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Bringing complex aerospace programs in on time has never been an easy task, but EADS’s repeated failure to meet its schedule commitments is starting to give the company a bad name.
In the past few months, EADS has been shaken by a series of problems. Some of those, however, have been largely out of the company’s direct control and result from a complex shareholding structure, government meddling and cross-border distrust between its two dominant constituencies, Germany and France. But the inability to deliver programs on schedule is largely of the company’s own making and, increasingly, customers question whether it will be able to deliver on promises made.
A review of EADS big-ticket programs tells the story. The Tiger reconnaissance and attack helicopter was handed over more than two years late; the NH90 multi-role helicopter, on which EADS is a major player, has been similarly behind schedule. Now, the A400M airlifter, also being driven largely by EADS, will be at least six months late and the company warns a further six-month delay is possible.
And it’s not just the complex, multi-national military programs that are giving the company trouble. On the commercial side, too, the story is similar. The last two major development programs—on the four-engine widebody A340-500/600 and the flagship A380—suffered major delays, and when they were handed over, the aircraft were too heavy, notes Emirates Airline President Tim Clark, one of Airbus’s biggest customers.
Customers are taking note. When EADS said the A400M would be six months late, French air force officials said they think that actually means a delay of at least a year. A second government representative says even a 12-month slip is optimistic.
On the civil side, Clark suggests Airbus behavior on recent programs shows a pattern.
EADS’s difficulties could damage more than the company’s reputation. In the case of the A400M, EADS will make the financial cost partly known this week, when the company reports third-quarter earnings. A recent Goldman Sachs reports states that a charge of around €900 million ($1.3 billion) looms, far higher than an earlier estimate, and that the company will not make a profit during the development period.
Moreover, an EADS official indicates the A400M will have to secure more orders than it has now to turn a profit. The order book stands at 192 aircraft: 180 for the core A400M countries and the rest for South Africa and Malaysia.
EADS isn’t alone, says one financial analyst; other European defense contractors are likewise finding themselves in difficult situations. Governments are turning over more of the development effort, program management responsibility and financial risk to the companies. And in the case of EADS, program management skills are “relatively immature,” the financial analyst believes.
Outside Europe, too, aerospace companies are facing similar schedule challenges. Airbus’s rival, Boeing, is struggling with the 787 and has seen a raft of military projects experience significant delays.
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