Great Plans, Press Don't Always Work Out

Without fix, Airbus may turn into afterthought

By Andrea Rothman
Bloomberg News

Buffeted by delays in the A380 superjumbo jet that triggered the ouster of senior management this week, Airbus faces the growing risk of losing its position as one of the world's two dominant aircraft makers.

European Aeronautic, Defence & Space (EADS), which owns Airbus, replaced one of its co-chief executives and the chief executive of Airbus after saying wiring bottlenecks in the A380 may cost it 2 billion euros ($2.6 billion) through 2010.

Airbus also has fallen behind Boeing in the race to offer a fuel-efficient 250- to 350-seat plane.

Delays in the $13 billion A380 program have prevented management from focusing on a competitor for Boeing's midsize 787.

Without a plane in this category, Toulouse, France-based Airbus would cede a market worth an estimated $450 billion over the next 20 years to Boeing.

"Airbus is at risk of becoming a marginal, niche manufacturer in a couple of years unless they act now," says Richard Aboulafia, vice president of Teal Group, a Fairfax, Va.-based consulting firm.

EADS on Sunday named French aerospace veteran Louis Gallois to replace Noël Forgeard as co-CEO. Christian Streiff, a former executive at glassmaker Saint Gobain, takes over from Gustav Humbert as chief executive of Airbus.

"There's not much time left," says Peter Rieth, an analyst at BHF-Bank in Frankfurt, Germany.

"The new chief executive officer primarily has the task of bringing the problems in the company back on track, especially with the A380," Rieth said. "That means not delaying deliveries any further and making strategic decisions such as how things will continue with the A350. These are two huge challenges for the new management."

There is precedent for the decline of a dominant plane maker.

McDonnell Douglas, once the world's largest aircraft maker, failed to invest in new planes and its product line was whittled down to one 300-seat model, the MD11, and a 140-seat plane, the MD90.

It was swallowed by Boeing in 1997, after Airbus established itself as a competitor.

Doug McVitie, managing director of Arran Aerospace, a consulting firm in Dinan, France, says airlines may support Airbus because they need two strong plane makers to keep prices in check.

"Most of the major airline bosses would hate to see a duopoly become a monopoly," McVitie says. "So they'll be anxious to see Airbus solve its problems. That'll translate into patience and flexibility, and airlines will also think twice about their orders in case it tipped the balance too far in one manufacturer's favor."