Overruns Force Re-Think

At the center of discussions between top EADS management and Airbus head Christian Streiff in Paris on Tuesday was the super-jumbo A380. Production glitches have repeatedly forced Airbus to push back delivery dates for the world's largest commercial passenger aircraft.

"Cost overruns and late delivery payments will result in irrecoverable expenses and a corresponding 2.8 billion euro reduction in previously expected cumulative EBIT (earnings before interest and tax before goodwill impairment and exceptional items) over the 2006 to 2010 peiod," EADS said in a statement.

EADS also unveiled a cost-cutting program, which it said it expected to save 2 billion euros a year by 2010 and said it would delay delivery of the A380 by an average of one more year.

The first plane is expected to be delivered to Singapore Airlines in October 2007. In 2008, 13 A380s will reach their customers, said Streiff. The following year, 25 planes would be delivered.

"Only in 2010 will we reach production of four A380s per month," he said.

Workers worried

The shock therapy program, nicknamed "Power 08," could have unsettling implications for workers at Airbus' two main production facilities in Toulouse, France, and Hamburg, Germany.

Ahead of the meeting, French newspapers had been speculating that the restructuring program would include concentrating the production of the A380 exclusively in Toulouse while moving all construction of the A320 model to Hamburg. In addition, it was thought that subcontractors in countries such as Russia and China would take over 30 percent of the production and the financial risks for the A350 model.

But no decision was made on Tuesday to shift production, EADS co-chief Thomas Enders told German news agency DPA.

Compromise led to inefficiency

The A380, the model which was supposed to be its prestige project, is the biggest headache for Airbus -- a cooperative project between France, Germany, Spain and Britain.

To keep all the partners happy, the company's former managers decided to split production between various countries. But that decision led to major snags. Software developed in Hamburg, for example, proved to be incompatible with that made in Toulouse. Supply bottlenecks for the plane's electrical system have meant that half-finished fuselages wait around in both the Toulouse and Hamburg plants for parts to arrive.

The investment firm Morgan Stanley says it does not expect Airbus' A380 super-jumbo to generate any meaningful profits until after 2010.

German-French conflict

France's economics minister, Thierry Breton, has come out in support of Streiff and EADS management, saying the restructuring would be "good for customers, employees and shareholders." But the changes could have dramatic effects for workers at Airbus' 17 European production facilities.

In Hamburg, 2,500 of Airbus' 12,000 employees were hired directly to work on the A380. If production of that model were transferred exclusively to France, they could find themselves out of a job.

Meanwhile, workers in Toulouse fear losing the A320 model, which accounted for 80 to 90 percent of Airbus' orders in 2005. French unions are demanding that Germany bear the brunt of the restructuring, arguing that Airbus in France is already using foreign labor to meet 50 to 70 percent of its needs. Hamburg's senator for economics, Gunnar Uldall, on the other hand, has dismissed the idea of transferring production of the A380 away from his city as "nonsense."

Even if EADS decides to forgo compulsory lay-offs, there will likely be less work at both facilities. The plane that was supposed to give Airbus a leg up on its competitor Boeing has turned out instead to have put the company in a deep hole.