Monday, February 19, 2007

When Bigger Is Not Better

If you want a metaphor for the challenges facing further European political integration, look no further than the Airbus A380. Airbus is the pan-European manufacturing arm of EADS (the European Aeronautic Defense and Space company), with facilities in France, Germany, Spain and England. It's the object of no small amount of European pride, and its rivalry with Boeing is something of a spectator sport over here.

Billed as the largest passenger airplane ever built, the A380 was destined to be the feather in Airbus' increasingly decorated cap. Its initial test-flights in late 2005 and 2006 impressed, and orders streamed in, eventually totalling 166 airplanes (pretty healthy sales for a $300 million bird). Major buyers include Emirates Airlines (43), Lufthansa (15), Qantas (20), and even UPS, which contracted to buy 10 units of the freight model.

In the meantime, in June 2005, before the plane was even test-flown, Airbus announced a six-month production delay. This was followed by another six-month delay announced in June 2006, followed by another delay accompanied by a delivery shedule re-structuring announced in October 2006.

The cause of the problem was ostensibly the cabin wiring, but insiders blamed a power struggle between German and French management factions resulting in poor communication throughout the company.

Now, with production delays of two years, orders in limbo, $6.6 billion in lost projected revenue, and stock value having taken a hit, EADS was supposed to announce a re-structuring plan to cut 10,000 jobs (20% of their workforce) tomorrow. An announcement which was postponed because none of the four countries involved can agree on where to make the cuts.

Which is why if you're waiting to see what an integrated EU foreign policy would look like, or a non-NATO European military force, I've got one piece of advice for you: Don't hold your breath.

Posted by Judah in:  European Union   Markets & Finance   

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