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The Contender

How Airbus got to be number one.

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(Continued from page 4)

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.”

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