Scrapping the A380 Gives Airbus's Gives New CEO a Clean Slate
(Bloomberg) -- The news started coming thick and fast even before the sun was up over Airbus SE’s headquarters in the French city of Toulouse.
There was a lot to digest: earnings, writedowns, canceled and shifted orders, and not least the landmark decision to end production of the A380 doubledecker, an albatross of a plane that had hung awkwardly around the necks of company executives for years.
By midday, the landslide of revelations had subsided and a calm Guillaume Faury stood in front of the cameras, trim in a blue suit and white shirt without tie, offering an upbeat message: “We are looking into the future with a very positive mindset,” he told Bloomberg TV in an interview. “Now the future is clear.”
Faury, 50, is weeks away from inheriting the top job at Airbus from Tom Enders, and he can thank his predecessor for removing an overhang that had clouded its outlook for the better part of a decade. Scrapping the A380 may have been a painful decision, as Enders put it, but it frees up resources for profitable programs and helps Airbus focus on what it does best: making nimble airliners like the A320 and the bigger A330neo and A350s that compete head to head with Boeing Co. in the increasingly important market for point-to-point travel. With flight patterns changing, the A380 and Boeing’s own 747-8 -- both focused on big hubs -- have become out of date.
Trying to steady the A380 program had been a herculean task for Airbus for years. Enders himself acknowledged the effort when he said that it was “painful to take the decision after all the effort, after all the money, after all the sweat.” Highlighting just how many resources the doomed program still occupied, Airbus said that as many as 3,500 jobs will be affected by the the demise of the double-decker, which will cease production in 2021.
Faury said he pored over the decision together with Enders, and that the Frenchman and his German colleague tried to find a solution “shoulder to shoulder.” He acknowledged that direct flights are the way of the future, and that Airbus has the product range to serve that market, from its A220 -- the rechristened Bombardier CSeries -- to the A320 family and all the way up to the A350-1000.
Investors applauded Airbus’s announcements, sending the stock up as much as 6.3 percent to 110.94 euros, the biggest gain in a year.
Enders laid the table on Thursday for a fresh start for his successor. In addition to scrapping the flagship superjumbo, Enders, who stands down in April, announced extra costs for restructuring the A400M military transport program and revealed the loss of a major order for the planemaker’s newest wide-body jet. He lauded the defense and helicopter arms that have struggled for sales, saying they are “in good shape” for Faury and his team to take over.
And on the day lead customer Emirates forced Airbus to throw in the towel on the A380, the planemaker managed to put an end to one of the stranger episodes in the plane’s relatively short history. On Thursday, Airbus and leasing company Amedeo canceled an order for 20 A380s, which had sat awkwardly in Airbus’s order books for years as dead weight with little hope of ever coming to fruition.
Despite all of the house-cleaning, Faury still has work to do. There’s the specter of a no-deal Brexit, which Faury said would be “a disaster for Europe, for the U.K. and for Airbus.” While the company has spent months preparing for all scenarios, stockpiling goods at other sites to maintain seamless production, any disruption that would extend beyond a few weeks would bring unprecedented strain, Faury said. Airbus makes the wings for all its aircraft exclusively in the U.K.
A lingering investigation into corruption in its commercial aircraft business is nowhere near complete. Enders said the legal costs should come down over the next few years, and acknowledged the probes have taken a toll in terms of people leaving the company. While he’s more optimistic than he was a year ago, “I can’t speculate how long it is going to take,” he said. “And how this all is going to be settled.”
Then there’s a good chance that Boeing will proceed this year with a proposed new aircraft that addresses the niche between narrow- and wide-body jets, the so-called new middle-market airplane. As not to provide an open flank for its arch-rival, Airbus has continuously pushed the range of its biggest A321, and Faury said he’ll “wait and see” what Boeing ends up unveiling.
“We don’t have to respond to the response, which has not yet been revealed,” Faury said.
The future CEO struck a more cautious note on output of Airbus’s bread-and-butter aircraft, the A320 family narrow-bodies. Pushing monthly output beyond 70 units isn’t possible as soon as the company would like, despite sufficient demand for its most popular aircraft, he said. A feasibility study showed it would place too much strain on suppliers -- particularly the engine makers, according to Airbus.
“Commercially the demand would call for more, but I think it’s better to commit what we can deliver,” Chief Financial Officer Harald Wilhelm, who announced Wednesday that he’ll take up the top finance job at carmaker Daimler AG later this year, said at the earnings press conference.
Enders, 60, who hasn’t revealed what he’ll do next, said handing over a clean slate is probably wishful thinking, despite an urge in the final stretch of his tenure to put the house in order as best as possible.
“You quickly realize that this hardly ever happens in life,” Enders said. “Companies like ours are in the middle of a stream. We put challenges behind us, but new challenges always come up, some expected, many unexpected. That’s a constant feature, particularly of the aerospace industry.”
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