Up, Up, And Away At Last For Airbus?

Forgeard may be the boss who gets the consortium into shape

The truth has been staring European aerospace executives in the face for years. To compete in a global market dominated by larger U.S. rivals, European aircraft makers need to consolidate. But every time the French, British, German, and Spanish members of marketing consortium Airbus Industrie tried to negotiate a merger, talks broke down in a cacophony of clashing national interests.

Now, that pattern may finally be broken. On Jan. 22, Airbus Industrie's four industrial partners nominated hard-charging Frenchman Noel Forgeard to transform their loose alliance into an integrated, $11.6 billion aircraft maker. Forgeard, former chief executive of missile and satellite maker Matra Hautes Technologies, may be the person who makes it work--and turns Airbus into an even more aggressive global player. "He's the best choice for Airbus and the worst choice for [archrival] Boeing," says Brett Lambert, vice-president at DFI International Inc., an aerospace consulting firm in Washington, D.C.

POOLING ASSETS. Airbus is already enjoying a tailwind. Thanks to a cyclical upturn in airplane orders last year, its global market share has soared to 44%. Forgeard's goal is to translate rising sales into higher profits by streamlining manufacturing and slashing costs. He plans to create an incorporated company by Jan. 1, 1999, that would pool each partner's design, engineering, and manufacturing assets. Eventually, the partnership could become a publicly listed company.

If incorporation succeeds, Airbus partners may take the alliance a step further and combine their defense businesses. Such an aerospace-defense behemoth would probably forge alliances with some of Boeing's U.S. rivals, shifting the balance of power in the industry. "This is a historically unprecedented opportunity for Airbus," says Robbin Laird, a Washington-based defense consultant.

But getting there from here will take all of Forgeard's expertise. When he steps in as managing director on Apr. 1, he must get Airbus' partners to agree on the value of the assets they are pooling, since accounting standards vary from country to country, and such contributions as design teams are sure to cause dispute. Forgeard must also play ball with politicians. Any restructuring efforts that threaten jobs are likely to meet fierce resistance. Full-scale, U.S.-style layoffs are unthinkable with unemployment running at 12.4% in France and 11.9% in Germany.

Dealing with France will be Forgeard's biggest challenge. France's Aerospatiale, the consortium's only state-owned partner, with a 37.9% stake, has stubbornly blocked past efforts to create a single corporate entity out of Airbus. Its management still balks at decisions to restructure or close plants, seek cheaper suppliers, or transfer significant production outside France.

But Forgeard, 52, brings impressive credentials to his new job. As head of Matra's defense and space business since 1987, he dramatically boosted productivity during the late 1980s, then orchestrated Europe's first cross-border defense joint ventures. He admits that merging corporate cultures isn't easy. But it's not impossible. "At Matra, we got the right formula... It's mutual respect and pragmatism," he says.

SLIM MARGINS. One strong incentive for Airbus partners to pull together: They need outside investment for the $9 billion development of a superjumbo aircraft, the A3XX, designed to compete with Boeing's 747 series. To lure investors, Airbus must produce a credible balance sheet. At present, it remains murky. All four partners claim their operations are profitable, but analysts say net margins may be as little as 1% of sales.

Experts say Forgeard has the credibility to get a restructured Airbus off the ground. "He could help the French swallow the pill [of restructuring] more easily," says Emmanuel Dubois-Pelerin, analyst at Standard & Poor's in Paris. That alone would give Airbus a big lift.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE