Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Bjorn’s Corner: New engine development. Part 4. Propulsive efficiency April 19, 2024
- Boeing unlikely to meet FAA’s 90-day deadline for new safety program April 18, 2024
- Focus on quality not slowing innovation, says GKN April 18, 2024
- Boeing defends 787, 777 against whistleblower charges April 17, 2024
- Dissecting Boeing CEO’s statement next new airplane will cost $50bn April 15, 2024
Odds and Ends: Airbus’ Enders; A320neo; Ex-Im Bank; Delta vs Alaska
Airbus’ Enders: Airbus Group CEO Tom Enders muses about what he will do when his current term ends in two years. He might seek another three year term as CEO or he could move on. In the Byzantine structure at Airbus, the CEO’s job rotates between a German and Frenchman with the opposite nationality heading Airbus (the airplanes) during the term. Enders has made great progress in bringing Airbus Group into the real corporate world and away from the government meddling that has proved the bane of the company’s existence. He still has things to accomplish, including a more traditional executive office structure regardless of nationalities and term limits.
Smooth A320neo introduction: Meantime, Enders says it’s imperative that the introduction next year of the A320neo go smoothly and that A350 program still has “challenges.” The A350 is supposed to enter service by the end of this year.
Ex-Im Bank: The Seattle Times editorialized that the Ex-Im Bank authorization should be renewed by Congress, and as readers know, we agree. Boeing will be put at a disadvantage to Airbus because the European Union Export Credit Agencies will continue to provide ECA financing for Airbus. Write your Congressman. Ex-Im is more than just Boeing, too.
Delta vs Alaska: The air wars continue between giant Delta Air Lines and Alaska Airlines, the smallest of the US legacy carriers. Delta announced it is adding more service to Seattle, Alaska’s largest hub, on routes that compete with Alaska. The latter announced it will increase service by 11% in Seattle, mostly (but not entirely) to cities that don’t directly compete with Delta.
Ex-Im Bank: Will the A320s build in Mobile eligible for such financing? That would be very ironic…:)
There is a requirement that there be 50% US content. Doubtful.
Well, that’s the limit if you want to be able to finance the full plane via Ex-Im.
The key here is also that “more than 50% U.S content based on all direct and indirect costs, including but not limited to labor, materials, research and administrative costs”
The vast majority of A320 development has been undertaken outside the US, so if that’s taken into consideration, I don’t see how it would get above 50% US content.
(Would be curious to see how that works out on a 787 with RR engines, by the way. 😉 )
However, unless I’m missing something here, Airbus could still use Ex-Im; not to provide financing for the whole airframe, but a portion of it – from the Ex-Im policy on the bank’s website (http://www.exim.gov/generalbankpolicies/content/short-term-content-policy.cfm):
So going by that, there’d be a possibility of Airbus doing the math on how much the final assembly labour contributes to the cost of an A320, how much US content there is in it to begin with, what additional parts may be US-sourced for US-assembled frames etc., and then apply for Ex-Im financing for the US portion of the total value of a frame.
Whether that’s really worth it – considering they probably can get full financing from the European Ex-Im counterparts for any frame delivered from the EU to foreign carriers – is a different question, of course. They could maybe try and be tricky about it and get Ex-Im financing for the US portion of a Mobile-built frame sold to an EU airline.
Although I suspect it probably easier to play the multiple European Ex-Im banks against each other to still get financing on frames delivered from, say, Hamburg to Lufthansa.
In fact I know my answers and your colleagues from Airinsight already alluded to this in 2012:
http://airinsight.com/2012/07/03/airbus-in-mobile-a-brilliant-strategy/
The US content of A320s is already close to 50% if not over, at least if you include the engines.
This is where I see the ‘coup de Maitre’ coming from Airbus…
As an industry outsider, I don’t really have a clear feel for how much resistance there would be to, or agita against, Airbus getting Exim support for export of Mobile built frames. The purpose of the bank, after all, is to support U.S. exports – not Boeing exports. If Airbus were to export frames built in Mobile, and if those frames were to have majority U.S. content, then I don’t have a problem with those exports receiving Exim financing – at least on a gut level. The same goes for partial support of the U.S. content portion of non-majority U.S. content goods.
I wonder though whether the issue is ever likely to come up. For one thing, I’m curious how the content calculation affects a company’s ability to off-shore the profits from the sale for tax (evasion) purposes. Are the euro corporate tax rates that Airbus pays such that they would prefer to have revenue realized in the U.S.?
Also, I thought Airbus had stated already, as a matter of reassurance to their domestic workforce, that the Mobile-built frames were for the U.S. (or was it North American) market. If it really is U.S.-only, then Exim qualification will never be an issue.
On a related point, with the ‘home county rule’ remaining nebulous (as far as I’m aware) I wonder whether FR, DE, UK and ES airlines will try to claim Mobile built a/c are not ‘home country’ for them and so tap into credit they couldn’t otherwise do.
Funny how everything that Airbus/the Europeans do somewhat differently seems to irk a lot of our friends across the Atlantic 🙂
As it happens, such term limits aren’t an exclusive domain of Airbus – not even of European companies. Many US CEOs operate under fixed-term contracts these days, and going by one 2013 study on the subject, the average contract length is on the decline, averaging around 2.8 years in 2008, down from 4.23 before 1995. (This is of a sample of contracts, not all CEO contracts in the US, it should be said.)
Going by that same study (http://www.lse.ac.uk/finance/people/profiles/pdfs/xu/costsandbenefits.pdf ) there isn’t really any difference between company values of companies whose CEOs have fixed vs. open-term contracts.
Which means whether or not you agree with fixed-term contracts is in the end a philosophical question.
Personally, I think things should be shaken up a bit every now and then, so a CEO change every 3-5 years seems like a good idea in large companies.
I think it’s essential to break up what can become stale structures (potentially tailored too much towards a single person) in companies by such (en)forced changes, even though the people subject to it obviously aren’t necessarily fans of it.
Incidentally, McNerney’s held his previous CEO positions for 3 and 5 years, respectively.
As for the nationality, I personally don’t really care all that much – overall, I don’t really object to having at least a European (German, French, Spanish, Irish, Italian, whatever) head of Airbus Group, just like most Americans wouldn’t necessarily be enthusiastic about seeing a French(wo)man as CEO of Boeing.
It will be a shame if Enders decides to leave aerospace altogether after his term ends. It seems like the European defense industry could use more people like him.
http://www.atlanticcouncil.org/news/transcripts/transcript-atlantic-council-captains-of-industry-with-thomas-enders-ceo-airbus-group
“…. These practices certainly do not result in what the Americans call a healthy industrial base. By the way, I’ve never heard that in Europe, speaking – somebody speaking about a healthy industrial base, because that means an industry that should be allowed to make decent profits and should be incentivized to be in this field of business. Rather difficult notion, in Europe. ….”
Enders was picked by Louis Gallois to run Power8, mainly to implement A380 recovery through an ad hoc industrial ICU … from his background and previous experience, as by temperament, Enders is more a bean-counter than an aircraft industrialist. Whilst in charge of Airbus SAS operations, Enders interfered – deregulating its delicate clockwork – with the masterly fine-tuned sales apparatus created by Airbus Industrie GIE, causing a.o. archtype French industrialist Arnaud Lagardère to throw in the “torchon” and pull out, closely trailed by conservative Daimler. I’m not convinced Enders’ heritage is positive : when you allow the backlog to exceed 6 years of throughput, you’re actually depossessing yourself of the strategic controls of your own industrial sector.
Good news today the 787 has just been given the GO to go over the long routes it was designed for.. Finger’s x
Sidelined in the A320Neo piece is the mention of an evolution of the A300-Beluga plateform to allow increase capacity.
We are probably going to see (or hear from) the A330-Beluga soon !