Airbus

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Airbus S.A.S. is an aircraft manufacturing subsidiary of EADS, a European aerospace
concern. Based in Toulouse, France and with significant activity across Europe,
the company produces around half of the world’s jet airliners.

Airbus began as a consortium of aerospace manufacturers. Consolidation of European
defence and aerospace companies around the turn of the century allowed the establishment
of a simplified joint stock company in 2001, owned by EADS (80%) and BAE Systems
(20%). After a protracted sale process BAE sold its shareholding to EADS on
13 October 2006.

Airbus employs around 57,000 people at sixteen sites in four European countries:
Germany, France, the United Kingdom, and Spain. Final assembly production is
at Toulouse (France) and Hamburg (Germany). Airbus has subsidiaries in the United
States, Japan and China

History

Airbus Industrie began as a consortium of European aviation firms to compete
with American companies such as Boeing, McDonnell Douglas, and Lockheed.

While many European aircraft were innovative, even the most successful had
small production runs. In 1991, Jean Pierson, then CEO and Managing Director
of Airbus Industrie, described a number of factors which explained the dominant
position of American aircraft manufacturers: the land mass of the United States
made air transport the favoured mode of travel; a 1942 Anglo-American agreement
entrusted transport aircraft production to the US; and World War II had left
America with “a profitable, vigorous, powerful and structured aeronautical
industry.”

In the mid-1960s, tentative negotiations commenced regarding a European collaborative
approach. At the 1965 Paris Air Show major European airlines informally discussed
their requirements for a new short- to medium-range “airbus”. European
aircraft manufacturers were aware of the risks of such a development and began
to accept, along with their governments, that collaboration was required to
develop such an aircraft and to compete with the US manufacturers. The same
year Hawker Siddeley (at the urging of the UK government) teamed with Breguet
and Nord to study airbus designs. The Hawker Siddeley/Breguet/Nord groups HBN
100 became the basis for the continuation of the project. By 1966 the partners
were Sud Aviation (France), Arbeitsgemeinschaft Airbus, later Deutsche Airbus
(Germany) and Hawker Siddeley (UK). A request for funding was made to the three
governments in October 1966.

By early 1967 the “A300″ label began to be applied and the proposal
developed into a 320 seat, twin engined airliner. On 25 July 1967 the three
governments agreed to proceed to the definition stage with the mission statement:

Shortly after the agreement, Roger BÃ©teille was appointed technical
director of the A300 projectBÃ©teille developed a division of labour which
would be the basis of Airbus’ production for years to come: France would manufacture
the cockpit, flight control and the lower centre section of the fuselage; Hawker
Siddeley, whose Trident technology had impressed him, was to manufacture the
wings; Germany should make the forward and rear fuselage sections, as well as
the upper centre section; The Dutch would make the flaps and spoilers; finally
Spain (yet to become a full partner) would make the horizontal tailplane. On
26 September 1967 the German, French and British governments signed a Memorandum
of Understanding in London which allowed continued development studies. This
also confirmed Sud Aviation as the “lead company”, that France and
the UK would each have a 37.5% workshare with Germany taking 25%, and that Rolls-Royce
would manufacture the engines.

In the two years following this agreement, both the British and French governments
expressed doubts about the project. The MoU had stated that 75 orders must be
achieved by 31 July 1968. However lukewarm airline support for a 300 seat Airbus
A300 lead to the partners submitting the A250 proposal (what became the A300B)
for a 250 seat airliner powered by existing engines This dramatically reduced
development costs, as the Rolls-Royce RB207 represented a large proportion of
those costs. The RB207 had also suffered difficulties, since Rolls-Royce was
concentrating its efforts on the development of the related RB211 for the Lockheed
L-1011.[6] The French government threatened to withdraw from the project due
to the concern over funding development of the Airbus A300, Concorde and the
Dassault Mercure concurrently, but was persuaded otherwise.Having announced
its concern at the A300B proposal in December 1968, and fearing it would not
recoup its investment due to lack of sales, the British government announced
its withdrawal on 10 April 1969. Germany took this opportunity to increase its
share of the project to 50%. Given the participation by Hawker Siddeley up to
that point, France and Germany were reluctant to take over its wing design.
Thus the British company was allowed to continue as a privileged subcontractor.
Hawker Siddeley invested GBL35 million in tooling and, requiring more capital,
received a GBL35 million loan from the German government.

Formation of Airbus Industrie

Airbus Industrie was formally established as a Groupement d’Interet Economique
(Economic Interest Group or GIE) on 18 December 1970. The name “Airbus”
was taken from a non-proprietary term used by the airline industry in the 1960s
to refer to a commercial aircraft of a certain size and range, for this term
was acceptable to the French linguistically. Aerospatiale and Deutsche Airbus
each took a 36.5% share of production work, Hawker Siddeley 20% and Fokker-VFW
7%. Each company would deliver its sections as fully equipped, ready-to-fly
items. In October 1971 the Spanish company CASA acquired a 4.2% share of Airbus
Industrie, with Aerospatiale and Deutsche Airbus reducing their stakes to 47.9%.
In January 1979 British Aerospace, which had absorbed Hawker Siddeley in 1977,
acquired a 20% share of Airbus Industrie. The majority shareholders reduced
their shares to 37.9%, while CASA retained its 4.2%.

In 1972, the A300 made its maiden flight and the first production model, the
A300B2 entered service in 1974. Initially the success of the consortium was
poor but by 1979 there were 81 aircraft in service. It was the launch of the
A320 in 1981 that guaranteed the status of Airbus as a major player in the aircraft
market – the aircraft had over 400 orders before it first flew, compared to
15 for the A300 in 1972.

Transition to Airbus SAS

The retention of production and engineering assets by the partner companies
in effect made Airbus Industrie a sales and marketing company. This arrangement
led to inefficiencies due to the inherent conflicts of interest that the four
partner companies faced; they were both GIE shareholders and subcontractors
to the consortium. The companies collaborated on development of the Airbus range,
but guarded the financial details of their own production activities and sought
to maximise the transfer prices of their sub-assemblies.

In the early 1990s the then Airbus CEO Jean Pierson argued that the GIE should
be abandoned and Airbus established as a conventional company. However, the
difficulties of integrating and valuing the assets of four companies, as well
as legal issues, delayed the initiative. In December 1998, when it was reported
that British Aerospace and DASA were close to merging, AÃ©rospatiale paralysed
negotiations on the Airbus conversion; the French company feared the combined
BAe/DASA, which would own 57.9% of Airbus, would dominate the company and it
insisted on a 50/50 split. However, the issue was resolved in January 1999 when
BAe abandoned talks with DASA in favour of merging with Marconi Electronic Systems
to become BAE Systems. Then in 2000 three of the four partner companies (DaimlerChrysler
Aerospace, successor to Deutsche Airbus; AÃ©rospatiale-Matra, successor
to Sud-Aviation; and CASA) merged to form EADS, simplifying the process. EADS
now owned Airbus France, Airbus Deutschland and Airbus Espana, and thus 80%
of Airbus Industrie. BAE Systems and EADS transferred their production assets
to the new company, Airbus SAS, in return for shareholdings in that company.

BAE sale and A380 controversy

On 6 April 2006 BBC News reported that BAE Systems was again selling its share,
then “conservatively valued” at ?3.5 billion (US$4.17 bn). The move
was seen by many analysts as a move to make partnerships with U.S. firms more
feasible, in both financial and political terms. BAE originally sought to agree
a price with EADS through an informal process. However, due to the slow pace
of negotiations and disagreements over price, BAE exercised its put option which
saw investment bank Rothschild appointed to give an independent valuation.

In June 2006, Airbus became embroiled in a significant international controversy
over its announcement of a further delay in the delivery of its A380. In the
wake of the announcement, the value of associated stock plunged by up to a quarter
in a matter of days, although it soon recovered somewhat. Allegations of insider
trading on the part of NoÃ«l Forgeard, CEO of EADS, its majority corporate
parent, promptly followed. The loss of associated value caused great concern
on the part of BAE, The Independent describing a “furious row” between
BAE and EADS, with BAE believing the announcement was designed to depress the
value of its share A French shareholder group filed a class action lawsuit against
EADS in a Dutch court for failing to inform investors of the financial implications
of the A380 delays while airlines to which deliveries were promised are expected
to demand compensation. As a result, EADS chief NoÃ«l Forgeard and Airbus
CEO Gustav Humbert announced their resignations on 2 July 2006.[16] Forgeard’s
severance package is expected to include three years of salary plus the 2005
bonus; a total of at least ?6 million, possibly topping ?7 million.

On 2 July 2006 Rothschild valued BAE’s stake at L1.9 billion (?2.75 billion),
well below the expectation of BAE analysts and even EADS. On 5 July BAE appointed
independent auditors to investigate how the value of its share of Airbus had
fallen from the original estimates to the Rothschild valuation. They pushed
back any potential sale until September at the earliest. On 6 September 2006
BAE agreed to sell its stake in Airbus to EADS for L1.87 billion (?2.75 billion,
$3.53 billion), pending BAE shareholder approval.On 4 October shareholders voted
in favour of the sale.

On 9 October 2006 Christian Streiff, Humbert’s successor, resigned due to differences
with parent company EADS over the amount of independence he would be granted
in implementing his reorganization plan for Airbus. He will be succeeded by
EADS co-CEO Louis Gallois. This brings Airbus under more direct control of its
parent company.

Catia debacle

On 3 October 2006, Christian Streiff announced that the reason for delay of
the Airbus A380 was the use of incompatible software used to design the aircraft.
Primarily, the Toulouse assembly plant used the latest version 5 of Catia (made
by Dassault), while the design centre at the Hamburg factory used an older incompatible
version 4. Parts of the plane were also designed using Parametric Technology
Corporation software. The responsibility for the problem was put on the top
management for not placing a high enough priority on forcing the compatible
software through all parts of the organization. The result was that the 530km
of cables wiring throughout the aircraft has to be completely redesigned.

The cost of this debacle is expected to reach $6.1 billion over the next four
years. Although none of the orders have been canceled, Airbus will have to pay
millions in late-delivery penalties.

2007 restructuring

On 28 February 2007, CEO Louis Gallois announced the company’s restructuring
plans. Entitled Power8, the plan would see 10,000 jobs cut over four years;
4,300 in France, 3,700 in Germany, 1,600 in the UK and 400 in Spain. 5,000 of
the 10,000 would be at sub contractors. Plants at Saint Nazaire, Varel and Laupheim
face sell off or closure, while Meaulte, Nordenham and Filton are “open
to investors”. The announcements have resulted in Airbus unions in France
planning to strike, with German Airbus workers possibly following.

Civilian products

The Airbus product line started with the A300, the world’s first twin-aisle,
twin-engined aircraft. A shorter, re-winged, re-engined variant of the A300
is known as the A310. Building on its success, Airbus launched the A320 with
its innovative fly-by-wire control system. The A320 has been, and continues
to be, a great commercial success. The A318 and A319 are shorter derivatives
with some of the latter under construction for the corporate biz-jet market
(Airbus Corporate Jet). A stretched version is known as the A321 and is proving
competitive with later models of the Boeing 737.

The longer-range products, the twin-jet A330 and the four-engine A340, have
efficient wings, enhanced by winglets. The Airbus A340-500 has an operating
range of 16 700 kilometres (9000 nautical miles), the second longest range of
any commercial jet after the Boeing 777-200LR (range of 17 446 km or 9420 nautical
miles). The company is particularly proud of its use of fly-by-wire technologies
and the common cockpit systems in use throughout the aircraft family, which
make it much easier to train crew.

Airbus is studying a replacement for the A320 series, tentatively dubbed NSR,
for “New Short-Range aircraft.”

In July 2007, Airbus delivered its last A300 to FedEx, marking the end of the
A300/A310 production line. Airbus intends to relocate Toulouse A320 final assembly
activity to Hamburg, and A350/A380 production in the opposite direction as part
of its Power8 organization plan begun under ex-CEO Christian Streiff.

Airbus supplied replacement parts and service for the Concorde until its retirement
in 2003.

Competition with Boeing

Airbus is in tight competition with Boeing every year for aircraft orders. Though
both manufacturers have a broad product range in various segments from single-aisle
to wide-body, their aircraft do not always compete head-to-head. Instead they
respond with models a bit smaller or a bit bigger than the other in order to
plug any holes in demand and achieve a better edge. The A380, for example, is
designed to be a bit bigger than the 747. The A350 XWB competes with the high
end of the 787 and the low end of the 777. The A320 is bigger than the 737-700
but smaller than the 737-800. The A321 is bigger than the 737-900 but smaller
than the previous 757-200. Airlines see this as a benefit since they get a more
complete product range from 100 seats to 500 seats than if both companies offered
identical aircraft.

In recent years the Boeing 777 has outsold its Airbus counterparts, which include
the A340 family as well as the A330-300. The smaller A330-200 competes with
the 767, outselling its Boeing counterpart in recent years. The A380 is anticipated
to further reduce sales of the Boeing 747, gaining Airbus a share of the market
in very large aircraft, though frequent delays in the A380 program have caused
several customers to consider the refreshed 747-8.[27] Airbus has also proposed
the A350 XWB to compete with the fast-selling Boeing 787, after being under
great pressure from airlines to produce a competing model.

There are around 4,463 Airbus aircraft in service, with Airbus managing to
win over 50 per cent of aircraft orders in recent years. Airbus products are
still outnumbered 6 to 1 by in-service Boeings (there are over 5,000 Boeing
737s alone in service). This however is indicative of historical success – Airbus
made a late entry into the modern jet airliner market (1972 vs. 1958 for Boeing).

Airbus won a greater share of orders in 2003, 2004. It also delivered more
aircraft in 2003, 2004, 2005 & 2006.

In 2005, Airbus made a claim to victory again with 1111 (1055 net), compared
to 1029 (net of 1002) for Boeing However, Boeing won 55% of 2005 orders by value,
due to that firm winning several important widebody sales at the expense of
Airbus.

In 2006 Boeing won more orders by both measures. Airbus regained parity as
of mid-2007.

Military products

In January 1999 Airbus established a separate company, Airbus Military S.A.S.,
to undertake development and production of a turboprop-powered tactical transport
aircraft (the Airbus Military A400M.) The A400M is being developed by several
NATO members, Belgium, France, Germany, Luxembourg, Spain, Turkey, and the UK,
as an alternative to the C-130 Hercules. Expansion in the military aircraft
market will reduce, but not negate, Airbus’ exposure to the effects of cyclical
downturns in civil aviation.