Airbus

He knows the balance of sales power will continue to shift. Indeed, in the first five months of this year Airbus regained the lead, booking 517 orders against Boeing’s 498 and prompting it to lift its forecast for sales in 2013 by more than 100 to 800-plus aircraft. With a rash of further orders expected during the Paris Airshow, that promised to be a major underestimate.

But Brégier isn’t about chasing sales for the sake of market share.

The focus this year and into the future will be firmly on production – Airbus has a backlog of nearly 4,700 planes worth $638 billion – rather than chasing fresh orders, he says. “We have stopped being lopsided and looking only for commercial success. We want profitability. We have a clear plan to drastically improve our profitability in two years. ” His order to executives: a 10 per cent profit margin by 2015.

It might be thought the concept of focusing on production rather than chasing orders would come as a shock to Airbus’s master salesman John Leahy. Not so.

He cites a decision by Singapore Airlines-owned Silk Air, until then an all-Airbus operator, to order 23 737-800s and 31 737 MAXs worth $4. 9 billion in November last year.

“Boeing I guess was desperate for some MAX orders and basically was going to sell the aircraft at any price. Even though it’s an all Airbus operator we elected not to go chasing after price and I think it was perhaps short sighted on Silk Air’s part because for the next 10 years they are going to have A320s, 737NGs AND 737 MAXs all in an airline that is 30 or 40 aircraft big.

We maybe didn’t do a good job there of selling the value of staying with us but at least we are following what Fabrice was suggesting and that was that deals at any price are not worthwhile.

“We have profitability targets and we have return on sales targets and those come first. There’s no point chasing market share if there is no profitability in it. ” Of course, selling aircraft remains the indisputable raison d’etre for Airbus’s existence. But what has become apparent under the brief reign of Brégier – he took charge little more than a year ago in June 2012 – is that how it does that is undergoing radical change. Speaking to media from around the world at the Airbus delivery centre in Toulouse in June, he made it clear Airbus is evolving into a significantly altered beast.

As the competition with Boeing intensifies on all fronts, from the MAX versus Airbus A320neo battle to the emerging tussle between the A350 and Boeing’s 787 Dreamliner and a promised new 777X, the Airbus chief says the transformation of the European planemaker is not limited to current aircraft programs.

“What we are trying to do at the executive committee of Airbus is to look for further growth, to get even closer to our customers, to enhance customer value, to foster our profitability and globally improve the performance of Airbus”.

It goes deeper. Airbus is putting a great deal of focus on reducing technical risks in its development of new aircraft… and not only the A350. It wants greater maturity in design and production to avoid any repeat of the A380 issues or the danger of falling into traps such as Boeing’s problems with the batteries on its 787.

That was evident as the first flight of the A350 approached. No-one was rushing to get the plane into the air.

“We are trying to get the appropriate level of maturity. It is not easy and we can be caught by surprises as others were but this I think was a good mix of putting pressure onto the teams involved but also having enough transparency, managing the risks up front and looking for mitigation action when necessary,” he explained.

In other words, no-one was going to force Airbus to speed a new aircraft type into service that might end up being grounded because of unexpected issues, or one that could become bogged down in the three-year production delays that plagued the A380.

Beyond building aircraft, there is another serious philosophical change under way.

Toulouse is no longer seen as the sacred centre of the Airbus universe and the company will look for further opportunities to broaden its “on the ground” presence outside Europe, possibly with more manufacturing ventures such as its A320 final assembly line in Tianjin, China and the new venture at Mobile, Alabama which will produce an A320 every week from 2017.

In what he referred to as “internationalisation”, Brégier declared: “If we have potential of more global partnerships we will look at that… we are very open. ” While he stressed Airbus has “nothing special in mind” right now, he said it had been demonstrated the Tianjin model works. “If there is a market and partner who is strong enough and big enough to justifysuch investment we know how to translate that into commercial success. We are not bound to our European footprint. ” The possibility of such future developments is tantalising and offers further evidence that when it comes to the future, the Airbus approach is diverging significantly from that of competitor Boeing. Both manufacturers have embraced the concept of a global supply chain, with parts for their aircraft produced by suppliers spread across the globe. While the US planemaker has displayed no appetite for offshore assembly lines. it may prove to be a critical sales advantage for Airbus. The production of A320s in China – Brégier suggested the Tianjin line will be upgraded to produce its new A320neo – has already paid dividends. This year, Airbus will have captured 50 per cent of the China market, an arena in which it lagged Boeing for years.

But the changes occurring in the psyche of Airbus’s business go far beyond internationalisation. Like its competitor, Airbus has had a traumatic decade. Both manufacturers suffered the embarrassment of lengthy delays in delivery of ground-breaking new aircraft: Airbus with the A380 and Boeing with the 787, as well as its subsequent battery issues. The experience has forced a rethink and a far more cautious approach to the design and manufacturing process in both Seattle and Toulouse.

Brégier says the battle has already been won to better integrate Airbus’s various elements, a flaw that showed up dramatically in the production delays in the A380 caused by a dismal lack of communication between its French and German divisions.

We are trying to get closer to our customers, to enhance customer value, to foster our profitability and globally improve the performance of Airbus.

decide… too many smart people try to decide at the same time and give their view. We have to enhance the entrepreneurial spirit of our people. There has to be more drive and they have to decide quicker and try to fight complexity. ” He concedes there is a risk in that. “We do things which are extremely complex with a very high level of technology and risk but that is no reason to over complexify things. Let’s try and make things simple. ” That may not be easy. Airbus has to manage its way through multiple challenges over the coming years. With a delivery backlog essentially amounting to six years of work it has to keep production moving smoothly while making adjustments to the demand situation. The global supply chain in itself presents an ever-present danger because events in other parts of the world can interrupt delivery of critical parts and hit the entire production line. Some suppliers have already faced problems keeping up with the demand as more and more aircraft are being produced. Yet the entire industry knows that further crisis in a volatile airline industry landscape can dramatically alter demand, threaten overcapacity and spark cancellations.

Leahy for one is alert to the possibilities. He believes the growth is there to cope with the number of planes on order but says lessons can be learned from airlines. “Not everybody shows up for every seat they book so sometimes you have to sell a few more seats than are actually on the plane to make sure you get a decent load factor. I think it is extremely presumptuous of any manufacturer to say who is going to be the winner and who is going to be the loser but I am well aware of the fact that airlines, just like passengers, might book multiple flights but are only going to take one of them and everybody thinks he is going to improve his market share by 10 per cent.

“But it’s a zero sum game. Someone is going to win and someone is going to lose. So not all the planes ordered are ever going to get delivered. I agree with that but the whole point is to keep the assembly lines running at a high but smooth rate and not chase the peaks and fall into the valleys the industry did for many years at the start of the jet age. Every order got built and then when it stopped with recession, production got cut by half. That wasn’t the way to do it. ” Something else on the longer-term horizon, for Boeing as well as Airbus, is the prospect of an end to their monopoly in sales of jet aircraft above 100 seats. Already, Brazil’s Embraer has broken the regional jet mold and moved up a notch, though it remains a minor competitor. Russia and Japan are also moving in that direction and, probably most serious of all, China is making no bones of the fact it intends to be a major entrant into the big jet sector.

When? “China is going to do very well,” says Airbus’s Leahy.

“We now have harmonised ways of working and integrated processes. We have people that change between Toulouse and Hamburg and other places. We have responsibility at the appropriate level. We needed to enhance the culture of accountability and we have done that with a change in the organisation. ” Now, he says, there is another battle to be fought; to simplify the highly technological nature of the business. “We have to win the battle of big groups with very high technological content which tend to become bureaucratic, tend to focus on very long-term research and technology and tend to never decide… too many smart people try to decide at the same time and give their view. We have to enhance the entrepreneurial spirit of our people. There has to be more drive and they have to decide quicker and try to fight complexity. ” He concedes there is a risk in that. “We do things which are extremely complex with a very high level of technology and risk but that is no reason to over complexify things. Let’s try and make things simple. ”

That may not be easy. Airbus has to manage its way through multiple challenges over the coming years. With a delivery backlog essentially amounting to six years of work it has to keep production moving smoothly while making adjustments to the demand situation. The global supply chain in itself presents an ever-present danger because events in other parts of the world can interrupt delivery of critical parts and hit the entire production line. Some suppliers have already faced problems keeping up with the demand as more and more aircraft are being produced. Yet the entire industry knows that further crisis in a volatile airline industry landscape can dramatically alter demand, threaten overcapacity and spark cancellations.

Leahy for one is alert to the possibilities. He believes the growth is there to cope with the number of planes on order but says lessons can be learned from airlines. “Not everybody shows up for every seat they book so sometimes you have to sell a few more seats than are actually on the plane to make sure you get a decent load factor. I think it is extremely presumptuous of any manufacturer to say who is going to be the winner and who is going to be the loser but I am well aware of the fact that airlines, just like passengers, might book multiple flights but are only going to take one of them and everybody thinks he is going to improve his market share by 10 per cent.

“But it’s a zero sum game. Someone is going to win and someone is going to lose. So not all the planes ordered are ever going to get delivered. I agree with that but the whole point is to keep the assembly lines running at a high but smooth rate and not chase the peaks and fall into the valleys the industry did for many years at the start of the jet age. Every order got built and then when it stopped with recession, production got cut by half. That wasn’t the way to do it. ” Something else on the longer-term horizon, for Boeing as well as Airbus, is the prospect of an end to their monopoly in sales of jet aircraft above 100 seats. Already, Brazil’s Embraer has broken the regional jet mold and moved up a notch, though it remains a minor competitor. Russia and Japan are also moving in that direction and, probably most serious of all, China is making no bones of the fact it intends to be a major entrant into the big jet sector.

When? “China is going to do very well,” says Airbus’s Leahy.

China represents a key market for Airbus, supported by heavy investment in the Chinese aerospace sector. julian green“It is going to be a big player in the market. I am not worried about the Chinese manufacturers in the next 10 years but in 20 years they will definitely be major players in aircraft manufacturing. ” Closer to home, another concern for Airbus must be the ongoing sales performance of its flagship A380, although company officials vehemently deny there is a problem. Only nine of the super jumbos were sold last year with an actual sales target of 30. Leahy says this was because of concerns about the weaker economic outlook. But he expects to see 25 orders this year, in line with the expected production rate, down from 30 in 2012 as a result of disruption caused by changes required in the wing manufacturing process due to cracks found in the wings of some aircraft.

“I absolutely disagree (there has been any tailing off in orders)”, he told Australian Aviation. “We are on target. We said we would have around 25 aircraft sold this year. We’ll produce around 25 airplanes this year. It is a very stable program and I stick by that target. We’ve got quite a few sales campaigns underway on the A380 right now. It’s going to be a very good selling plane.

“You have to remember it takes longer for an airline to agree on an A380 category plane than an A320 category plane. We’re on track and the other thing you have to keep in mind if you look at the IATA forecast, if you look at Boeing, Airbus and engine manufacturers forecasts, traffic will double in the next 15 years.

“So how are we going to double the number of flights at Singapore, Heathrow, CFG in Paris or JFK in New York. It is impossible. So you are going to need bigger aircraft. You are guaranteed to need bigger aircraft. ” Leahy says more A380s will be sold in Asia and he is also confident US carriers – none have yet ordered it – will also come to the party.

“Some people say the Americans might not buy it, but I fly A380s almost every time I go to the US and if you want to be a big player in the Pacific, virtually every big airline on the Pacific is flying A380s into the US. So it’s only a matter of time before the US airlines are going to have to respond by buying A380s because as we love to say: it takes an A380 to compete with an A380.

“I am confident US carriers will buy it and especially ones that are big players in the Pacific… if you are a major player on the Pacific you need to go head-to-head with a competitor who has A380s flying. ” Despite this display of confidence there are signs Toulouse is less than happy with the A380 order book. It has launched a new campaign – virtually amounting to a re-launch of its big jumbo – under the theme ‘Own the sky’ urging airlines to maximise their revenue, boost their network efficiency and rationalise global demand growth by “operating A380 and A350-1000 together”. And it is proposing a new version that will lift its capacity from an average 490 seats to 558 seats with a new cabin layout. Airbus bet the bank on the A380 and it remains a critical part of its future.

In Leahy’s view, traffic growth forecasts back up the judgement a high-capacity aircraft has a big future, particularly as infrastructure constraints caused by congested airports and airways persist.

Seats offered on long-haul flights have grown considerably faster than short-haul traffic. Since 1992 long-haul capacity has risen 147 per cent compared to 79 per cent on short-haul. Airbus also points to another significant long-haul trend. In 2011 90 per cnet of long-haul traffic was concentrated through 42 aviation “mega cities”, hubs with more than 10,000 daily long-haul passengers. Some 80 per cent of these cities were slot constrained. By 2021 there will be 67 mega cities handling 95 per cent of these long distance flyers. That makes the necessity for more and more bigger aircraft a given, according to Leahy.

The big buzzword in Toulouse these days is “innovation” and it is a theme pushed by everyone you speak to.

What I want is to change the culture and mindset of our people, to be very open to other ideas. . .

Brégier says innovation is in the DNA of Airbus. The company, with a workforce of some 60,000 and taking in 3,000 more each year – 1,500 for replacement and 1,500 for expansion, has more than 2,000 engineers working purely on long-term research and development projects. “What I want is to change the culture and mindset of our people, to be very open to other ideas and to be much faster in screening these ideas and implementing them. ” One example, which has nothing to do with building aircraft, was described by Airbus chief innovation officer Yann Barbaux to journalists in Toulouse. It is smartBaggage, a sort of electronic suitcase that would be delivered to a passenger’s home and collected after packing. It automatically weighs the contents and can be tracked all along its journey. Collected at the passengers home it would be delivered to the final destination, whether a hotel or residence, meaning the traveler can make the entire journey without having to worry about baggage. Whether it will ever become commercially available remains to be seen, but it is an example of Airbus looking for innovative avenues of additional business.

It may sound like idealistic business thinking, but the appointment of Barbeaux as chief innovation officer in May this year shows Airbus is taking the whole idea of expanded innovative processes seriously. He reports directly to Brégier and his key mission is to foster a strong innovation culture throughout Airbus. Together with his team, he is tasked with encouraging new ideas from all areas of the company and facilitating a rapid, systematic screening at the right decision-making levels. Fast-tracking projects and making the process simple, quick and agile could play a primary role in Airbus’s future success.

Dr Kiran Rao, Airbus’s executive vice president strategy and marketing says technological innovation will be needed across the board, in aerodynamic efficiency, new engines, composites, the introduction of nanotechnology, innovative cockpits.

Airbus would be involved in a broad range of opportunities in such things as material management, air traffic management services, aeronautics information solutions, training and airport operations. It is innovation with the customer in mind, he says.

The focus today may be on the mounting battle in the 350-400 seat market between the 787, the proposed 777X and the A350, as well as the single-aisle skirmish involving the MAX and the neo, but in the end what is likely to decide the winners and losers in the multi-trillion dollar aircraft sales game will come down to a lot more than heavy metal.

It will be about who can deliver on their promises and who can get their more economic and fuel efficient products to market reliably, when they said they would, with the performance touted in the contract.

And it won’t just be a matter of handing over the keys to a new jet. It will involve after-sales customer service and an increasing ability to continue introducing improvements long after the aircraft has entered service.

While efforts focus on widebody sales, the A320 line remains central to Airbus’s future. julian green