Leaner, meaner Airbus turns crisis into opportunity

Paris
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The crisis encountered by Airbus in the severely-delayed A380 programme led to a complete review of the company’s business model, says chief operating officer Fabrice Bregier. Airbus’s phenomenal success over the previous 10 years had led the company to become complacent, he believes, and the crisis was a real wake-up call.


“Airbus was an innovator,” Bregier says. “Because it was so successful, it didn’t feel the need to change its organisation, its structure or its business model. It’s easy for me as a newcomer to see Airbus had become complacent, but that’s what most Airbus old-timers recognise.”


But the crisis was also an opportunity, and the Power8 programme aimed at completely restructuring Airbus was the result. This root-and-branch restructuring covers everything from creating transnational centres of excellence to putting sites up for possible partnership deals.


Although the toughest part of the programme – major cost reductions that will shed up to 10,000 jobs – are only now beginning to be tackled, Bregier says the programme is already bearing fruit.


The A380 programme is now on track with the first delivery to Singapore Airlines (SIA) scheduled for October. “This time the measures taken for the A380 did work and, as time goes by, we see that we are definitely keeping our commitment,” Bregier says. “The crisis we have gone through with the A380 made us realise our deficiencies. With Power8 we are turning the company around and making it leaner and more competitive. We will concentrate on what we consider to be core activities that we don’t want to give away.”


The A350 XWB programme will be the first to be developed within the new Power8-based Airbus structure. “It will be about using new tools and methodologies in a fully integrated way with our risk sharing partners,” Bregier says.

Severence
The key components of Power8 are scheduled to be in place by September this year. Talks are underway with staff councils over the implementation of redundancies – 3,700 staff in Germany, 3,200 in France, and 1,600 in the UK. The process for on-site sub-contractors began immediately with talks under way with staff representative organisations for direct staff job losses. The immediate aim is to achieve the redundancies through voluntary severance schemes, but Airbus has not ruled out other measures.


Other key elements of the “new Airbus” programme include a cut in the cycle time of new aircraft development from seven and a half years to six years through a 15% improvement in engineering activities; a productivity increase of 16% by 2010 through use of Lean manufacturing; and a reduction in the supplier cost base and the number of logistics centres from 80 to eight through “smart buying”.


New transnational Centres of Excellence (CoEs) will replace the existing national structure. The CoEs cover Fuselage and Cabin headed by Rüdiger Fuchs, Wing and Pylon (Brian Fleet), Aft Fuselage and Empennage (Manuel Hita-Romero) and Aerostructures (Bertrand George).


The Aerostructures CoE will oversee the sites of Nordenham, Varel, Laupheim, Nantes, Meaulte and St Nazaire (Ville). Fuselage CoE will be in charge of parts of Hamburg, Toulouse, Bremen, as well as St Nazaire (Gron) and Buxtehude. The Wing & Pylon CoE has responsibility over Filton, Broughton, St Eloi and part of Bremen, while the Aft Fuselage and Empennage CoE works with Hamburg, Stade, Getafe, Puerto Real and Illescas.


“We will turn Airbus into an extended enterprise,” says Louis Gallois, Airbus president and chief executive. “The A350 XWB will draw on this new business model, as we assign large work packages to Tier 1 suppliers in return for a better distribution of future investment, risks and opportunities, with a consolidated supply base.”
Airbus is considering industrial partnerships at its plants in Filton, Meaulte and Nordenham, in order to facilitate their development from metallic to composite design and manufacturing technology.
The company has already received unsolicited proposals from potential industrial partners ready to invest in these sites and to possibly take partially or fully the control of them in the framework of the extended enterprise concept.
“Our order book translates into more than five years of production, and customer demand continues to be very high for our aircraft. We are ramping up our production everywhere and have just launched the A350 XWB. We are ready to share attractive business opportunities with strong partners,” Gallois says.

Long-term
The sites in Laupheim, St. Nazaire-Ville and Varel will continue to perform long-term substantial workloads on the current Airbus aircraft programmes, such as the A380, the A320, the A330/A340 families, and the A400M. Airbus is committed to seeking viable future opportunities for these sites, including selling sites to key suppliers, management buy outs or combinations with nearby sites.


In the future, Airbus will focus on “core business” activities that are critical for the integrity and safety of the aircraft, or vital for technological and commercial differentiation, for the operability and reliability of the aircraft and its maturity at entry into service.


These activities include overall aircraft and cabin architecture, systems integration, as well as the design, assembly, installation, equipping, customisation and testing of major and complex components or manufacturing of new technology parts.


“This shift is essential for Airbus’s future. We must retain the competencies that are essential to design, develop, produce, deliver and support the best and most efficient products,” Gallois says.


This core activity focus will be implemented in the “make or buy” strategy adopted for the A350 XWB. About 50% of aerostructures work will be outsourced to risk-sharing partners, about twice as much as in earlier programmes.


The workshare responsibility for the development of the A350 XWB will be split equitably among the founding nations with about 35% for Germany and France, 20% for the UK and 10% for Spain.


 For Gallois, the restructuring takes place against a continuing nightmare – the weak Dollar which is costing the company dearly. The declining Dollar has led to a 20% loss of competitiveness in six years. “We cannot continue to produce at our current Euro costs and sell at Boeing’s dollar prices,” he says.


One of the lessons of the recent past, Gallois says, is a need to end the culture of “good news” that had been a symptom of the problems encountered at Airbus. “I ask people to say the truth and not to bring only good news. Everyone wanted good news and bad news was always hidden,” he says.


“We have had an excellent sales and delivery performance in 2006. But our long-term future is at stake if we don’t act now.”