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How Airbus Lost €4.8 Billion: Part II

Friday, December 14th, 2007 by Jonathan Spira

With the release last week of our report  Airbus Hits Turbulence: How Knowledge Sharing Failures Cost Airbus €4.8 Billion,  we are presenting the report’s executive study in two parts.  Part I was presented in last week’s edition of Basex:TechWatch and here on the blog.  We now continue now with Part II.

With significant orders from some of the largest names in the airline industry, including Emirates, Virgin and Lufthansa before A380 production delays set in, Airbus seemed well on its way to establishing itself as the leader in the wide-body jet market. But Airbus’ lack of foresight in project management led to significant multi-national knowledge sharing and collaboration failures.

Far from being a unified company, Airbus’ management and production teams span many European companies. Although Airbus technically unified under the auspices of EADS, Airbus still operates as multiple semi-autonomous companies. The merger did not include significant advancements in how the production was carried out across national borders. Instead the production processes remained fragmented and split, with no significant efforts made to improve the collaboration among the factories. This is a significant problem and the company is being destroyed by a lack of corporate collaboration. Former CEO of Airbus, Christian Streiff, admitted that Airbus was a “juxtaposition of four companies.”

Faced with few alternatives, Airbus announced a massive restructuring plan designed to fix management and production problems, but also help with losses associated with other problems such as the weakness of the US dollar. Termed Power8, the plan hopes to increase profits in spite of the company’s projected losses for the year 2007 due to the costs associated with the program and the A380 disaster.

For years, Airbus was considered an innovator and technology leader. But in a short period of time the company went from darling of the industry to pariah. Airbus S.A.S. can learn from its mistakes and regain its title as a leader in the field. But significant challenges must be overcome. The company has been working on improving how its different national groups collaborate with one another. Ensuring that Airbus operates as a unified concern, where the sharing of knowledge and best practices across borders is the norm rather than the exception, however, is a battle still to be fought, and the outcome is far from certain.

Jonathan B. Spira is CEO and Chief Analyst at Basex.