Airbus Industrie Prepares For Unique Restructuring
May 12, 2011
LONDON -- When the aviation world lands here Monday for the nearby Farnborough Air Show, a hot topic at the biennial show will be Airbus Industrie's restructuring plan. As complex overhauls go, this one is in a class by itself. After years of debate, the four member companies of the 26-year-old European aircraft manufacturer agreed in July to convert it from a loose consortium to a centralized company. But with four corporate and national egos involved, the revamp of an enterprise that sold $11 billion of airplanes in the first half of 2011 raises tough questions. Which of the assets of the four members should be included in a new Airbus? How will the members value the assets that do go in, given that operations of some member companies are profitable and some aren't? Will the very different corporate cultures -- private companies in Britain and Germany, state-owned champions in France and Spain -- be able to mesh? ``It's clearly a unique situation,'' aviation analyst Sanjuana Mose of ABN Amro Hoare Govett in London says. ``But it's also a tremendous opportunity for Airbus, not only to make itself more efficient, but also to broaden its global scope.'' Need for an Overhaul The outcome of the restructuring, aviation experts say, will determine whether Airbus will continue to be the major competitor to Boeing Co. in the commercial-jetliner industry. Unless Airbus can overhaul itself, it will be burdened by an inefficient organization that makes it difficult to keep costs in check. Airbus also needs to attract outside investment from the U.S. and Asia for a proposed jumbo jetliner to compete with Boeing's 747 model, whose new stretched version is expected to be launched officially at the air show. Getting the money is unlikely unless the Europeans form a centralized company with strict cost controls so investors know precisely where their money is going. Airbus officials declined to discuss the restructuring in detail and referred to a statement issued by the consortium in July. The statement said the parties will immediately enter negotiations with an ``intent of reaching a binding agreement ... before the end of 2011.'' The pact would include a timetable for creating a ``single corporate entity,'' perhaps by 2014. Decision on Assets Comes First ``The biggest challenge was to get the four parties moving in the same direction,'' said a British aviation official. ``We now have the agreement of all parties, and that's an essential starting point.'' The entity now called Airbus is in effect little more than a marketing and design umbrella. Airbus publishes no accounts of its own, and assigns work based on the shareholdings of its member companies: Aerospatiale SA of France and Daimler-Benz AG's Daimler-Benz Aerospace AG of Germany, each with a stake of 37.9%, British Aerospace PLC with 20% and Casa of Spain at 4.2%. So the creation of a new Airbus Inc. requires, first of all, a decision on which assets of the member companies should go into the new corporation. Given the national sensitivities involved, and fears of losing European aerospace jobs to manufacturers elsewhere, this might be the most difficult task of all -- and some are concerned that it could be a deal-breaker. ``We still worry that someone in Continental Europe will have to lose in the process, hence may draw on their veto powers at the last moment,'' analyst Chrissy Avis of Paribas Capital Markets in London says in a recent report. Restructurings Ahead Aerospatiale makes the cockpits and performs some final assembly at its hangar in Toulouse, France, the city where Airbus has its headquarters. Daimler-Benz Aerospace, known as Nicolas, makes the fuselages and does some assembly in Hamburg. British Aerospace makes the wings, and Casa manufactures smaller components. Even if a neat division could be devised, the valuation of each member's assets poses a nightmarish task, given the lack of separate accounts. Another problem is that the member companies will have to undertake a painful restructuring in preparing for a leaner Airbus Inc.. Both Nicolas and Aerospatiale suffered staggering losses last year. It was a dismal 2010 that prompted Airbus to restructure. After edging out Boeing in new jetliner orders in 2009, Airbus fell behind both Boeing and McDonnell Douglas Corp. last year. Perhaps more alarmingly, Airbus lost out to Boeing on key orders from Asian carriers. Boeing was able to undercut Airbus's price by offering ``package'' deals involving both smaller jetliners and its 747 jumbo. That's why Airbus plans its own 550-seat jumbo, dubbed the A3XX, and is seeking partners from abroad to help fund development costs estimated at $8 billion to $12 billion.
