G.I.E. Airbus Industrie

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G.I.E. Airbus Industrie

Avenue Lucien Servanty
BP No. 33 31700
Blagnac
France
(61) 93 33 33

Consortium
Incorporated: December 1970
Employees: 28,000 (On Reserve)

The last European jetliners to be produced in significant quantities were the French Caravelle and the BAC-111 during the 1960’s. When the production runs for these airplanes came to an end, the commercial passenger jet market was soon dominated by three American companies: Boeing, McDonnell Douglas, and Lockheed. European aerospace companies were too small to carry the large investment costs of developing a new jetliner. After several unsuccessful attempts to form a trans-European aerospace group, the governments of France and West Germany concluded an agreement in May of 1969 which cleared the way for the formation of a consortium to produce commercial jets. Plans were laid for production of an airliner which later became known as the A300.

In December of 1970 the Airbus Industrie was officially formed and incorporated in France as a groupement d’intérêt économique (G.I.E.), a form of unlimited partnership commonly used by vinters and construction projects which involve several contractors. This style of industrial organization made success possible for Airbus because, as one official put it, “On other cooperative projects, like the Concorde, nothing could be done without unanimous agreement of all the partners. With the Airbus, they all had to be unanimous to stop us.”

The Airbus consortium members were Aérospatiale of France, Deutsche Airbus (65% Messerschmitt-Bölkow-Blohm and 35% VFW-Fokker) of West Germany, Fokker-VFW of The Netherlands, and Construcciones Aeronauticas S.A. (CASA) of Spain. Originally British Aerospace was to be a full member, but it withdrew when Britain’s Labour government decided that the program had no chance of success. Britain’s Hawker-Siddeley, however, remained associated with Airbus through a subcontracting arrangement in which it was responsible for building aircraft wings. Nonetheless, Airbus Industrie remained primarily a French-German consortium.

The most popular medium-size American jetliners, the Boeing 727 and McDonnell-Douglas DC-9, were fitted with inefficient engines which consumed large quantities of fuel. The Airbus was designed to compete with these jetliners by incorporating the latest avionic technology and the most efficient engines available. Britain’s Rolls-Royce was selected as the manufacturer for the A300’s jet engines, but had to withdraw from the program when work on its RB.207 engine fell behind schedule. Airbus asked General Electric of America to supply an alternative engine, the CF6-50, which was built for use on McDonnell Douglas’ DC-10. The choice of a new engine power plant forced a design change in the A300 which reduced its passenger capacity from 300 to 250. It was a fortunate turn of events for Airbus because at the time many airline companies were struggling to avoid overcapacity caused by excessively large airplanes. Rather unexpectedly the A300 had gained sudden popularity.

The A300 made its maiden flight on October 28, 1972 (ahead of schedule) and entered regular service with Air France in May of 1974. Interest in the fuel-efficient A300 increased when the 1973 world oil crisis caused fuel prices to rise dramatically. By 1975 over 40 of these airplanes had been ordered.

At this time Henri Ziegler retired as the head of Airbus. He was succeeded by Bernard Lathière, who had previously served with the French Civil Aviation Authority. Lathiére appointed an American named George Warde to be in charge of Airbus sales in America. The American aircraft manufacturers (Boeing in particular) worked very hard to prevent Airbus from entering the American aircraft market. Warde was able, however, to reach an agreement with Eastern Airlines whereby Eastern would operate four A300s on a six-month trial basis and fund the $7 million crew training and maintenance costs. It was a risky and potentially costly gamble which paid off when Eastern and Pan Am both decided to purchase the A300.

Lathière, known to airline executives around the world as “Monsieur Airbus,” remained primarily concerned with aircraft sales. The engineering and production coordination was largely handled by general manager Roger Béteille from his office at Airbus’ final assembly plant in Toulouse. While Lathière was president of the consortium and maintained a high public profile, it was Roger Béteille who worked behind the scenes.

In July of 1978 Airbus Industrie announced the development of a new jetliner called the A310. This smaller and more efficient version of the A300 incorporates a unique fuel-saving feature. When the A310 is in flight, fuel is pumped from an aft tank into the main wing tanks to help maintain the airliner’s center of gravity. On other aircraft a device called a “trim control” automatically adjusts the tail elevators in order to maintain level flight. However, excessive reliance on the trim control causes aerodynamic drag which wastes fuel. The A310’s fuel pumping scheme has since been duplicated by other aircraft manufacturers and has become a regular feature of most modern aircraft designs. In addition, the A310’s wings were redesigned to make it more efficient at distances of less than 1500 miles. This became a major selling point for Airbus since three-quarters of all airline routes are distances of less than 1500 miles. The A310 made its inaugural flight in April of 1982 and entered service with Lufthansa a year later.

In January of 1979 Britain became an official member of the Airbus consortium when Hawker-Siddeley became a part of the state-owned British Aerospace. At this time the present capitalization ratio of Airbus was established: Aérospatiale and Deutsche Airbus each holds a 37.9% share of Airbus Industrie, British Aerospace holds 20%, and CASA of Spain holds 4.2%. In May, Belairbus of Belgium joined Fokker-VFW of the Netherlands as associated production members. Fokker, which became a subsidiary of West Germany’s Vereinigte Flugtechnische Werke (VFW) in 1969, was sold back to public investors in 1980. VFW was subsequently acquired by Messerschmitt-Bölkow-Blohm, but Fokker continued to be associated with Airbus as a subcontractor.

Deutsche Airbus manufactures most of the fuselages and vertical tails for Airbus planes and transports them to Aérospatiale’s assembly facilities in Toulouse where they are assembled with cockpits and center fuselages from Aérospatiale, wings from British Aerospace, and horizontal tails from CASA. The Deutsche Airbus fuselages are transported to Toulouse in the cargo hold of a “Super Guppy,” a converted Boeing Stratocruiser capable of holding very large cargos.

In March of 1984 Roger Béteille resigned his post due to ill health. Lathière ended the tradition of having Frenchmen dominate the highest managerial positions at Airbus by appointing a multinational troika to take Béteille’s place. Jean Pierson, a Frenchman, was named chief executive officer; Johann Schaeffler, a German, was made responsible for production; and Robert Whitfield, a Briton, was placed in charge of managing the consortium’s finances.

In 1983 Airbus developed altered versions of its two jetliners, the A300-600 and A310-300, with extended flight range. Plans were also announced to manufacture a smaller Airbus called the A320 which was intended to compete with Boeing’s 737-300 and McDonnell Douglas’ MD-80 for short-haul passenger markets. Airbus claims the A320 is 30% less expensive to operate than its competition. Airbus received over 100 orders for the A320 before its maiden flight.

The A320 is the first commercial airliner to have a “fly-by-wire” flight system. The crew’s commands are executed by a computer which electronically controls the wing flaps, rudders and elevators. Since the airplane has no direct mechanical controls, the pilot could hypothetically lose control of the airplane in the event of an electronic failure. However, Airbus insists that the fly-by-wire system has been perfected on jet fighters and on the Concorde. In fact, Airbus claims that the system provides the crew with even more control over the aircraft, thus making it all the more safer.

Boeing and McDonnell Douglas, however, are determined to make sure that the A320 has “no more than four years in the market.” Both companies are meeting the Airbus challenge by developing a new generation of airliners which are as much as 40% more efficient than the Airbus. These new aircraft, the 7J7 and MD-91, use a revolutionary new engine called a “propfan” which combines the thrust of a jet engine with the efficiency of a high-speed propeller. To date, management at Airbus has no plans to develop an airliner with propfans. Airbus must convince potential customers that they cannot wait until the 1990’s for propfans when its own planes are available now.

Pan Am ordered 16 A320s in 1985, and the following year NWA, the holding company for Northwest Airlines, announced that it had ordered 10 A320s with an option to purchase an additional 90. If Northwest agrees to purchase all 100 A320s, it could mean up to $3.2 billion in sales for Airbus.

The proceeds of such a large order would go a long way in defraying the consortium’s record of accrued losses, which are believed to amount to between $7 billion and $10 billion. Financial statistics for Airbus are virtually impossible to find. Because of the nature of its industrial organization, Airbus Industrie is not required to publish an annual report. Different accounting methods and degrees of government involvement among the individual consortium members preclude the option of assembling data. A Boeing executive has said, “The Airbus partners aren’t just hiding numbers; they don’t know them.”

If the consortium was a typical nationalized industry, its finances would be a matter of public record. But disclosure of Airbus’ financial information has the potential to cause a great deal of opposition to the consortium in European political circles. The Airbus member governments would like to prevent the consortium’s economic performance from becoming a political issue; its becoming one might lead to its dissolution. Airbus is, after all, the European Community’s only technically successful non-military industrial enterprise.

The United States government has voiced its concern that the extensive subsidies Airbus receives from its member governments violate the principles of the General Agreements on Trade and Tariffs. Officials at Airbus in turn complain that the American aircraft manufacturers benefit substantially and unfairly from aeronautic research funded by the U.S. Department of Defense and the National Aeronautics and Space Administration. In particular, they have complained that the Boeing Company subsidizes the development of new commercial airliners with proceeds from its profitable 747 program and defense projects.

It is widely believed that the market for the next generation of commercial airliners is potentially worth $250 billion and that this market can only support two major aircraft manufacturers. It is believed that Boeing is in a secure position, but that McDonnell Douglas and Airbus could very likely engage in a highly competitive encounter for what remains of the market. The results could be as disastrous for one of these companies as it was for Lockheed when it challenged Boeing and McDonnell Douglas in the early 1970’s. In order to avoid such a costly encounter, McDonnell Douglas and Airbus have held discussions to investigate the feasibility of jointly producing the MD-11. In the absence of a joint production agreement, the MD-11 will challenge two new Airbus jumbo jets, the twin-engine A330 and the long-range A340 with four engines.

Airbus’ management was reorganized in 1985 and directorates were created for technology, planning, product support, and purchasing. In February 1986 Airbus received 500 aircraft orders. However, Airbus will require at least 400 more aircraft orders for it to remain financially healthy.

The continued existence of Airbus Industrie rests on its ability to successfully compete with companies such as Boeing and McDonnell Douglas in the aircraft market during the 1990’s. Yet it won’t be enough to sell only a few hundred aircraft; Airbus must substantially dominate a significant position of the airliner market. Anything less than a 25% market share may be regarded as a failure.