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The Contender

How Airbus got to be number one.

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IN TOULOUSE, IT'S A POINT OF LOCAL PRIDE that a stone flung from the city's walls splattered the brains of the northerner Simon de Montfort during the Albigensian Crusade in 1218. Located about 350 miles south of Paris, rural Toulouse is also distant in both history and sensibility from France’s capital city. So to describe an Airbus product as a “French aeroplane,” as British airline buccaneer Sir Freddie Laker once did, is to miss an important cultural point.

The region’s character is still apparent a few hundred yards from the headquarters of Airbus, where we pass a small farm with a few tank-size Charolais cows. Our destination is a double row of airplane hangars, each big enough for two soccer fields. Next year, workers will begin to assemble the world’s largest jetliner—the 550-seat, 560-ton, $275 million Airbus A380.

Today Airbus is thriving, but success was never a certainty. In 1974, Boeing vice president Jim Austin described the first Airbus product as “a typical government airplane. They’ll build a dozen or so and then go out of business.” Austin spoke from experience, and he was almost right.

Europe had invented the jet engine, built the first jet and turboprop airliners, and was building Concorde. But Boeing and Douglas were doing to the Europeans what de Montfort had done to the Cathar heretics. The 116 options to buy Concorde had melted away. Dassault had produced the Mercure, a Boeing 737 lookalike, but was never going to sell more than the 10 copies it had foisted on France-owned Air Inter. West Germany’s first and only commercial jet, the VFW-Fokker 614, was a dog. Britain was delivering a few last BAC One-Eleven twinjets and Hawker Siddeley Tridents—like smallish 727s—to Romania and China. Thanks to some crafty, almost underhanded maneuvering led by a French engineer named Roger Beteille, Toulouse had one rock left: the Airbus A300B.

Beteille was surprised when, in 1967, he was asked by his bosses at Sud-Aviation to form a team to design a jetliner. For 10 years he had headed a team in Cannes developing France’s nuclear missiles and its first satellites. Before that, he had been in charge of flight-testing the Caravelle, a rear-engine twinjet that had sold well in the late 1950s. United Airlines bought Caravelles, and the French almost had a deal with Douglas to build them, but the French balked at the upfront cost, and Douglas went on to build DC-9s.

Europe’s mistakes taught Beteille some key lessons. “You cannot compete with somebody by doing what he’s doing—you have to do something better, or at least different,” he says. In the mid-1960s, with Boeing already building the four-engine 747 and McDonnell Douglas and Lockheed discussing three-engine wide-bodies with U.S. airlines, the field was open for Europe to build a big twinjet.

Europe’s national aircraft industries were starting to work together, but jealousies prevailed. The Germans had money, but the British and French treated them as metal benders, not partners. The French government, embroiled in the summer street riots of 1968, had a record of seeking leadership in projects, then threatening to go it alone if their demands were not met. In Britain, many politicians and civil servants thought engines were a better business than aircraft. Working alone, none of them had competed successfully with the Americans, so Beteille’s mission to assemble a multi-nation team made sense. But it would be immensely complicated.

By late 1967 the outline of an airplane with two big Rolls-Royce engines was taking shape. The name “Airbus” came from the Germans. The number “300” matched the vehicle’s 300-seat capacity. But Beteille was worried that with each design iteration the airplane was getting closer in size to the rival three-engine U.S. aircraft. And in the course of visits to Rolls-Royce’s fusty headquarters in Derby, he had noticed something even more disquieting.

Most of the British government’s share of the A300 investment money was to go to Rolls-Royce for the RB.207 engine—a paper study at the time. But the company was also trying to sell the smaller RB.211 to Lockheed for its TriStar. Beteille discovered that “the people that I used to discuss the RB.207 with had disappeared. It wasn’t hard to figure out what was going on. Rolls was betting everything on the smaller engine, and they were using the U.K. government’s money for the RB.207 on the RB.211.”

In March 1968 Rolls-Royce won the TriStar business. Beteille was not sure the British government would pay for both engines or that Rolls could develop them even if it got the money. “I was convinced that the venture was dead,” Beteille recalls. The only option was to restart the design, “to do something smaller, either with an existing engine or an engine that was being developed for somebody else. But if I had told the partners that, they would have said ‘It’s dead. Let’s stop it.’ ”

Instead, Beteille gathered 10 engineers and handed them a specification for a twin-engine, wide-cabin jet, written in 1966 by Frank Kolk, chief engineer at American Airlines. Beteille told the team to follow the specification and use existing engines. They came back with a 250-seat airplane that had eight seats abreast rather than nine but could carry the same freight containers as the bigger American aircraft. “We kept the designation A300—it was one way of not drawing attention to what we were doing,” says Beteille. At the end of 1968 the Airbus team announced that they had downsized the new airplane and eliminated the RB.207. The British government walked out, but the British firm Hawker Siddeley remained as a subcontractor, and the German and French governments agreed to split the costs. Meanwhile, Beteille had met Felix Kracht, who was to become another father of the Airbus organization. Kracht, a sailplane pioneer, had experience in international programs from the Franco-German Transall C160 military transport.

By the end of the 1960s, the center of gravity for the Airbus program was located in France, at least in part because the French had assigned important talent and more people to the project. Under president Henri Ziegler were Beteille as technical director and Kracht as production director, and it was the latter two who defined the program as it exists today.

Kracht, who died last year,was instrumental in establishing the technique of assembling large components, fabricated in different countries, at a single location. One of the most expensive mistakes on Concorde had been the use of two final-assembly lines in Britain and France doing exactly the same thing—with an enormous duplication in tooling and overhead.

“No way,” recalls Beteille. “One line was a prerequisite.” That line would be in Toulouse—and not for French gloire, Beteille maintains. “It’s the only place in Europe with enough airspace to do flight tests,” he says. But he adds that if they’d done everything on an assembly line, hundreds of workers would have had to be transplanted from Hamburg and Manchester to Toulouse. Kracht and Beteille thought the workers would be more productive at home.

The solution was called “light assembly”: The body and wing sections would be completed in Germany and Britain, with wiring, fluid lines, air ducts, and insulation in place, so fewer people would be needed in Toulouse for final assembly. And that is how every Airbus is built today. Management was organized according to the same principle: Look at Concorde and do the opposite.

The Airbus partners agreed to delegate all day-to-day decisions to a small headquarters in Toulouse. It would do basic design, assembly, flight test, sales and marketing, and support for the new airplane. It would report to a supervisory board, but would make all decisions autonomously.

In July 1973, Adam Brown, now Airbus’ head of strategic planning, joined the firm directly from Hawker Siddeley’s Hatfield factory, where he had helped sell Tridents. “It wasn’t a very difficult decision, although a lot of people thought we were crazy,” Brown recalls. “But what was there to lose?”

“We Germans thought we were coming to a French company, but it was the French who were totally lost,” says Jurgen Thomas, now special advisor to Airbus’ CEO, Noël Forgeard. “The French were hierarchical, with no delegation of power. They weren’t in a position to take a decision in a meeting.” The British and Germans resorted to subterfuge, Thomas recalls. “We let things leak ahead of the meeting, so that the French could propose it as their solution. It was much easier.”

Thomas admits that some stereotypes of German management proved true: “There was still a Prussian disease. It was formal, the agenda had a time slot for each item, and there were separate paragraphs for everything.” The British encountered a different culture at the Airbus facility. At de Havilland’s Hatfield division there were six levels of company dining. “They had toilets for different levels of staff,” recalls Thomas. Airbus people took lunch in an all-ranks café. “You’d see a vice president having lunch with a secretary,” says Thomas. One senior executive from Hawker Siddeley stomped out in disgust.

“Only the French would have done it” is how Adam Brown recalls the first A300 sales tour, a six-week odyssey around the Americas from Rio to Chicago in 1973. French fashion designer Andre Courreges designed the women’s cabin crew uniforms. Ted Lapidus dressed the men. Four and a half tons of Moet & Chandon champagne occupied the cargo hold. They got away with such frills because nobody cared. “The Airbus people were looked down on by people on Concorde,” Thomas says. Even the Mercure got more attention in Paris, thanks to Dassault’s political pull.

The team was determined to be on time and within budget—a first for any European joint program. “The motivation was incredible,” says Thomas. “When I called people to work on Saturday or Sunday, it was the people who weren’t called who were insulted.” The A300 debuted on schedule in 1974.

With soaring fuel prices, it was the worst time for a new airplane. Airbus logged a dribble of orders in 1975, followed by a 16-month drought. From the end of 1975 until April 1977, not one aircraft was sold, and “white tails” —airplanes without customers—began to appear on the Toulouse ramp.

In the dark days of 1976, Thomas recalls, “we had a meeting of 25 or 30 people, with this gentleman I had never seen before.” Bernard Lathiere was a graduate of the Ecole Nationale d’Administration, where France trains its elite, and he had been sent on a mission: Step in as president, replacing Ziegler, and either kill Airbus or save it. A sharp contrast to his immediate subordinates, the lean, ascetic Beteille and Kracht, Lathiere was a florid glad-hander, a natural speaker who became Airbus’ chief salesman.

One light gleamed: Western Airlines had ordered eight airplanes, with an option for four more. It was the first time a U.S. airline had bought a European jet since 1964. But at the end of January 1977, Western announced it had ordered 727s instead. Airbus canceled orders for long-lead items—parts that would be needed for aircraft delivered in 1979. It was close to the end.

Then, in April, Thai International ordered four airplanes. And Eastern Airlines, losing money and desperate for modern aircraft, agreed to accept four A300s on a no-charge, six-month lease. If Eastern found the A300 as cheap to buy, operate, and maintain as advertised, it would buy 28 airplanes on very favorable terms for the airline. In April 1978, Eastern signed up to buy 23 A300s.

Before the Eastern sale, Airbus had kept one major plan under wraps. From the start, Beteille had insisted that the Airbus be developed into a family of aircraft; he did not want to produce a dead end like the Caravelle. “I had to keep that secret,” he recalls. “Everyone would have said I was crazy.” Adam Brown first saw such a proposal in September 1975. There was a 200-seat aircraft, the A300B10, for post-1973-fuel-shock markets; a stretched A300B9; and a long-range, four-engine A300B11.

Beteille based his family plans on a simple formula. In the 1970s, he points out, Boeing had about 60 percent of the market and McDonnell Douglas had 30 percent. “Boeing was making money, and Douglas was just about covering its costs. So either Airbus gains 30 percent of the market, or we never cover our costs, and one day or another, we die.” Until the sales drought broke, Airbus did not even want to talk about the 200-seat B10. With growing sales, it took the plan public in 1977.

But there was one problem: Boeing was developing two new airplanes—the narrow-body 757 and the twin-aisle 767—and looking for partners. In Britain, the government wanted work for the nationalized British Aerospace, which had absorbed BAC and Hawker Siddeley. Boeing offered a package deal: British Aerospace would build the wing of the new 757. It would have a Rolls-Royce engine, with British Airways and Eastern Airlines as launch customers. Rolls-Royce was 100 percent behind this option, as was British Airways.

But France and Germany no longer wanted British Aerospace (the former Hawker Siddeley part) as a subcontractor to Airbus. Either BAe would come on board as a full government-backed partner, or Germany would build the wings of the A310, as the B10 was now known. The clock was ticking: In July 1978, with an order from United, Boeing launched the 767, calling it “the A300 replacement.” In a final compromise, Rolls-Royce got money to build the 757’s engine, British Airways bought the Boeing airplane that it wanted, and BAe joined Airbus as a full partner.

European consortia like those for Transall, a French-German military transport, and Concorde had been one-product deals. With the A310, Airbus changed: No longer the group that made the A300, it became Europe’s airliner builder. Before the A310, Aerospatiale, BAC, and others had proposed a smaller European jet to compete with the 737 and DC-9. Afterward, there was little argument that this smaller jet would be an Airbus product. But Beteille saw a problem with the new project: “I was convinced that the 737 was so good that there was no way to compete with it by doing the same thing.”

The former rocket engineer—“I was used to missiles, where everything was automated”—made what Adam Brown calls “a very gutsy decision”: The A320 would have fly-by-wire (FBW) flight controls. In the A300, the yoke and rudder pedals were connected by cables to the hydraulic actuators that moved the ailerons, rudder, and elevators. On the A320, the controls would issue commands to computers, which would send electronic signals to the actuators. Concorde had an analog FBW system, and the technology had been used on fighters, but this would be its first use on a mass-produced commercial airplane.

On conventional jets, springs and dampers give the yoke and pedals artificial feel. The pilot has to push harder on the controls to make the airplane climb or turn, the resisting force warning the pilot that the airplane is approaching its limits. The A320, instead, had envelope protection: The airplane wouldn’t stall, overspeed, roll inverted, or do anything the computers would not permit. Since the force needed to move the yoke was no longer necessary, Airbus eliminated both the force and the yokes, which were replaced by video-game-like sticks on the left and right sides of the cockpit.

Fly-by-wire made the A320 clearly different from the 737, and savings in weight and maintenance offset the development cost. Northwest Airlines ordered 100 A320s in 1986, and United Airlines would eventually order almost 200 airplanes. It was Airbus’ first full-scale break into the U.S. market.

The A320 had been in service only a few weeks when, in June 1988, an Air France A320 crashed into trees at the French town of Mulhouse. The pilots, who survived, claimed that they had tried to push the aircraft to perform a go-around but that the engines did not respond. Two similar accidents followed.

The root cause, it turned out, was that the A320 was very easy to fly, and the ease masked the complexity of its automated controls. In its early A320 pilot training courses, Northwest experienced failure rates in the double digits. In 1993, Northwest flight operations director Clay Foushee summed up the A320: “On a gusty day at Washington National, you can look at an A320 fly and then watch anything else. Even with the unaided eyeball, you can see the difference in stability. It will do everything for you very well, but if you just sit there and let it fly itself, something awful will happen.” The solution was to train pilots carefully, with an emphasis on how to use the automated systems. There were no more A320 accidents after 1994.

Boeing took a different approach to its own new design, the 777. Although it had FBW, it did not have envelope protection. The yokes and throttles incorporated electric drives that moved them as if they were connected to cables, even though they were not. Airbus was scornful. “Like putting a steering wheel on a horse,” scoffed test pilot Bernard Ziegler.

“Roger Beteille is a man of vision,” Adam Brown says today. “Thank God that he did what he did, because it’s been fundamental to our success.” The same flight control system has been used for every Airbus aircraft since the A320; they all respond similarly to the controls, so once pilots have been trained to fly one Airbus, they can fly any member of the Airbus family and the airlines save a bundle on training. Says Brown: “There is nothing on earth that will do that except fly by wire.”

When Roger Beteille retired in 1985, Airbus had launched development of the stretched A330 and long-range, four-engine A340—formerly the B9 and B11—and Jean Pierson had replaced Lathiere. Beteille’s parting advice to Pierson: “I told him he should set the target market share to 50 percent—to where we could make profits.”

By the time the A330 entered service in 1994, Airbus had introduced three new aircraft in six years. Although the A300 and A310 were selling well, there was no way that the partners could cover the development costs without government help, and that brought a simmering transatlantic trade dispute to a boil. Boeing had cried foul in 1978 after the Eastern sale, but Lathiere wasn’t interested in a debate. “I think the big bad wolf is screaming,” he said at the Farnborough air show that year, “because Little Red Riding Hood has bitten him in the ass.”

Between 1978 and 1985, the A300 and A310 sold as well as the 757 and 767, and Boeing became more concerned. In a 1985 presentation to visiting aviation reporters in Seattle, Boeing declared that Airbus would lose $18 billion by the early 1990s. “We’ve been very patient for the last 10 years,” said, on that same occasion, Boeing vice president Thomas Bacher of the prolonged trade dispute, “but now we’re getting more impatient. In fact, we’re getting very damn mad.” Publicly, European leaders pointed out that Boeing had received government support in the past—the company’s jetliner business had been founded on the back of Pentagon orders for bombers and tankers—and the company was still allowed to charge research and development work to the Pentagon.

But there wasn’t much substance to the defense, because Airbus finances were a riddle wrapped in a mystery inside an enigma. When Airbus was launched, the chosen legal vehicle for the new consortium was a French creation called a groupement d’intérêt économique, or GIE. (Before Airbus, the typical GIE was a wine-producing cooperative.) Owned and supported by the partners, the GIE bought airplane parts from the partners and collected money from the customers.

French law regarded the GIE as a private arrangement between businesses, and did not require it to publish accounts. Profits and losses from building subassemblies, along with the costs of supporting the Airbus headquarters, were buried within the accounts of the partner companies.

From the U.S. point of view, just because the subsidies were hard to find didn’t mean they weren’t there. Beteille and his colleagues were right: There was no way to make money with less than 30 percent of the market. Without subsidies, Airbus would never have reached that point and would eventually have disappeared—which would have been all right by Boeing’s Bacher. “Europe builds beautiful trains and systems like that,” he said in 1985. “I challenge the concept that everyone has to build everything.” If Airbus could not show a profit it should do the right thing and disappear.

By the early 1990s, with the 30 percent goal in sight, the United States and Europe managed to settle the subsidy question, agreeing that governments could supply no more than a third of the development cost of any new airplane. One postscript to this story is that the British government loaned money to BAe to develop the A320 with no fixed interest rate or repayment schedule, in exchange for a levy on sales of the aircraft. According to Brown, the government has more than recovered its investment.

The late 1990s saw Airbus moving with immense confidence toward two very important developments: the formation of a single Airbus company and the launch of the largest commercial aircraft in history, the A3XX. The two were intimately linked. The GIE arrangement had been acceptable when Airbus was a small fraction of the partners’ business, but not so when Airbus sales accounted for half the gross sales of Aerospatiale and DASA, the aerospace group owned by Daimler-Benz. Moreover, BAE Systems, Aerospatiale, and DASA—none of them, on their own, large enough to go nose to nose with the newly merged McDonnell Douglas and Boeing, Lockheed Martin, or Northrop Grumman—were engaged in a complicated courtship with the goal of forming a pan-European company. To do this, it was necessary to re-form Airbus so that its value could be clearly calculated.

If the GIE arrangement was outdated for Airbus’ current product line, there was no way that it could handle the A3XX. Both the partners and the governments that would provide a share of the project’s launch costs insisted that the formation of a single Airbus company would have to precede the go-ahead for the big airplane.

By the end of 2000, Airbus was a single company and the A3XX, now the A380, was formally under development. The major owner (80 percent) of the new Airbus company, European Aeronautic Defence and Space (EADS), was itself new, formed after France’s Aerospatiale and Germany’s DASA merged and acquired Spain’s CASA. BAE Systems retains a 20 percent share, and a separate division called Airbus UK builds the wings for the Airbus line.

This year, Airbus, for the first time, is set to deliver more airplanes than Boeing. The U.S. company maintains that the A380 will be a flop and that the world market for passenger versions of the aircraft is no more than 320 airplanes over 20 years. But that opinion doesn’t appear to be shared by the airlines, who had signed orders for 129 A380s by mid-2003—more than two years before the first airplane will be delivered.

But at Airbus they still worry. “There’s always the danger, for us, to be complacent,” muses Thomas. The motivation that existed when Airbus was a tiny upstart on the edge of a cliff over which so many predecessors had recently tumbled can’t be re-created today. Airbus internally “still tends to work a lot on personalities,” says David Bradley, vice president for customer services. “There’s a network that operates in addition to the formal hierarchy…. Hopefully, it will never become fully organized.” Airbus UK chief Tom Williams calls Airbus “exciting—it maintains the stimulation that comes from having a lot of different cultures working together. It sounds like b.s., but there is a lot of diversity, and people stand up in front of their peers and defend their ideas.”

Jurgen Thomas cites former German chancellor Konrad Adenauer’s expression “a Europe of mother countries” to explain the philosophy behind Airbus’ cultural mix: “Keep the Bavarians in leather trousers and keep the flamenco in Spain.”

Nevertheless, Bradley adds: “People here are Airbusiens—you forget if you’re French, Spanish, or Malaysian. You can’t speak your own language anymore—you use French phrasing and German expressions.”

Nobody at Airbus has the word “diversity” in his or her job title, and Thomas notes, “A reporter once asked me what we were doing to ensure integration within the company. I said ‘Nothing’ and he would not believe it.”

Beteille sums up the history simply: “We didn’t make any serious mistakes.” Although he was the one who advised Pierson to go for a 50 percent market share, he observes today, “I never thought it would end up like this.”

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