Airbust?

Through a rather amazing political confluence, Airbus' CEO Louis Gallois announced approval of their new Power8 restructuring plan.  We've chronicled the bizarre political mess that is Airbus over the past year, and this plan is yet another representation of the fallacy of politicians getting involved with business.

Power8 will eliminate 10,000 jobs, sell or close six plants, outsource more work to "risk sharing partners," and invest in new technologies such as carbon fiber.  Of course when you are owned by and answer to politicians and actual countries, fact-based business analysis goes out the window and instead you make decisions in a rather unique way, as Reuters describes.

France wants cuts shared on the basis of "fairness", while Berlin insists on "equality", implying a one-for-one share of job cuts in each country, the source close to the matter said.

This creates a political mess, which American Thinker comments on.

When a political project like Airbus falters while competing with a commercial enterprise like Boeing, political considerations predominate in developing countermeasures. The turbulent events of the past week demonstrate that the European rival of Boeing is still guided by politicians unwilling to concede the need for painful but necessary remedies, and more interested in looking good to their constituents than in solving the problems at the company.

So knowledge is being wiped out, jobs shed, but then some of those people are re-hired back at subcontractors, some manufacturing is moved to remote locations which creates the need for interesting supply chain technology, design work and therefore IP is being farmed out which guts the IP value within the original company.  Actually that sounds very similar to what Boeing has been doing over the past few years too, doesn't it?

But in this case there is real risk to Airbus and parent EADS.  Decisions made with a political bias are often poor business decisions, and when you throw unions and other interested parties into the fray you have the potential for disaster.  Some are starting to openly question the long-term viability of the company.

In an interview with the French business newspaper Les Echos on Thursday, Jean Pierson, the former chief of Airbus between 1985 and 1998, in its days as a consortium of independent companies, spoke with startling bluntness: "The system we have now cannot last. EADS as a company is heading into the wall. I don't see who is going to agree to make concessions". The current situation is doomed to failure. Clients will first lose patience and then confidence," he told the French newspaper.

Other knowledgeable observers are beginning to speculate that Airbus may not survive.  "All parties involved need to realize the huge risk here," said Richard Aboulafia, vice president of the Teal Group, a Fairfax, Virginia-based consulting company.  "Failure is in fact an option."

A slide toward failure would open up the door to a significant restructuring of the ownership of the company, but not necessarily one that would save it.

But if France and Germany cannot agree and Germany decides to pull out of the Airbus and EADS project,  France's traditional affinity for Russia and Arabia might well serve to make palatable not only an alternative source of capital, but also a source of massive orders from the Arab and Muslim world. Russia, in addition to offering a market for airliners, could also serve as a low cost manufacturing base for many components, and even final assembly.  There is a considerable downside for Airbus if Russia becomes a major shareholder. It nearly rules out future sales of defense products to the United States and some other nations.

You'd think by now they would realize that politicians simply don't know very much about business, or at least profitably and viable business.