Airbus: Restructuring At Full Throttle

The aerospace giant's new Power8 planlikely backed by Paris and Berlincalls for massive job cuts and plant closures, but union protests could abort this takeoff

After months of delay, Airbus CEO Louis Gallois finally revealed the company's much-anticipated Power8 restructuring plan Wednesday, offering a bold set of measures which he said will boost mid-term cash flow, help streamline production, and make the company competitive again with American arch-rival Boeing (BA).

The plan, unveiled at a press conference Wednesday afternoon in Toulouse, calls for the most severe cost reductions in the company's history—10,000 jobs cuts in the next four years, and the sale or "yielding" of six of its European factories.

"We are paying a huge price ," Gallois said, attributing recent losses to an inefficient management structure, overstaffing, and the crippling effect of a weak dollar.

With the proposed cuts, Airbus hopes to turn the tide. Gallois says the job cuts and increased efficiencies would generate €2.1 billion ($2.8 billion) in annual savings and €5 billion ($6.6 billion) in cash by 2010, giving the company the funds it needs to develop its new wide-body model, the A350 XWB, by 2013, and compete directly with the Boeing 787.

Labor Battle

The question now becomes: Can this bold plan be put into action? If unions in France and Germany back up their recent tough talk, Gallois and Airbus parent company EADS may be in for a major battle over any forced job cuts or plant closures.

"The unions aren't going to take this lying down," says industry analyst Doug McVitie of Arran Aerospace. Employees at Airbus' Toulouse headquarters were already on strike Wednesday morning in protest at the plan, and walkouts were reported at other sites in France and Germany. Force Ouvrière, the union representing the majority of French Airbus workers, said it would consider any plant closures or sell-offs "an act of war."

And right now, as much as Airbus needs to cut costs, it can scarcely afford a costly union battle. "The critical thing for Airbus is to keep the production lines running," says McVitie. "They have to maintain cash flow."

Political Clout

The company has recently ramped up production of its A320 narrow body in order to fill its backlog of orders quickly and help generate the nearly €15 billion ($19.8 billion) in cash needed to build the A350 (see, 2/22/07, "Airbus Revs Up The Engines"). Widespread strikes or slow-downs would cripple Airbus' production capacity at a crucial time.

But if Airbus, by finessing the unions in Germany and France with help from political leaders, can achieve its projected cost-savings over the next four years, it might be able to dig itself out of its hole.

The fact that Gallois was able to make the Power8 announcement this week—when only last week French and German government representatives seemed at an impasse in negotiations with the EADS board of directors—suggests Airbus believes it now has the political support it needs to implement the plan.

"At least they're on the same page now," says Richard Aboulafia, vice-president of Teal Group in Virginia. "Louis Gallois' statement 10 days ago was clearly an indication of cross-border political trouble, but now there seems to have been higher level sign-off."

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