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Airbus executives get swept away by a corruption investigation

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“THE success of Airbus is intimately linked to the success of John,” says Eric Schulz, successor to John Leahy, who has been chief salesman for the planemaker since 1994. Mr Leahy’s aggressive strategy to gain orders expanded Airbus’s market share for civil jets from 18% in 1994 to over 50%. Salesmen at Boeing, Airbus’s rival, say they wish their bosses were as good. But this year’s Singapore Airshow, which began on February 6th, will be Mr Leahy’s last before retirement.

That is in itself a big change for Airbus, but staff turnover does not stop there. In December the firm said Tom Enders, its German-born chief executive, would step down in 2019; his French second-in-command, Fabrice Brégier, will leave this month. These changes follow the news that several countries, including Britain, France and America, are investigating allegations that in the past Airbus bribed officials to win contracts. That created divisions between French and German executives over how to respond.

The recent troubles began in 2014, when an internal review of supplier payments at Airbus exposed irregularities. It ended up reporting itself to Britain’s Serious Fraud Office and to France’s equivalent body for lying to export-credit agencies about bribes given by third-party consultants to secure sales. In October Airbus said it may have violated American rules on arms exports because of fees paid to sales agents to secure deals. Austrian and German authorities are also investigating bribery claims tied to the sale of $2.1bn-worth of Eurofighter jets back in 2003 (Mr Leahy is not implicated in any scandals).

Analysts at Kepler Cheuvreux, a broker, estimate that Airbus may face fines of up to $3bn as a result of the investigations. That is not so unusual in the aerospace business. Last year Rolls-Royce, an engine-maker, agreed to cough up £671m ($809m) to settle regulators’ allegations that it had used third-party consultants to secure sales with bribes. In 2006 Boeing was fined $615m for using corruption to win military contracts from the Pentagon.

Mr Enders reckons the answer is to emulate Rolls’s response—co-operate with investigators, excise corruption and oblige top bosses to take responsibility. In 2016 Mr Enders closed the sales unit in Paris that had hired the external sales consultants who got Airbus into trouble, calling it “bullshit castle”. He has tightened compliance and is not seeking another term himself.

That has reportedly irked Airbus’s French staff as well as some civil servants at France’s defence ministry (the French and German governments each own 11% of the firm). They say Mr Enders is going too far in making cultural changes at its headquarters in Toulouse. A perception that Mr Brégier may have been connected with those in the French business establishment making such complaints turned Airbus’s board against his bid to succeed Mr Enders. Instead, the board is firmly behind Mr Enders’s approach. The firm needs to secure a settlement with investigators, for which a sweeping change in management is needed. Prosecution, after all, could lead to a ban on public contracts, damaging its defence arm.

The search is on for a new generation of top executives. Investigations aside, they will inherit a mixed bag. Airbus’s A320neo short-haul aircraft are flying off the shelves and have a market share of 59% in the fight against Boeing’s rival 737 MAX. Its acquisition of half of Bombardier of Canada’s C-Series programme for one dollar last autumn will strengthen its position in the market for smaller jets. But Airbus is struggling to shift the rest of its range. Its larger wide-bodies were outsold almost 4:1 by Boeing in 2017. It is also running out of orders for the A380. Although Emirates ordered a further 36 last month, keeping production going until 2030, some analysts think that producing a trickle of superjumbos could lose Airbus up to €250m a year. Production problems on its A320neo and A350 jets and cost overruns on its A400M military transporter are still hurting profits.

That will not help Airbus’s margins, which have been lower than Boeing’s. In 2012-16 the American planemaker had an average margin of 7.5% and Airbus just 4.3%. Airbus’s shares have underperformed, too; in 2017 they rose by a third as much as Boeing’s. The European group’s operational problems alone do not explain this, says Adam Pilarski, an economist who worked for McDonnell-Douglas, now part of Boeing. The risk of political interference at Airbus—which can raise costs by forcing it to keep unprofitable factories and aircraft programmes—worries investors.

With Mr Enders’s departure, that factor may loom larger. He fought in recent years to reduce governmental influence and make Airbus more normal. As Allan McArtor, a former chairman of Airbus North America, puts it, the firm no longer wants to be seen as a European planemaker in America or China but as a local one. In 2013 the French and German governments lost their right to appoint directors to the board. Yet President Emmanuel Macron of France recently hinted that he sees Airbus as a European champion against the Americans and Chinese.

So investors now want a strong new boss, able to push back against national stakeholders. Many think the real test of Mr Enders’s transformation of Airbus into a normal company is whether the board can avoid appointing a Frenchman or German to the top job. “As half their business now comes from Asia, it should be natural to look further afield,” says Sandy Morris of Jefferies, a bank. The job of sales chief used to be reserved for a Briton. In the 1990s Mr Leahy, an American import, broke that tradition, and did rather well.

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Julio Marchi ©

Publisher / Editor at BS News & Media Services
A free thinker, not labelled as anything, not associated with any party, not part of any group or engaged with any religion... A simple guy tired of the nowadays bullshit who decided to promote more serious debates about what is really happening hoping to bring back intelligence to the superficial and shallow news & headlines that unfortunately took over the existing media scene.
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