Eurocopter reorganizes under Shape program

 - November 24, 2009, 6:29 AM

Eurocopter on October 22 launched a reorganization effort to address a slump in orders and shortcomings in areas where until recently CEO Lutz Bertling had been trumpeting the company’s strength. Eurocopter’s goal with the so-called Shape program is to save money, simplify processes and further invest in future products. Shape succeeds Vital, which the company launched in 2005 to facilitate a swift production ramp-up.

Since the beginning of this year, net helicopter orders have decreased by 70 percent, compared to the same period last year. Light helicopters such as the EC 120 and the AS 350/355 Ecureuil are experiencing the biggest decline. Meanwhile, medium twins, such as the Super Puma, are enjoying sustained sales.

Eurocopter declined AIN’s request for an interview with a senior executive to explain the Shape initiative, but Didier Hacquart, a representative for the CFDT union at Eurocopter’s factory in Marignane, France, explained some of the program’s planks.

The impact of the ongoing economic crisis appears to be the first matter of concern for the management team of the EADS subsidiary. A cost-reduction plan under the Shape initiative is supposed to save about E200 million ($280 million) every year.
One way to cut expenses will be to slash overhead costs, by downsizing administrative departments and trimming travel costs, for example.

Moreover, a “cash improvement project” will start with reducing production inventories. Eurocopter will have to develop strategies to simultaneously reduce production inventories–to the tune of several hundred million euros–and maintain its delivery schedule.

In a letter to employees, Bertling said Eurocopter has not invested enough in recent years and implied some of the manufacturer’s products are verging on obsolescence, compared with the competition.

Yet Bertling over the past 12 months has consistently insisted the company has plans for flying a new aircraft model or demonstrator each year, next in line being the seven-ton-class EC 175. However, the Tiger and NH90, two heavily delayed military programs, were monopolizing the attention of designers. As these projects near completion, designers are becoming available. This year Eurocopter expects
to spend close to E167 million ($233 million) in self-funded research and development, a 25-percent hike over 2008 levels. A further increase is envisioned for next year.

From an organizational point of view, Shape calls for “simplification of processes.” In the opinion of Hacquart, Eurocopter has come to realize that some of its previous decision making was “quite unclear.” He also talked about “diluted responsibilities” and “too many positions in monitoring, management, control and so on” compared with operational positions.

Hacquart explained that as production has decreased, the opportunity for overtime hours has declined, and a work-time agreement that took effect in September has provisions for possible ramp-downs. Moreover, as Shape suggests, some employees can be moved from light to medium helicopter production lines. First to be  affected by slowed production, however, will be temp workers. “There were 1,100 of them at the end of 2008; how many will still be with us at the end of this year?” Hacquart wondered.

The union representative conceded that Vital fell short of achieving one of its goals, called “face reality.” It was supposed to reward whistle blowers, employees who point out flaws in the organization. “But it is not easy to translate this theory into practice,” Hacquart said. Raising an issue, especially one that could delay a program, is still something few people want to do at Eurocopter.

Hacquart expressed concern that the company would move some work to so-called “low labor cost” countries to maintain profitability as small-profit-margin aircraft assume more importance in company revenues now that the delayed (and therefore more costly) Tiger and NH90 programs are in the production ramp-up phase.

Bertling assured personnel representatives that neither layoffs nor abbreviated work weeks are planned for next year.