U.S. News

Airbus to Modify Turnaround Plan

Associated Press

French Airbus Chief Louis Gallois is drawing up compromise restructuring proposals, people familiar with the discussions said Tuesday, after the main German shareholder blocked a plan designed to help the aircraft-maker cope with costly production delays and a weaker dollar.

Tuesday's scheduled launch of the long-awaited "Power8" strategy was called off after representatives of DaimlerChrysler refused to endorse the plan at a Sunday board meeting of Airbus parent company EADS. The defense group said talks had stalled over where to build the A350 XWB, a planned rival to Boeing's 787.

Gallois, who is co-chief executive of EADS as well as Airbus CEO, has agreed to make changes to the plan, said two officials with knowledge of the talks, one in France, the other in Germany. Both asked not be named because the discussions are confidential.

"This is not going back to drawing board," the France-based official said. "There are likely to be adjustments, but the plan is not in any doubt."

Toulouse, France-based Airbus is struggling to recover from a costly two-year delay to its double-decker A380 superjumbo program while funding development of the A350, its $15.3 billion (11.6 billion euros) answer to the 787's runaway success in the lucrative market for long-range, mid-sized planes.

The A380 production setbacks have wiped about $6.5 billion (5 billion euros) off profit forecasts for 2006-2010. The Power8 plan seeks to claw back the same figure in cost reductions over the period and generate annual savings of $2.6 billion (2 billion euros) in later years.

Besides the production crisis, Airbus has been badly hit by the weakness of the U.S. dollar - the currency in which its planes are priced - and is expected to shift more of its supplier costs and contract work to dollar-linked economies as part of the restructuring effort.

Among issues still to be resolved is the manufacture of carbon-composite fuselage panels for the A350, which Gallois wanted to base outside Germany, the Germany-based official acknowledged, a proposal that DaimlerChrysler has so far rejected.

The metal fuselages on current Airbus models are made at Germany's Nordenham plant, which employs 2,100 workers, but the A350's composite panels could be produced more cheaply at Airbus facilities in Spain or by suppliers outside the euro zone, some analysts say.

Thomas Enders, the German co-CEO of EADS, suggested his country's share of the A350's new technologies was a sticking point. "The future industrial and technological core activities have to be shared in a fair and balanced way," he said on Monday.

French Prime Minister Dominique de Villepin said Tuesday that Airbus was seeking to cut about 10,000 jobs, or almost 18% of the work force, as reported by the French financial media over recent days.

Airbus has been urged to avoid compulsory layoffs, Villepin told RTL radio. With an election looming in France, the government is keen to distance itself from the impending job losses, although ministers have acknowledged that painful cost-cutting was needed.

EADS said through a spokesman that no job cuts had been officially decided, but the company refused to give details of Sunday's board meeting or of the ongoing restructuring talks. DaimlerChrysler and Airbus also declined to comment.

DaimlerChrysler's 22.5% share of the voting rights in EADS is matched by the combined stake held by the French government and Paris-based Lagardere SCA. Arnaud Lagardere, who heads the defense-to-media company and sits as co-chairman on the EADS board, said in an interview with French daily Le Monde that the French shareholders fully supported Gallois and his plan.

Unlike the French state - which owns 15% of EADS - Berlin has no direct stake in the company.

But German Economics Minister Michael Glos suggested earlier this month that EADS could lose defense contracts if Airbus cuts too many jobs in the country. Chancellor Angela Merkel is set to discuss the shake-up with France's President Jacques Chirac when he visits Germany on Friday.

Airbus workers on both sides of the border condemned the latest management stalemate as they waited anxiously for the postponed announcement.

"I thought we would at last have clarity now - and then everything is open again," electrician Sebastian Kubiak said as he arrived for his late shift in Hamburg, Germany, where he works on the A380 superjumbos. "We all want to know finally whether the big bird is staying in Hamburg and what will happen with the A350."

In France, labor unions also criticized what they saw as German government interference. "This is clearly becoming a political affair, and it's essentially a German one," said Francoise Vallin, an official with France's CGC union. "The disagreement on the share of work comes from their side."