July 8, 2019, © Leeham News: When a company authorizes or sponsors a book about some major event, the book is usually a puff piece meant for the coffee table in reception.
Airbus authorized the book, Airbus: The First 50 Years, but it’s no puff piece. It’s an honest, candid accounting of how the company came to be, navigating through country and corporate politics, face offs with rival Boeing, reporting the insider trading allegations and ending with the as-yet unfinished corruption scandal investigations.
Nicola Clark, the aerospace reporter for the International Herald Tribune, did a superb job up to her usual reporting standards while avoiding the puff pieces that usually come with an authorized book.
It is well known that Airbus was conceived in the late 1960s and developed its first airplane, the A300B, in the early 1970s.
Clark takes the reader through the thought process behind the multi-national concept, the intense trans-border politicking that went on, Britain’s hot-and-cold positions and how the looming failure of the Concorde SST joint venture between Britain and France affected opinions and policies.
Boeing, Lockheed and McDonnell Douglas dismissed the new Airbus as simply another European jobs program that would produce a niche airplane. There was plenty of evidence to support this view. Since the Europeans reentered commercial airplane production after World War II, only the Vickers Viscount and Sud Aviation Caravelle were successes.
As Airbus offered the A300B, a 250-passenger, twin-engine wide-body aircraft, only the national airlines of the member states (France, Germany and Spain) placed orders. Britain’s BOAC, then a state-owned company, bought Boeing and Spain’s Iberia at one point canceled its order.
The three US companies had little reason to be concerned.
Then Airbus offered Eastern Airlines the deal of the century: fly four A300Bs for $1 per month, paying for operating expenses only.
Boeing, at least, woke up. It ran to the US government, demanding a 5% tariff be levied, a practice that continues to this day. The Carter Administration refused.
Eastern liked the A300 and ordered two dozen. American Airlines eventually ordered a later model, the A300-600R. Pan Am placed an order for A300s, A310s and A320s, with liberal substitution rights.
Delta Air Lines ordered nine A310-300s after acquiring key Pan Am assets as the carrier spiraled into bankruptcy.
Northwest, United and US Air eventually ordered a variety of Airbus airplanes.
Clark takes the reader through the roots of what would eventually become the longest running and most expensive trade complaint ever.
Complaining about state subsidies to Airbus—they were liberal terms and lots of money—Boeing and McDonnell Douglas persuaded the US government to seek a cap on launch aid. (Lockheed by this time had withdrawn from commercial aviation.) Thus, the 1992 GATT agreement, limiting launch aid to one third of the cost of program development. As for the US companies, direct and indirect benefit from NASA and the military was capped.
McDonnell Douglas merged into Boeing in 1997, leaving the global airlines with only Airbus and Boeing as principal mainline jet providers.
For its part, Boeing saw Airbus and the member states cheating on the GATT agreements. When Airbus was heading toward launch of the A380, threatening Boeing’s monopoly at the high end of the airplane chain, then-CEO Phil Condit vowed to the Airbus CEO Boeing would file a trade complaint if Airbus proceeded. Airbus did, and so did Boeing, persuading the US in 2004 to repudiate the 1992 GATT agreement.
(It’s widely believed Boeing sought the trade complaint to divert attention from the 2002-03 tanker scandal when, after 9/11, Boeing proposed leasing 100 KC-767s to the US Air Force at what critics considered exorbitant rates. The USAF procurement officer and the Boeing CFO went to jail in the ensuing scandal and Condit resigned. Clark doesn’t address this.)
Thus began the World Trade Organization complaint process that continues to this day, 15 years later.
Clark takes the story through how Airbus reached parity with Boeing, through a combination of aggressive tactics, high bets with risky airlines and Boeing’s own miscues—including the development of the 787 and several false starts: the Sonic Cruiser and various iterations of the 747 before settling on the 747-8, which proved to be a sales dud.
But the Airbus story isn’t all sweetness and light or partner politicking and rivalry.
The A380 development was, in hindsight, a seminal moment for Airbus.
Intended to be Airbus’ answer to the 747, profits for which effectively subsidized sales campaigns on other Boeing aircraft, the A380 turned into an industrial mess.
Differences and rivalries between the French and German design and production resulted in wiring mismatches when the sections of the A380 were assembled in Toulouse. With more than 500 kilometers of wiring, the early airplanes had to be rewired by hand.
Instead of deliveries beginning in 2006, the first A380 wasn’t handed over until 2008.
Heads rolled. Noel Forgeard, the CEO of EADS and chairman of Airbus, was forced out. Gustav Humbert, president of Airbus, resigned. Charles Champion, the head of the A380 program, was moved to another position.
Christian Streiff, an outsider, was recruited to fix Airbus. He created a program called Power 8, but in doing so, stepped on too many toes. He was resigned after eight months. Still, his Power 8 lay the foundation for Louis Gallois and Tom Enders to meld two Airbuses (France and Germany) into one. This set the stage for Enders to eventually take over as the sole CEO of EADS, which later became Airbus Group.
Enders assembled a team that rationalized Airbus design and production, applied for the first time with the A350. Enders tried to acquired BAE Systems but was thwarted when Germany wouldn’t approve. But this opened the door for Enders and his team to restructure governance to reduce the influence of France and Germany, turning Airbus for the first time into a true commercial company.
Clark doesn’t ignore the two big scandals at Airbus: allegations of insider trading over the A380 industrial debacle and bribery and corruption, the focus of continuing investigations today.
French authorities charged nearly two dozen top officials with insider trading, allegedly and knowingly selling stock before the A380 industrial problems and delivery delays were announced. In the end, no charges were proven and many were dropped outright. Insider stock sales (or purchases) were possible at pre-determined intervals and the trades in question were cleared by the EADS compliance department. Rules were subsequently tightened, but the allegations in the end held no water.
The bribery and corruption scandals are another matter.
Airbus Group, dating to EADS times, set up an office in Paris to facilitate payments to consultants who supposedly helped win orders for military and commercial products. The problem: in some cases, documentation for work actually performed was lacking and in others, disclosure to export credit agencies of consultant involvement was omitted.
Airbus CFO Harald Wilhelm disclosed the problems to Enders and the company disclosed the problems to regulators.
Years later, the investigations remain open. Airbus fired many people, unfortunately sweeping some innocents with the guilty. Some executives hit retirement age and left; had some of these not, there is a belief these people would have been fired, too.
Enders and Wilhelm had to go, too, even though they disclosed the issues to regulators and took steps to clean house.
Clark recounts all this.
The final outcome—prosecutions, if any, and billions of Euros in fines to Airbus—are chapters yet to be written.
Clark has done a superb job in the First 50 Years. Airbus did a fine job in letting Clark do hers.
This is a book that is a must-read for aviation aficionados.