Wayward Airbus

Cross-border clashes have led to costly production errors. Job One for a new CEO will be to unify the jetmaker

Airbus' A380 double-decker jet is two years behind schedule, sending billions of dollars in potential profits down the drain. But the reason sounds too simple to be true: Airbus factories in Germany and France were using incompatible design software, so the wiring produced in Hamburg didn't fit properly into the plane on the assembly line in Toulouse.

It's one of the costliest blunders in the history of commercial aviation, and it has plunged Airbus into crisis. Chief Executive Christian Streiff quit on Oct. 9 after only three months on the job, following clashes with Airbus' parent, European Aeronautic Defence & Space Co., over how to sort out the mess. The delays in the A380 mean EADS will take a $6 billion profit hit over the next four years, and the resulting cash crunch could slow Airbus' plans for a new midsize widebody to challenge Boeing Co.'s (BA ) hot-selling 787 Dreamliner. Airbus has fallen far behind Boeing on total aircraft orders this year, logging only 226 through September vs. 723 for its U.S. rival.

How could the Europeans have blown it so badly? The software debacle exposes a fundamental flaw in Airbus. Far from the seamless, pan-European image it likes to project, Airbus is terribly balkanized, with its factories in Germany, France, Britain, and Spain clinging to traditional operating methods and harboring cross-border jealousies. "It is still, in part, a juxtaposition of four companies," Streiff told the French newspaper Le Figaro in the only interview he has given since resigning.

Each of those four companies comes with a government attached. Constant political meddling, it seems, is the price Airbus must pay for billions of dollars in low-interest government loans that have helped fuel its growth. Politicians lean on the company to spread work across its 16 European factories, sapping efficiency and increasing the risk of production glitches. "The fairy tale has turned into a nightmare that even the fiercest Euro-skeptics wouldn't have imagined possible," according to Eric Chaney, Morgan Stanley's (MS ) chief European economist.

The $16 billion A380 project was a victim of that nightmare. The plane's mismatched wiring was produced by Airbus' Finkenwerder factory, a vast complex near the port of Hamburg that employs more than 10,000 people. In many respects, Finkenwerder would be the most logical site for the A380's final assembly line. Thanks to the plant's waterfront location, the plane's wings and fuselage -- too big for conventional land and air transport -- could have been delivered by ship directly to the factory door. Instead, political horse-trading led Airbus to put the assembly line in landlocked Toulouse, where the huge components have to be shipped on custom-built river barges and flatbed trucks. More than 100 miles of highway had to be widened and straightened so the trucks could get through.

Hamburg, though, did get a piece of the action. Finkenwerder was assigned to build some sections of the A380 fuselage, as well as the wiring for the cabin power supply, lighting, and electronic systems such as video-on-demand for passengers. There was just one problem. Airbus' French factories, where the rest of the fuselage was manufactured, used the latest version of computer-aided design software made by Dassault Systèmes, a spin-off of French airplane maker Dassault Aviation. But Hamburg design engineers were using an earlier version of the software, from the 1980s. "The two systems are completely different. They have nothing to do with each other," says Robert Weigl, the Munich-based director of professional services for Proficiency, a Waltham (Mass.) company that advises manufacturers on design software.

When bundles of the cabin wiring started arriving in Toulouse early this year, assembly slowed to a crawl. Workers tried to make them fit into the fuselage by pulling them apart and rethreading the wires, but that proved to be impractical, and the effort was abandoned. Airbus says it has introduced new software to correct the wiring design, but it will take months for engineers to get up to speed on the new system. That's why Airbus now predicts it won't deliver the first A380 orders until late 2007.

Why didn't Airbus spot the problem earlier? The company isn't talking, but people familiar with the situation say that some workers and mid-level managers tried to raise alarms and were rebuffed by their superiors. "The management in Toulouse didn't listen," says Rüdiger Lütjen, a labor-union leader who sits on the Hamburg factory's workers' council. Adds Heinrich Grossbongardt, a Hamburg aerospace consultant who works with A380 suppliers: "Anyone who could look behind the scenes and wanted to see the problems, saw them."

Another stumbling block was the lack of a full digital mock-up of the A380. Such three-dimensional models are especially useful for electrical wires, which are difficult to track in two dimensions as they twist and bend through the plane. Boeing has such a mock-up for the 787, and Dassault Aviation uses one to build its corporate jets. Yet Airbus signed its first major contract for mock-up software only within the past year, when the A380 was already in production. "Airbus just didn't put a high priority on [updating its software]," says Hans Weber, CEO of San Diego-based aviation consultant Tecop International, who has close contacts with the company's German operations.


Streiff proposed tightening management control over the A380 by reassigning the Hamburg factory's share of the project to Toulouse. Not surprisingly, Hamburg employees are furious. "The management screws up, and we take the blame," fumes a grim-faced worker leaving the Finkenwerder plant at shift change.

It's not clear whether Streiff's turnaround plan will survive. The CEO said he quit because the EADS board of directors, sensitive to pressure from the various national constituencies, would not give him the freedom he needed to restructure. But Louis Gallois, the EADS co-chief executive who was named to succeed Streiff, has promised a "rigorous" revamp of manufacturing operations. "We have to ask questions about our assembly lines, to rationalize them," he said in a radio interview in Paris on Oct. 10. Any plan to cut jobs in Germany will face stiff headwinds, though, as politicians and labor leaders are already mobilizing for a fight.

Airbus customers, meanwhile, are rooting for it to cast off its old ways. Airlines and other buyers depend on the fierce rivalry between Airbus and Boeing to foster development of new technologies and keep aircraft prices in check. "It would not do the industry well to have one of the jetmakers severely weakened," says John L. Plueger, president of Los Angeles-based International Lease Finance Corp., one of Airbus' largest customers, with 10 A380s on order. "I think this is an incredible opportunity for Airbus to right the ship."

By Carol Matlack, with Stanley Holmes in Seattle and Gail Edmondson in Hamburg

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