Political Winds Are Pushing Airbus Astray

Leave it to the French and the Germans to figure out a way to screw up a good thing.

I'm speaking, of course, about Airbus, the grand project to create a European champion capable of breaking the American monopoly on commercial airplane production.

Three years ago, it looked as though, after 30 years and billions of dollars in government subsidies, Airbus had finally proven the success of the European economic model. It had driven McDonnell Douglas out of commercial aviation and was on the verge of surpassing Boeing in sales and production. Its planes were more comfortable and efficient, its factories more productive. It was even planning to shed much of its government ownership and sell shares to the public.

Rival Boeing, meanwhile, was in turmoil. A bold plan to develop a supersonic transport had been scrapped. The company's chief executive and chief financial officer had been removed after Boeing was caught stealing secrets from a competitor and bribing a top Pentagon contracting officer. And before long, the new chief executive would be fired in a tawdry sex scandal.

Who would have predicted that today, Boeing would be soaring and Airbus would be grounded. For reasons that had more to do with national egos than market demand, Airbus embarked on a $10 billion effort to develop the A380 super-jumbo jet capable of breaking Boeing's monopoly in large transports. That project is about $2 billion over budget and two years behind schedule.

More significantly, the A380 project has exposed profound inefficiencies in Airbus's design, production and organization. This summer, two of the top three Airbus officials were ousted for failing to tackle those problems. And this week, after only 100 days, a second chief executive was fired after unions and government officials got wind of his bold restructuring program. It's unclear how Airbus will raise the additional $10 billion it needs to develop a new, lightweight mid-size jet to compete with Boeing's new 787, a plane more in sync with the customers' needs than the Airbus super-jumbo.

The Airbus story does not turn on the familiar European issues of excessive taxes, restrictive work rules and 35-hour work weeks. Rather, it's about the pigheadedness of French and German partners who care less about how many planes Airbus sells than how the work is divided between countries. And it is about French and German politicians who can't stop themselves from interfering in the creative destruction that characterizes market economies.

When Christian Streiff, a seasoned manufacturing executive, was brought in to rescue Airbus three months ago, it didn't take him long to determine the problem: a production scheme designed with politics, rather than economics, in mind.

The wings of the A380 were made in Britain, the tail in Spain, the rear fuselage in Germany and the nose and front sections in France. Each national unit had its own engineering system, technology, suppliers, and legal and accounting staff.

With this cumbersome arrangement, Airbus takes two years longer than competitors to design a plane. Duplicating support functions adds 25 percent to overhead. Schleping assemblies from one plant to another not only costs time and money, it also requires Airbus to pay to maintain higher inventories. And the decentralization of design means parts that are supposed to snap together at the final assembly plant sometimes don't. That was the case with the wiring for the in-flight entertainment systems on the A380, which is at the heart of a two-year production delay. (French and German engineering software turned out to be incompatible.)

Streiff's rescue plan for Airbus was nothing short of revolutionary. Consolidate production of wide-body planes in Toulouse, narrow-bodies in Hamburg. Outsource more parts and assembly work. Consolidate design and overhead.

But no sooner had details leaked than French and German politicians began to undermine the plan. The German finance minister, whose government had invested hundreds of millions of euros to build an A380 facility, warned bluntly that the delicate balance of production and jobs "must not be changed to the disadvantage of Germany." And while the French prime minister continued to express confidence in Airbus's management -- Streiff was a hand-picked member of the French political-corporate establishment -- France's finance minister gave assurances that the restructuring would not be "brutal" and would be done only following "consultations with all interested parties." That's French code for "it ain't gonna happen."

Yesterday, Streiff's successor -- a former head of France's state-owned railway system -- took pains to explain that it wasn't Streiff's plan that led to his resignation, only his insistence on having complete authority to implement it. This is the kind of hair-splitting nonsense French officials have been spouting for years as they try to reconcile the economic imperatives of capitalism with the political imperatives of a bankrupt socialist ideal.

The confusion was marvelously summed up by another top Airbus official, Noel Forgeard, shortly after he was ousted this summer -- not just because of the A380 debacle, but also because it came out that he had dumped his Airbus shares in the weeks before going public with the bad news. In an interview with a Paris newspaper, Forgeard, a former adviser to French President Jacques Chirac, put his predicament this way: "Contrary to what you probably think, I am part of the working class. I am not a capitalist."

Indeed you're not, Noel. But in Europe these days, you are in good company. There's Vladimir Putin, whose government is re-nationalizing the energy industry, revoking licenses and backing out of deals with foreign oil companies. And there's Italy's new prime minister, Romano Prodi, who is trying to block a recently privatized national phone company from selling off assets to get into more profitable parts of the telecom business.

And, of course, there is Airbus, the love child of the European political establishment that is all grown up but, like so many of Europe's thirtysomethings, is still living at home with its parents.