Original URL: http://www.theregister.co.uk/2007/03/01/airbus_power8/

Airbus details restructuring plan

Major shake-up will slash 10,000 jobs

By Lester Haines

Posted in Business, 1st March 2007 09:41 GMT

Airbus yesterday rolled out its "Power8" restructuring programme which will see the company shed 10,000 jobs over the next four years.

The shake-up comes as the company struggles to deliver its much-heralded A380 - now roughly two years behind schedule - and in the face of "US dollar weakness" and "increased competitive pressure".

Airbus CEO Louis Gallois explained: "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. We fully appreciate that this transformation must be undertaken jointly and in close consultation with our social partners."

The lay-offs will be spread across Airbus's European operations. Airbus Germany will lose 3,700 staff, France 3,200, the UK 1,600, Spain 400, and the company's headquarters in Toulouse will say goodbye to 1,000. Airbus currently employs 57,000 direct employees and 30,000 subcontractors.

Five thousand of those for the chop are "temporary or on-site subcontractors, where reductions will begin immediately". The other 5,000 redundancies will be direct Airbus employees. The company said yesterday: "Priority is given to achieve reductions through negotiated voluntary severance processes and schemes in each country concerned. The respective national processes, including negotiations in each country of voluntary severance schemes, will be launched immediately."

Airbus said it wasn't at this stage considering forced redundancies, but noted that "should these schemes not generate the expected level of reductions within the next 12 to 18 months, other measures will have to be considered to fully achieve the cost saving targets".

Gallois said: "We will manage the social impact of these measures properly and in close dialogue with our employee representatives. The burden will be spread in a fair and equitable manner across Airbus. The balance of the Airbus founding nations will be preserved."

Union reaction to the announcement was predictable. According to the BBC, European Metalworkers Federation head Peter Scherrer said: "We totally oppose the closure of any site and we won't accept any firings." French workers yesterday "downed tools in protest at the firm's plans".

Political feedback was mixed. German Chancellor Angela Merkel said she regretted the job losses but added that Power8 ensured "a balanced distribution of risks and opportunities" across various Airbus sites.

French presidential candidate Segolene Royal announced she would "seek to freeze the job cuts if elected", while her opponent Nicolas Sarkozy said politicians should "stay out of the company's affairs".

In the UK, where over 10 per cent of jobs at the Airbus's factories in Filton, Bristol, and Broughton, North Wales are for the off, Tony Blair chose to herald a new contract which will see the Filton plant work on part of the wing of the wide-bodied Airbus A350. This would add "valuable new capability" to Britain's aerospace industry, he said.

Airbus admitted it had suffered a "financial burden related to the A380 delays" (estimated losses run at €5bn), but also fingered external financial pressures for its woes. It said "the dollar weakness alone has led to a 20 per cent loss of competitiveness in only six years versus Airbus' competition". Gallois stressed: "We cannot continue to produce at our current euro costs and sell at Boeing's dollar prices."

Accordingly, Airbus management declared it would "implement strong cost reduction and cash generating efforts leading to EBIT (Earnings Before Interest and Tax) contributions of €2.1bn from 2010 onwards and additional €5bn of cumulative cash flow from 2007 to 2010".

As well as the 10,000 redundancies, which Airbus said would account for a large part of cost-cutting measures, the company announced further lines of attack including "a temporary hiring freeze, an executive salary freeze for 2007, as well as significant cuts in general expenses", a "reduction of cycle time of new aircraft development from 7.5 to six years", plus leaner, meaner production methods leading to a 16 per cent increase in productivity by 2010.

Critically, Airbus is looking to reduce its financial exposure in development and capital costs. For the A350 programme, "about 50 per cent of aerostructure work will be outsourced to risk-sharing partners". This represents "€1.8bn non recurring costs and €600m associated CAPEX (Capital Expenditure)". This, the company notes, is "proportionally about twice as much as in earlier programmes".

Gallois elaborated: "We will turn Airbus into an extended enterprise. The A350 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.

"This is the right time to consider such a partnership approach. 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. We are ready to share attractive business opportunities with strong partners."

What this means in practice is that Airbus may offload some of its facilities to partners or management. It said: "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, this includes options to sell sites to key suppliers, management buy out or combination with nearby sites. This will, of course, be done in close consultation with the social partners."

The Power8 presentation further detailed measures to increase the efficiency of Airbus's final assembly lines (FALs). Specifically, the A350 will in future "be assembled and receive its interior furnishing in Toulouse, in the same facilities as the current A330/A340, enabling a capacity enhancement of this FAL".

It added: "A third A320 Family FAL will be set up in Hamburg immediately to cope with the steep production ramp-up currently under way. This FAL will be established in already existing facilities and will have full type flexibility when demand for A320s exceeds rate 14 per month. The A320 will continue to be assembled in Toulouse up to rate 14. Hamburg will also perform final assembly of the future New Single Aisle family."

Finally, and in order to "allow parts to be fitted in the most logical place to optimise the overall cycle time", Airbus declared that "some upstream preparatory A320 and A380 cabin installation work will be transferred from Hamburg to Toulouse", although "A380 deliveries will still be made from both Hamburg and Toulouse". This optimisation of the A380's overall cycle time will doubtless be welcomed by customers still twiddling their thumbs in expectation of delivery of the superjumbo.

In conclusion, Gallois said: "None of these changes will be easy, but they are essential to securing the future of Airbus as a world-leading aircraft manufacturer for the long-term, and a business of which all its stakeholders can be rightly proud." ®