Global Economics

EADS' Politically Charged Shakeup


Facing pressures from rival Boeing and a strong euro, the Airbus parent shuffles its Franco-German top tier in hopes of a little stability

It is Europe's biggest aerospace company—and its biggest corporate political football. That was never clearer than on July 16, when European Aeronautics Defence & Space (EAD.PA), the parent company of Airbus, underwent yet another top-level shakeup during a meeting between French President Nicolas Sarkozy and German Chancellor Angela Merkel.

In an announcement during their summit held at Airbus headquarters in Toulouse, EADS said Rüdiger Grube of Germany would become chairman of EADS and Louis Gallois of France its chief executive. That ends a cumbersome arrangement, in place since EADS' founding in 2000, in which there were two co-chairmen and two co-chief executives, one from each country. Thomas Enders of Germany, formerly one of the two CEOs of EADS, now will become sole CEO of Airbus. Gallois previously was Airbus' boss as well as co-CEO of EADS.

It sounds like musical chairs, but analysts say the agreement should simplify decision-making, reassure investors, and ease turmoil in the Airbus cockpit as it struggles to regain altitude. "The lines of responsibility are much clearer now," says Zafar Khan, a London-based aerospace analyst with SG Securities.

Pressures All Around

Airbus could certainly use some stability. Enders will be its fifth CEO since June, 2005, when longtime boss Noël Forgeard stepped aside to become co-CEO of EADS. Forgeard and his successor, Gustave Humbert, lost their jobs last year after Airbus acknowledged serious production delays on its A380 megajet (see BusinessWeek.com, 6/30/06, "'Major Screwup' at Airbus"). The delays are expected to slash some $6 billion from the company's bottom line through 2010. Hubert's replacement, Christian Striff of France, quit in frustration after only three months and was replaced by Gallois, who formerly worked for French jetmaker SNECMA (SAF.PA) and served as chairman of the French national railroad, SNCF.

Keeping the A380 on track is only one of several key challenges facing the new team. Airbus is under pressure to answer the hot-selling Boeing (BA) 787 Dreamliner by developing a rival model, the A350 (see BusinessWeek.com, 6/18/07, "Airbus' Big Paris Curtain-Raiser").

At the same time, Airbus' maker faces unprecedented pressure from the strength of the euro against the dollar. It has launched an effort to slash operating costs by $2.8 billion annually starting in 2010, including a politically sensitive plan to trim 10,000 jobs and sell off as many as six factories (see BusinessWeek.com, 1/17/07, "Airbus Heads Back to the Gate").

Business, in Spite of Politics

Will the new agreement put an end to the politicking? After all, EADS' core shareholding still consists of carefully balanced French and German government interests. The company says that Grube, Gallois, and Enders all are being appointed to their new posts for five years. After that, the company said, it might "alternate the nationality in the positions," perhaps naming French industrialist and 7.5% EADS shareholder Arnaud Lagardère as chairman after Grube.

But analyst Khan suggests another shakeup could come sooner if Gallois, now 63, wants to retire in less than five years. That would pave the way for Enders to move into the CEO job at EADS—but presumably in exchange, France would expect a French board chairman. That could force Grube to cede his position early to Lagardère.

Sounds messy, and it's certain that politics will never be far below the surface in this company. But at least for now, EADS and Airbus look ready to get back to business.

Matlack is BusinessWeek's Paris bureau chief.

Later, Baby
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