Airbus Agrees to Settle Bribery Cases for About $3 Billion
As the probes geared up, Airbus abruptly stopped using the agents and said it would cooperate.
(Bloomberg) -- Less than a year into the job running Airbus SE, Guillaume Faury is poised to accomplish a sweeping legal settlement of bribery allegations that dogged his predecessor for years and led to a mass management exodus.
While the price tag is high -- Airbus said Tuesday it will set aside 3.6 billion euros ($4 billion) for potential penalties -- the preliminary accord with authorities in the U.K., France and the U.S. lets Faury clear away a major distraction for himself as well as investors, who cheered the company announcement with the biggest stock gain in almost a month. Approval hearings are scheduled for Friday in courts in all three countries.
Timing has been on Faury’s side. The company just came out the clear winner in the perennial duopoly battle with Boeing Co., which is deeply mired in a crisis stemming from the grounding of its 737 Max workhorse for almost a year. That has made Airbus’s own issues pale by comparison, from production snags to persistent engine problems. Now even one of the largest fines ever for corporate corruption is a blessing of sorts for Faury.
“Perhaps Airbus can steal a march on Boeing while Boeing is preoccupied,” said Sandy Morris, a research analyst at Jefferies International.
Airbus shares gained as much as 3% on Tuesday after the company announced the preliminary agreement, ending up 1% in Paris. Airbus announced the size of the provision after trading closed and said it will be reflected in 2019 results scheduled for Feb. 13.
The allegations under discussion involve the use of intermediaries in securing jet orders, a practice Airbus employed as it tried to reach parity with its U.S. rival.
The U.K. Serious Fraud Office and France’s Parquet National Financier said that hearings were scheduled for Friday. The U.S. Department of Justice declined to comment.
Faury’s Tenure
Responding to the probes has also taxed the executive team under Faury, who took over from former Airbus chief Tom Enders a month after the Max was idled, according to Norbert Kretlow, an analyst at Commerzbank AG.
“For the stock market, relief of uncertainty is important,” Kretlow said. “It’s been hanging over Faury’s leadership so far.”
Boeing’s crisis with the 737 Max obscured a multitude of issues plaguing Airbus: The Toulouse, France-based company was forced to shutter its marquee A380 double-decker program because of a lack of demand. Production in Hamburg, Germany, of the A320 series narrow-body -- the world’s most popular commercial jet -- has been slowed by difficulties outfitting cabins for the larger versions of the model.
To top it off, Airbus has been on the losing end of a World Trade Organization dispute with Boeing. In the latest development, the U.S. imposed levies on European Union products in retaliation for government aid to Airbus that was deemed illegal by the trade body.
Nevertheless, after less than a year in the job, Faury has started to gain traction. A new extra-long range version of the A320 has been well-received by airline customers and headed off one potential avenue for a Boeing counterpunch. Boeing results due this week could unmask more woes at the Chicago-based company and detail the financial hit.
With Airbus’s own earnings next month, Faury needs to show he’s made progress on the production issues that have soaked up precious time while pushing deliveries for new A320 orders out to 2024.
“The number one focus of the results coming up is going to be the 2020 outlook,” said Benjamin Heelan, an analyst at Bank of America Merrill Lynch. “Executing on those issues in Hamburg is their number one focus and the number one priority investors have.”
Record Fine
The company has enough cash to withstand the financial impact, Jefferies analyst Morris said in a note.
Airbus’s corruption saga has lasted almost four years. The company reported itself to authorities in 2016 after then-CEO Enders launched an internal probe. The SFO opened its investigation that year, working with its French counterpart. They were joined late in 2018 by the Department of Justice.
The fallout reached deep into the ranks of top Airbus management. Last year, the company canceled publication of a book it had commissioned on its 50-year history, because a chapter that addressed the bribery episode could have interfered with the cases.
Staff Shakeup
One focus of the U.K. inquiry was Airbus’s failure to disclose its use of third parties to the country’s Export Finance agency, which arranges credit guarantees for overseas sales. The decision to cooperate allowed Airbus to keep receiving government-backed loans, but it also forced Enders to clean house before retiring last year.
Airbus’s sales staff weathered a major shakeup. Kiran Rao, who had already been announced as the replacement to longtime sales chief John Leahy, was sidelined and has since left the company. After an outsider, former Rolls-Royce Holdings Plc executive Eric Schulz, didn’t work out, Airbus went with Christian Scherer, who led its regional aircraft business, for the top sales role for jets such as the A320neo narrow-body, the world’s best-selling plane family.
Fabrice Bregier, Enders’s longtime second-in-command and a candidate to become CEO, was also forced out. Guillaume Faury, who had earlier headed Airbus’s helicopters unit, replaced him and became CEO of the group in April.
Progress toward a settlement has been slowed by numerous issues, including the availability of judges in France and the U.K., holiday scheduling and procedural differences, according to a person familiar with the situation.
--With assistance from Franz Wild.
To contact the reporters on this story: Charlotte Ryan in London at cryan147@bloomberg.net;Siddharth Philip in London at sphilip3@bloomberg.net;Gaspard Sebag in Paris at gsebag@bloomberg.net
To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, John Bowker, Christopher Elser
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