Trying To Untangle Wires

The short circuit at Airbus has turned out to be much more serious than expected. For several months, officials at the giant aerospace company have explained away the delays dogging their biggest project, the €12 billion superjumbo A380[an error occurred while processing this directive] plane, by blaming the wiring. Each A380 has about 500 km of electrical cables that need to be configured individually for different customers (so the explanation went), and that was proving far more complex than anticipated.

Last week, the story changed. Airbus postponed the A380's launch once again, but acknowledged that the company's problems are far greater than mere technical snafus. The two-year delay to the A380 will reduce profits by an estimated €4.8 billion over the next three years and cut free cash flow by €6.3 billion. Airbus and its parent company, EADS, do indeed have a wiring problem — but it's one that has afflicted the companies' management structure as much as the guts of the planes themselves.

Airbus, a four-nation consortium backed by millions of euros of taxpayers' money, was once hailed as a model of European industrial cooperation. In fact, its structure, which distributes management and blue-collar jobs among its various state and private owners, has turned Airbus into a nightmare of corporate governance. It has become an enterprise in which political considerations carry more weight than commercial ones, where horse-trading trumps industrial efficiency, and where the national interests of its partners are balanced so carefully that many operations are needlessly duplicated. "It's very hard for Airbus to free itself from political strangulation," says Ulrich Horstmann, aerospace analyst at Munich, Germany-based Bayerische Landesbank.

Christian Streiff, who took over as Airbus chief executive in July, is now trying to wriggle out of that choke grip. Last week, the board of EADS, Airbus' parent, signed off on his sweeping restructuring plan to replace political bargaining with industrial logic. Streiff says that Airbus urgently needs to become a more closely coordinated company, but that's a long-term undertaking. "Integrating Airbus will remain an issue for the next decade," he said. "The cultures will have to continue mixing, and that takes time." It's not clear that Streiff will stick around that long; according to French media reports that the company denied, he last week threatened to quit in an apparent power struggle. If he does stay on, his plan will involve challenging several corporate taboos. The biggest: Streiff aims to end the practice of parceling out work by country in order to safeguard local jobs. It's a policy popular with politicians and unions, but one that eats up hoards of cash and causes logistical headaches as half-finished parts of aircraft are shuttled across Europe.

The wiring snafus are a hair-raising example of what can go wrong with this system. Airbus salesmen were so eager to win orders for the A380 that they offered to customize the interiors. Bespoke tailoring might be good business on London's Savile Row, but it's a huge complication for heavy manufacturing. And the task was made harder by duplication. Airbus facilities in Toulouse, France, and Hamburg, Germany, both work on the plane, but their software is not always compatible. Streiff admitted to employees last week that the design tools for wiring "could not keep pace with the rest of the program." Management communication is also poor. Leaked minutes of an EADS audit committee meeting last May, for example, show senior executives contradicting each other and giving highly divergent opinions about how long or serious the delays were likely to be.

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