its business into a deeper fix than many realize.
Its plane to compete with Boeings 787, the proposed A350, has been panned by big customers. Its four-engine A340, which competes against Boeings reinvigorated twin-jet 777, has seen sales dry up thanks to high fuel prices. Influential customers have gone public with unprecedented calls for Airbus to tear up its existing programs and spend heavily to overhaul its aircraft lineup.
In the case of the A350, going back to the drawing board would mean investing an additional $5 billion and delaying the planes arrival in the marketplace against Boeings 787 by several years. Remember, its customers want a bargaining chip to keep Boeings prices down: They don’t care if Airbus makes a profit. Airbus management is mulling its unappetizing options now but nothing in recent history gives confidence that financial realism would prevail if it meant an embarrassing climb-down in front of the company’s political patrons (which may be exactly what Airbus’s customers, and the Airbus executives they’ve likely been conspiring with, are counting on. For one thing, they assume European taxpayers can always be tapped to cover Airbus’s losses).
The planemaker is navigating dangerous currents. Indeed, the ultimate casualty could be its lucrative lead in the narrow-body market. Its A320 has been outselling Boeings 737 for years, and the fencing has already begun over which company will be first to launch an all-new successor. But Airbus is stretched thin delivering its superjumbo and would be stretched thinner if it decides to overhaul the planes customers have been complaining about. Meanwhile, Boeings work on the 787 gives it a strong head-start in applying lightweight composites to its own next-generation narrow-body.
These planes don’t have the highest price tags but they sell in huge numbers (Boeing has sold 6,000 737s and Airbus more than 4,200 A320s), so are an important foundation for the economies of scale in the aircraft business. Advantage here is rapidly swinging in Boeings direction.
In the wake of all this, maybe its no surprise British Aerospace has announced it will invoke an option to sell back to Airbus’s parent its 20% stake in the company, which should soak up at least $4 billion in cash. BAE’s Mike Turner says he wants the money to concentrate on BAE’s defence business in the U.S. market. But, note, he was a conspicuous critic of the Airbus power struggle as well as an early voice of concern on its A350 plans.
Likewise, French conglomerate Lagardere has also announced plans to reduce its stake in the Airbus parent. Lagardere was directly and repeatedly squeezed by President Chirac to support the Forgeard powerplay. And DaimlerChrysler is moving to trim its stake too.
It’s hard not to suspect these insiders are getting out while the getting is good. Just think back to the media’s flaying of Boeing as a has-been and its executives as weenie-slaves of the stock market when its board refused to throw shareholder capital into a no-win fight against the A380. Airbus faces just such a choice now. We won’t attempt to play aerospace executive and tell the company what to do. Suffice it to say, if Airbus had Boeings board and Boeings strict accountability to the stock market, its decision would likely be very different than the one Airbus will end up making. Permanent advantage: Boeing.
(END) Dow Jones Newswires
24-05-06 0011GMT
Copyright (c) 2006 Dow Jones & Company, Inc.
From THE WALL STREET JOURNAL)
By Holman W. Jenkins Jr.
(Editors Note: Mr. Jenkins is a member of The Wall Street Journals Editorial Board and author of the weekly Business World column.)
Airbus partisans weren’t pleased with a column here [in the WSJ] a year ago suggesting it was time to grow up and dispense with government handouts. This would not be an act of charity to Boeing or the U.S. government, we said. It would let Airbus run its business like a business.
That’s exactly what Boeing has done, even as management has stepped in more than its share of scandal over recent years (costing two CEOs their jobs and sending a senior executive to jail). Bad behaviour is bad behaviour, but along the way, Boeing dramatically cut costs, built up its defence business and resisted the temptation to squander shareholder capital by going toe-to-toe with Airbus’s forthcoming superjumbo. Instead, it stole a march of its own by launching its mid-sized 787, with a fuselage made of composite materials (rather than aluminium) to allow greater fuel economy while giving passengers more elbow room.
Boeing is thriving. Production slots for the 787, which will fly next year, are sold out well into 2011. Its board, one of the best in business, has kept its eye on the ball, namely building shareholder wealth.
Airbus has had its scandals too, with a telling difference: These have mostly involved a political tussle for control of its vast patronage levers. Last year was consumed in a murky intrigue by French President Jacques Chirac to get Airbus executive Noel Forgeard named sole chief executive of both Airbus and its parent company, the growing defence giant EADS. The French vs. German battle dragged on for months, until Mr. Forgeard was finally confined to a co-CEO’s position at EADS, a job he shares with a German -- though not before the then-head of DaimlerChrysler, which owns 30% of Airbus’s parent company, called him a "compulsive liar."
Phew, that’s over, thought Airbus supporters. Or is it? Last month, French police raided Mr. Forgeard’s office and several others looking for the culprit behind an anonymous letter and faked evidence linking French political and business notables to defence kickbacks and secret offshore accounts. Mr. Forgeard’s close adviser, Jean-Louis Gergorin, now admits to being the anonymous informant (but denies forging evidence). At least one more EADS executive has been implicated. The investigation continues.
Don’t put it past the French establishment to find a way to pull the carpet over a matter that says much about how the elite conducts its battles for preferment (this one seems to have involved as much the question of who will run France as who will run Airbus). In the meantime, however, Airbus has gotten its business into a deeper fix than many realize.
Its plane to compete with Boeings 787, the proposed A350, has been panned by big customers. Its four-engine A340, which competes against Boeings reinvigorated twin-jet 777, has seen sales dry up thanks to high fuel prices. Influential customers have gone public with unprecedented calls for Airbus to tear up its existing programs and spend heavily to overhaul its aircraft lineup.
In the case of the A350, going back to the drawing board would mean investing an additional $5 billion and delaying the planes arrival in the marketplace against Boeings 787 by several years. Remember, its customers want a bargaining chip to keep Boeings prices down: They don’t care if Airbus makes a profit. Airbus management is mulling its unappetizing options now but nothing in recent history gives confidence that financial realism would prevail if it meant an embarrassing climb-down in front of the company’s political patrons (which may be exactly what Airbus’s customers, and the Airbus executives they’ve likely been conspiring with, are counting on. For one thing, they assume European taxpayers can always be tapped to cover Airbus’s losses).
The planemaker is navigating dangerous currents. Indeed, the ultimate casualty could be its lucrative lead in the narrow-body market. Its A320 has been outselling Boeings 737 for years, and the fencing has already begun over which company will be first to launch an all-new successor. But Airbus is stretched thin delivering its superjumbo and would be stretched thinner if it decides to overhaul the planes customers have been complaining about. Meanwhile, Boeings work on the 787 gives it a strong head-start in applying lightweight composites to its own next-generation narrow-body.
These planes don’t have the highest price tags but they sell in huge numbers (Boeing has sold 6,000 737s and Airbus more than 4,200 A320s), so are an important foundation for the economies of scale in the aircraft business. Advantage here is rapidly swinging in Boeings direction.
In the wake of all this, maybe its no surprise British Aerospace has announced it will invoke an option to sell back to Airbus’s parent its 20% stake in the company, which should soak up at least $4 billion in cash. BAE’s Mike Turner says he wants the money to concentrate on BAE’s defence business in the U.S. market. But, note, he was a conspicuous critic of the Airbus power struggle as well as an early voice of concern on its A350 plans.
Likewise, French conglomerate Lagardere has also announced plans to reduce its stake in the Airbus parent. Lagardere was directly and repeatedly squeezed by President Chirac to support the Forgeard powerplay. And DaimlerChrysler is moving to trim its stake too.
It’s hard not to suspect these insiders are getting out while the getting is good. Just think back to the media’s flaying of Boeing as a has-been and its executives as weenie-slaves of the stock market when its board refused to throw shareholder capital into a no-win fight against the A380. Airbus faces just such a choice now. We won’t attempt to play aerospace executive and tell the company what to do. Suffice it to say, if Airbus had Boeings board and Boeings strict accountability to the stock market, its decision would likely be very different than the one Airbus will end up making. Permanent advantage: Boeing.
(END) Dow Jones Newswires
24-05-06 0011GMT
Copyright (c) 2006 Dow Jones & Company, Inc.
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It's easy to make such profits with roughly 50% earnings in defense sector. Would you think that B787 is making profits already? What a short sighted article. Some of you with a bit longer term memory may still know that Boeing was still struggling before the massive blown up military spending started with the "War on Terrorism"...
More to come
Dani
More to come
Dani
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Airbus Differences?
I preface my question with my 1,777 hours flying the A-300 B4 and occasionally the B2. I will have been retired 20 years next month, so knowledge of our industry is old. Except for fuel efficiency and length, I do not understand the difference among the A300, the A330, and the A350. It seems to me that they are all an A300 fuselage? Am I wrong? What are the differences? This A-350 design struck me from day one as being a mistake. It doesn't look like new technology to this old mind. Some education is requested. In your reply, please forget about Boeing comparisons. I also have over 15,000 hours in the 707, 727, 747 and 757 and that is not relevant to my inquiry.
It's easy to make such profits with roughly 50% earnings in defense sector.
EADS like the idea and are trying hard to emulate it.
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Mr. Wiz:
"This is often saod about Boeing, but seems to imply making money out of defense contracts is some kind of subsidy. Boeing earn money from the military by making products the military want to buy! What the hell's wrong with that?"
I think you have it backwards a little...the military buys, and fights wars, to subsidize politically connected corporations...Boeing, Haliburton and many others come to mind. The genesis of meaningless wars must have SOME upside...as they said during Watergate, follow the money, and the stink. Sam
"This is often saod about Boeing, but seems to imply making money out of defense contracts is some kind of subsidy. Boeing earn money from the military by making products the military want to buy! What the hell's wrong with that?"
I think you have it backwards a little...the military buys, and fights wars, to subsidize politically connected corporations...Boeing, Haliburton and many others come to mind. The genesis of meaningless wars must have SOME upside...as they said during Watergate, follow the money, and the stink. Sam
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Originally Posted by EAL747
... Except for fuel efficiency and length, I do not understand the difference among the A300, the A330, and the A350. It seems to me that they are all an A300 fuselage? Am I wrong? What are the differences? ...
(So you flew the dollar-a-year dry-lease B2's? Serials 41, 42, 43, & 44? You ARE showing your age!)
(Ooops - I am too...
)
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Come to think of it, BOTH companies are supported by the government; Airbus with taxpayer's money, Boeing is supported by the government as well, who is their biggest customer. Also supported by their government in the form of CIA/NSA information about Airbus offers, in order to undercut their prices.
As you see, it goes both ways....
Anybody got any information about the profits from Boeing Commercial Airlines alone (ie without all the defense stuff)?
As you see, it goes both ways....
Anybody got any information about the profits from Boeing Commercial Airlines alone (ie without all the defense stuff)?
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Whether or not Boeing or Airbus receive more govt. money is missing the point.
Here in the Colonies we have a saying that "A camel is a horse designed by a committee". Metaphorically, an Airbus is designed by a committee of national interests, each vying for a piece of the action. Boeing has become far more nimble in the marketplace, refusing to launch an all-new airplane until the right convergence of technology and market happens.
I wish Airbus well with the 380 - but it looks like a pretty limited near-term market. 6-8 years from now it may be a different story.
Here in the Colonies we have a saying that "A camel is a horse designed by a committee". Metaphorically, an Airbus is designed by a committee of national interests, each vying for a piece of the action. Boeing has become far more nimble in the marketplace, refusing to launch an all-new airplane until the right convergence of technology and market happens.
I wish Airbus well with the 380 - but it looks like a pretty limited near-term market. 6-8 years from now it may be a different story.
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So you flew the dollar-a-year dry-lease B2's? Serials 41, 42, 43, & 44? You ARE showing your age!
Kind of like what 'Click and Clack' the Car Talk guys like to say about Cadillacs:
"Cadillac should just leave some new models on the side of the road with the keys in them - people will drive off and realise what nice cars they truly are and buy more of them."
Now, on topic, I am quite sure Airbus will continue to do very well - maybe some bumps on the horizon - probably some loss of trading value - but I highly doubt it will be as tough as the 'dark years' were over at Boeing. I think the real challenge in the near term will be funding for the A350 without taxpayer assistance.
Referring to M. Foregeard:
though not before the then-head of DaimlerChrysler, which owns 30% of Airbus’s parent company, called him a "compulsive liar."
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Well, let me elaborate on my posting above:
I really think that Boeing has all its advantages with the 787 at the moment. It will generate a huge cash flow which will in turn help to develop new projects. But this arcticle implies that Boeing is going so well because of the airliners success, and this is surely only one part of the story. All defense companies in the US (and elsewhere) generated remarkable profits since Mr. Bush jun. entered the office, namely Northon Grumman, and merger & acquisition happen on a big scale.
Dreamliner's technology is derived directly from the B-2, the first "plastic" aircraft. Airbus, even if they wanted to build a purely composite A350, couldn't do it because of lack of production capacitiy.
Talking about A300/330/350: It's not the fuselage that makes an aircraft fly, it's the wing! And its not the fuselage that is the same, but the fuselage diameter. Of course, both fuselages are made in the same classical way in metal and with frames and spars. Are you aware that all Boeings from 707 to 737 have the same fuselage? And that Boeing is actually still producing wings that are not super-critical!
And then again this old blabla about "A380, no success". If you have a little bit of long term memory, you all remember how the market was: Boeing subsidized their smaller aircraft with its 747 profits, because it was a pure monopoly on the market. Airbus had to enter to break it. Then Boeing said "we don't see a market for big aircraft", it's the point-to-point, not the megahub. Now they produce the 747-8. And journalists still repeat the fairy tail of the 787 as a bypass-hub concept.
I'm not a Boeing-basher, I really think that Boeing is a great company with great aircraft, but this article is once again short-sighted, monothematic and simply incorrect.
Dani
I really think that Boeing has all its advantages with the 787 at the moment. It will generate a huge cash flow which will in turn help to develop new projects. But this arcticle implies that Boeing is going so well because of the airliners success, and this is surely only one part of the story. All defense companies in the US (and elsewhere) generated remarkable profits since Mr. Bush jun. entered the office, namely Northon Grumman, and merger & acquisition happen on a big scale.
Dreamliner's technology is derived directly from the B-2, the first "plastic" aircraft. Airbus, even if they wanted to build a purely composite A350, couldn't do it because of lack of production capacitiy.
Talking about A300/330/350: It's not the fuselage that makes an aircraft fly, it's the wing! And its not the fuselage that is the same, but the fuselage diameter. Of course, both fuselages are made in the same classical way in metal and with frames and spars. Are you aware that all Boeings from 707 to 737 have the same fuselage? And that Boeing is actually still producing wings that are not super-critical!
And then again this old blabla about "A380, no success". If you have a little bit of long term memory, you all remember how the market was: Boeing subsidized their smaller aircraft with its 747 profits, because it was a pure monopoly on the market. Airbus had to enter to break it. Then Boeing said "we don't see a market for big aircraft", it's the point-to-point, not the megahub. Now they produce the 747-8. And journalists still repeat the fairy tail of the 787 as a bypass-hub concept.
I'm not a Boeing-basher, I really think that Boeing is a great company with great aircraft, but this article is once again short-sighted, monothematic and simply incorrect.
Dani
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Are you aware that all Boeings from 707 to 737 have the same fuselage?
Dreamliner's technology is derived directly from the B-2
And then again this old blabla about "A380, no success".
And journalists still repeat the fairy tail of the 787 as a bypass-hub concept.
Cheers !
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Originally Posted by Dani
... Are you aware that all Boeings from 707 to 737 have the same fuselage? ...
In fact the 367-80 would have been only 5-abreast seating; the C-135/KC-135 was a bit bigger; the production 707/720/727/VC-137 were bigger still; the 737 has a smaller lower lobe; and the 757 has a new nose of course. There is virtue in standardization, but not when the marketplace tells you it's time to change.
Originally Posted by Dani
Well, let me elaborate on my posting above:
I really think that Boeing has all its advantages with the 787 at the moment. It will generate a huge cash flow which will in turn help to develop new projects. But this arcticle implies that Boeing is going so well because of the airliners success, and this is surely only one part of the story. All defense companies in the US (and elsewhere) generated remarkable profits since Mr. Bush jun. entered the office, namely Northon Grumman, and merger & acquisition happen on a big scale.
Dreamliner's technology is derived directly from the B-2, the first "plastic" aircraft. Airbus, even if they wanted to build a purely composite A350, couldn't do it because of lack of production capacitiy.
Talking about A300/330/350: It's not the fuselage that makes an aircraft fly, it's the wing! And its not the fuselage that is the same, but the fuselage diameter. Of course, both fuselages are made in the same classical way in metal and with frames and spars. Are you aware that all Boeings from 707 to 737 have the same fuselage? And that Boeing is actually still producing wings that are not super-critical!
And then again this old blabla about "A380, no success". If you have a little bit of long term memory, you all remember how the market was: Boeing subsidized their smaller aircraft with its 747 profits, because it was a pure monopoly on the market. Airbus had to enter to break it. Then Boeing said "we don't see a market for big aircraft", it's the point-to-point, not the megahub. Now they produce the 747-8. And journalists still repeat the fairy tail of the 787 as a bypass-hub concept.
Dani
I really think that Boeing has all its advantages with the 787 at the moment. It will generate a huge cash flow which will in turn help to develop new projects. But this arcticle implies that Boeing is going so well because of the airliners success, and this is surely only one part of the story. All defense companies in the US (and elsewhere) generated remarkable profits since Mr. Bush jun. entered the office, namely Northon Grumman, and merger & acquisition happen on a big scale.
Dreamliner's technology is derived directly from the B-2, the first "plastic" aircraft. Airbus, even if they wanted to build a purely composite A350, couldn't do it because of lack of production capacitiy.
Talking about A300/330/350: It's not the fuselage that makes an aircraft fly, it's the wing! And its not the fuselage that is the same, but the fuselage diameter. Of course, both fuselages are made in the same classical way in metal and with frames and spars. Are you aware that all Boeings from 707 to 737 have the same fuselage? And that Boeing is actually still producing wings that are not super-critical!
And then again this old blabla about "A380, no success". If you have a little bit of long term memory, you all remember how the market was: Boeing subsidized their smaller aircraft with its 747 profits, because it was a pure monopoly on the market. Airbus had to enter to break it. Then Boeing said "we don't see a market for big aircraft", it's the point-to-point, not the megahub. Now they produce the 747-8. And journalists still repeat the fairy tail of the 787 as a bypass-hub concept.
Dani
Anywho, regarding long and thin routes versus dense routes, I think both are going to happen. There are some routes which will always be dense, such as many routes to London, New York, Sydney etc which may be able to justify jumbo aircraft. I think there is also going to be significant opening of new routes as the bilaterals start to relax. Look at how Continental are starting to use 757s to fly to all sorts of places around Europe now. I can only see this kind of thing continuing. So rather than being one or the other, I am guessing it will be a combination.
I think Boeing has brought in the 747-8 so that the A380 is not seen as the only choice for those airlines who will soon be rolling their fleets of 744s over. It's also going to be a major winner in the cargo market, as the 747 has always been. It's not going to eat in to the 777 or 787 so it should work out fine.
My 2c worth anyway.
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Uh, I thought the B-2 was built by Northrop Grumman. Was Boeing a major subcontractor was it?
The 748s role is to fill a seating capacity gap between the very popular 773 (~350 seats) and the all new A380 (+550 seats). I agree that many airlines currently using the 744s will be likely customers for the 748 and if the comparative fuel savings per passenger are realised (the claim is 14% per vs A380), the 748 could be a big seller. Those fuel savings are, but of course,
disputed by Airbus and with the EIS of the extended A380, the efficiency difference will lessen or even reverse.Meanwhile there is nothing like the A380 and likely won't be anything close to her anytime soon. Airbus has the super jumbo market all to itself.
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The fact that major shareholders are either in the process of or planning to sell of their stock says something about were that company is headed...
The part about BAe selling because it wants to focus on defence is probably less than half of the truth.
If I was called Noel Forgeard I'd take BAe's action as a vote of no confidance.
The part about BAe selling because it wants to focus on defence is probably less than half of the truth.
If I was called Noel Forgeard I'd take BAe's action as a vote of no confidance.
Last edited by Knold; 17th Jun 2006 at 18:48.
