August 29, 2013
Credit: Airbus Military
EADS’s decision to change its name to Airbus Group is more than cosmetic. The rebranding symbolically concludes more than four decades of cross-border consolidation while recognizing the formidable power of the Airbus moniker. Given the European aircraft manufacturer’s modest start in 1969-70—when Boeing, Douglas and Lockheed enjoyed a robust near-monopoly worldwide—this switch in names is a remarkable achievement.
However, EADS’s top executives, led by Tom Enders, had no plan to mimic Boeing, placing a civil-military portfolio under a unified name. This Airbus Group is adhering to a strictly European strategy that takes into account complex rules peculiar to its European origins. In contrast to Bill Boeing’s legacy, Airbus does not refer to a founding father’s name: the brand was, in essence, created by the popular press. Europe’s plan to develop an innovative high-capacity, short-haul, widebody twinjet was initially christened Galion in a French feasibility study, but the media dubbed it aerobus or airbus. It later evolved into the A300B concept (300 referring to the twinjet’s seat capacity, later downsized) and, without great debate or fanfare, the decision to add a capital letter was made by company insiders. The choice to run with the Airbus appellation has never been questioned over the years.
Remembering Airbus’s early days, its pioneers’ will to succeed and the initial skepticism that greeted the enterprise, there must be some gratification that Airbus now supersedes EADS.
But analysts often underestimate the difficulties of the past. The 143,358-employee group, a world-class player, still suffers from the lack of a unified industrial policy stemming from its multi-national genesis. Boeing and other U.S. giants never had to thread through and reconcile four countries’ divergent laws and regulations or cultural differences, nor did they have to fight unfavorable exchange rates. The A300B and its early successors’ development costs were funded by governments and the taxpayers’ deep pockets. The French partner (Aerospatiale) was a state-owned enterprise and bouts of national pride frequently made corporate governance a nightmarish undertaking. These facts alone recognize EADS’s huge merits and make its abandonment of legacy names in order to complete the unification saga all the more understandable.
Having said that, the fact is the choice of the Airbus brand, although probably unavoidable, is far from ideal. Yes it replaces an obscure acronym, but it has already created a few identity problems, for example in the helicopter market. Eurocopter—the robust Franco-German rotary-wing subsidiary—is now Airbus Helicopters, an incongruity. Apparently, no other option was seriously considered, such as “European Aerospace,” to avoid establishing and imposing an all-new brand. Moreover, the rebranding underscores EADS’s commercial transports’ business dominance, in other words its inability to balance civil and defense revenues. However, this is certainly not Enders’s responsibility: Had EADS successfully completed a merger agreement with BAE Systems, the ratio would now be different. German Chancellor Angela Merkel’s resolute opposition to the consolidation plan dramatically confirmed that political interference is still alive and well.
The group, now profitable, faces more problems. Airbus Defense and Space is suffering from the A400M military airlifter’s cost overrun, delays and fragile backlog. Despite hopes to acquire more orders in the export market, the program might never reach the financial break-even point. Adopting the broad view, Airbus Group executives admit that military sales are suffering from “the changing market environment with flat and even shrinking defense and space budgets in the Western hemisphere.”
The A380 mega-transport also has had its fair share of travails. Sales remain weaker than predicted and the average production rate is significantly lower than 45 aircraft/year—the initial goal. With the exception of Emirates, which plans to buy as many as 90 A380s, major airlines are reluctant to put a 525-seat-plus aircraft into service. The program is crippled by heavy cost overruns resulting from an early production debacle and, to a minor extent, wing rib feet repairs.
Nevertheless, when it comes to the overall economic outlook, optimism trumps pessimism: Establishing the Airbus Group is the European aerospace company’s ultimate victory.
[This commentary ran in the August 26th edition of Aviation Week & Space Technology.]