Singapore Air Show

Airbus’ Power8 is more than a cost-cutting plan

 - February 17, 2008, 6:00 PM

Airbus’ Power8 restructuring program has so far done what its designers intended it to do at its inception in February 2007, achieving a reduction in overhead and costs while finding partners for the aerostructures sites the company wants to sell, according to Airbus president and chief executive officer Tom Enders. “Power8 is not only a cost-cutting program. It is far more comprehensive,” said Enders, who stressed that the Power8 goals involve making the company “leaner in all respects to make it more efficient and more productive.”

Airbus chief operating officer Fabrice Brégier said that Power8 has so far managed to meet its minimum target of r300 million ($438 million) across the company, although he said the actual figure will likely approach e500 million ($731 million). “We squeezed the costs from the low-hanging fruit, but it’s not limited to that,” he said. “We have at the same time renegotiated with our suppliers and our partners. Not only putting pressure on them, but leveraging them as regards to costs.” Brégier expressed confidence that the company will have saved up to r2.1 billion ($3 billion) by 2010, although he said the Power8 initiatives to save money will continue beyond the program’s 2010 target date.

The Power8 savings have not come cost-free, however. The company wants to shed 10,000 positions in all aspects of its operations by 2010, and Enders claimed it has “achieved already roughly thirty percent” of that figure. The reductions are expected to be shared roughly equally between Airbus and the company’s suppliers. However, Enders does not expect any further losses after this year. “We currently have no further plans for job cuts beyond 2008,” he said.

The company is also in the midst of divesting itself of its aerostructures factories in France, Germany and the United Kingdom. “Airbus has been successful in finding partners for the six site divestitures: Méaulte and Saint Nazaire Ville in France; Nordenham, Varel and Augsburg in Germany and Filton in the United Kingdom,” said Enders. “Regarding the announcements we made on the sites in France, Germany and the UK, we want to finalize those by the summer of this year.” So far, GKN Aerospace of the UK, Latécoère of France and OHB Technology of Germany are the favored bidders for the six sites.

Although firm decisions won’t likely happen until the summer, question marks remain as to whether Airbus will retain any minority shares in the factories either as they are sold or after the sales are complete. “That’s still under discussion,” said Airbus COO customers John Leahy. “There are different strategies. It’s all up in the air. Nothing has even been approved by our board of directors.” According to French Union CGT, the minority shares will likely account for 40 percent of the French sites, 25 percent of the German facilities and none of the UK plant. These shares would be retained during three years.

The divestitures and the increasing reliance that the company expects to place on its suppliers seem to add up to a subtle reorientation of Airbus’ focus and core business. Enders said he is keen to share the “capital investments, risks and benefits to develop new aircraft technologies” with the company’s suppliers.

However, the unions strongly oppose factory sales. For example, the CGT wonders what kind of guarantees Airbus will give on the level of local investment. The union notes that Latécoère’s pockets do not go as deep as those of Airbus. Moreover, the supplier already carries heavy debt. The CGT also noted that Boeing’s policy of outsourcing is causing serious delays to the 787 program.

Power8 Poster Child
The new A350XWB widebody development is something of a showcase for the leaner Airbus promised by the Power8 initiative. For instance, auxiliary power unit (APU) supplier Honeywell will build not just the APU, but a host of accompanying components for the system, allowing Airbus to purchase the APU and its related systems from a single-point supplier. Airbus reportedly will purchase subsystems by grouping requirements around technology types, which it will source from suppliers worldwide.

While the Airbus leadership seems keen to highlight the progress it has made with Power8, it has conceded that the weak dollar is forcing it to add new measures to ensure that the company does not become overly affected by the dollar’s ill health. Part of the effort revolves around an EADS-wide initiative called Vision2020. Lanched last year, the program aims to source up to 40 percent of the company’s supplies from outside Europe by 2020, while reducing EADS’ overall 64-percent revenue dependence on its aeronautical business.

Airbus plans to take advantage of its worldwide requests for proposals for technology suppliers this year by looking at suppliers based in Latin America, India and China where it could buy in dollars. Apart from Vision2020, Enders and his colleagues talked of a so-called “Power8 Plus” initiative to mitigate the effect of a weak dollar by offsetting some production to low-cost, dollar-zone countries.

The French CGT union does not see the weak dollar as a good reason for taking such dramatic action. The union argues that previous unfavorable periods in currency exchange rates have not required de-localizations. The CGT also said Airbus’ hedging policy and the 70-percent dollar content in an aircraft already mitigate the effect of the low dollar.

However, what additional packages they will include apart from those already incorporated into Power8 and Vision2020 can only be speculated upon. For now, Enders insisted, “We will proceed full-throttle with our Power8 program. We are in discussions regarding additional measures beyond Power8 due to the very low dollar. These additional measures are currently being discussed and will be communicated. There are no easy measures here on top of an already challenging Power8 program in the ramp-up phase.”