A Superjumbo Ego Problem? the New Airbus CEO Faces a Sales Crisis with Roots in a Dysfunctional System That Has Put the Wrong People at the Top

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Byline: John Newhouse (Newhouse is a senior fellow at the World Security Institute and author of the upcoming book "Boeing Versus Airbus.")

Readers watching the sudden implosion of Airbus may well be wondering what just happened. How could a company that in early 2005 appeared finally to have won its decades-old battle with Boeing be crashing in 2006? In just 18 months, Airbus lost its dominant position, as Boeing's new Dreamliner took off in the mid-size market and Airbus's new flagship A380 superjumbo hit potentially crippling production delays. That led last week to the second new Airbus CEO in 10 months, as Louis Gallois took over from fellow Frenchman Christian Streiff. The big surprise here is that this may indeed be good news-- another turning point for Airbus in a notoriously tumultuous industry. Gallois may be just the man to restore the planemaker's balance.

What many people don't understand about the airline business is that it is a people industry, even if it appears to be driven by technology. Those who succeed are individuals with vision and guts, and a sure sense of their company's larger interests. The recent turmoil in Airbus's top ranks was immediately linked to the company's curious and highly politicized structure. The product of German-French political deals, it is not designed to pick the best-equipped people. The key issue is a split at the top of EADS (the European Aeronautic, Defence and Space Co.), the relatively young European aerospace conglomerate that took over the Airbus company, which makes only commercial jetliners, in 2000. The top jobs at EADS are held by two co-chairmen--one French, one German. The dual management of EADS is a chafing annoyance to Airbus staffers. They wonder if they need the parent company at all. As a stand-alone company, Airbus supplies half of all the corporation's labor, 70 percent of its revenue and most of the profits. So, they ask, why not float shares in Airbus? To them, the tail is wagging the dog.

And the roots of the current trouble, I would argue, are traceable to one personality who wanted to run both EADS and Airbus, Noel Forgeard. Airbus owed its ascent to strong and creative management that began in the mid-'80s. Its leader in those years was Jean Pierson, who had the personal force to persuade colleagues to do things his way and customers--including wary, skeptical American carriers--to buy his airplanes instead of Boeing's. He was known as the Bear of the Pyrenees.

After chasing Boeing for decades, Airbus under Pierson had approached competitive parity by the mid-1990s. As Boeing grew complacent and risk averse, Pierson was building new and better planes, particularly the A320 and A330, which are successful to this day. Airbus was stressing the fundamentals, gaining credibility, making a dent in the market and even beginning to scent blood. By the time Pierson retired in 1997, the seemingly fanciful notion of Airbus's catching up with and even surpassing Boeing in market share had acquired reality. Then Pierson was replaced by Forgeard, whose style and leadership qualities were very different.

Pierson's entire focus was making and selling airplanes. Forgeard's focus was blurred by ambition. When EADS took over Airbus in 2000, he wanted to move up and become co-chairman of EADS. Much is said, not all of it persuasive, about Airbus's superjumbo program. The airplane is said to be too big for the market, an awkward fit for some of the airports from which it will operate. The immediate problem is operational: how to match the production schedule of the huge airplane with promised delivery dates. Airbus underestimated the scope of the problem. That failure led back directly to Forgeard, who controlled the program. Ultimately, the A380 sank him.

Another and even more worrisome problem surfaced in the summer of 2005, and from another front. Boeing's Dreamliner, although not yet out of the larval stage and not scheduled for delivery to customer airlines until the summer of 2008, was scoring a major success in the middle market, the richest segment. …