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EADS

Page history last edited by PBworks 15 years, 8 months ago

 

EADS

(Airbus)

 

The meaning of EADS

Jul 19th 2007

From The Economist print edition

 

In the end, it was a fight between globalisation and nationalism—and globalisation won

 

A MEETING at the Airbus head office between Angela Merkel and Nicolas Sarkozy on July 16th was due to bring the drama of EADS to a climax. But the expected face-off in the battle for control of European Aeronautic Defence and Space, the parent company of Airbus and Eurocopter, never happened. For even before the German chancellor and the French president sat down together, the company announced that the dispute had been satisfactorily resolved.

 

In some ways the story of EADS has been a one-off. No firm has ever been so bitterly fought over by two governments. No company has ever been saddled with such a daft management structure in consequence. No corporate saga has ever demonstrated quite so conclusively that politics and business don't mix. But the tale illustrates a general point too: that even the maddest manifestations of economic nationalism give way in the end to the pressure of globalisation.

 

Peace, piece by piece

EADS, the standard-bearer of the European aerospace and defence industry, was born out of a common European desire to create a competitor to America's Boeing. The rivalry between the governments that created the company was reflected in its management structure. EADS had two chairmen and two chief executives—one German and one Frenchman for each job—and no way of getting decisions made.

 

That is over. EADS will now have a German chairman (Rüdiger Grube, one of the co-chairmen) and a French chief executive (Louis Gallois, one of the co-CEOs). Tom Enders (a German and the other EADS co-CEO) will become sole boss of Airbus; and its COO will be a Frenchman, Fabrice Brégier, who turned Eurocopter into the world's leading commercial helicopter company. So a Frenchman will run the show under the eye of a German chairman, while another German takes the reins at the most important part of the group. The two core shareholders—the French government with the Lagardère group, and DaimlerChrysler—will each lose two of their four board members, to be replaced by four independent directors.

 

Everyone involved (not least the taxpayers who still have to lend EADS money to develop new aircraft) should benefit from these changes. For this, Mr Sarkozy and Mrs Merkel deserve credit. Yet it would be wrong to interpret this deal as signalling new thinking on industrial policy. Mrs Merkel may take a more enlightened line than her predecessors, but there is little in Mr Sarkozy's recent past to suggest that he has seen the light on economic liberalism.

 

What has changed is not the politicians, but the aerospace business. In ten years Boeing has gone from an introspective protégé of America's Department of Defence to a global civil aviation giant. It has outsourced production to contractors in America and found international firms, notably in Japan and Italy, to join in as risk-sharing partners, making much of its successful new 787. Boeing has taken the lead in developing new technology to make big aircraft more efficient, more economical and more eco-friendly.

 

Airbus, meanwhile, has fallen on hard times with delays to its flagship A380 and to the launch of its rival to the new best-selling Boeing long-haul jet. Work shared between France and Germany led to a lack of co-ordination and delays on the A380 that have cost billions. And the rise of the euro against the dollar has made much of its production uncompetitive. Most of Airbus's costs are in euros, but aircraft are priced in dollars.

 

Airbus needs to trim production in Europe by selling factories to suppliers or bringing them in as risk-sharing partners. It should also outsource more work to Asia and other low-cost centres. The company's old management structure prevented it from doing so because it embodied a nationalistic rivalry that encouraged German and French managers to demand that parts should be sourced from their homelands. This week's announcement showed that Mr Sarkozy and Mrs Merkel have bowed to the inevitable and given Airbus a chance to move in the same direction as Boeing has.

 

Aerospace is one of the last redoubts of economic nationalism. In many other industries European governments have already given way to pressure from globalisation. Resistance to cross-border mergers within Europe is crumbling. The Spanish government saw off a German takeover of Endesa, a utility, but eventually gave in to a joint takeover bid led by Italians. Emerging-market firms are making inroads into European corporate life. The French government was forced to accept the takeover of Arcelor, a European-owned steel company, by Mittal, a firm founded by an Indian. The resolution of the long and bitter battle for Airbus proves the same point: that governments that try to resist the pressure of globalisation may win time, but they will ultimately lose the fight.

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