Podcast: Why Airbus Is Shaking Up Its Leadership

Joe Anselmo:

Welcome to this week's Check 6 podcast. I'm Joe Anselmo, Aviation Week's Editorial Director and Editor-in-Chief of Aviation Week & Space Technology magazine.

A listener to this podcast recently commented that we talk about Boeing a good bit more than we do about Airbus. There's no mystery to that. Airbus, in some respects, is on top of the world. It has a commanding lead over Boeing and the narrowbody market that could go on for years, while reinforcing its position in the large Chinese market with a second assembly line.

But not everything is perfect in Toulouse. Hampered by supply chain problems, Airbus badly missed its delivery projections last year, disappointing investors. And problems with Pratt and Whitney's Geared Turbofan (GTF) engine are forcing the temporary grounding of hundreds of A320neos and A220s in the coming months. That has set up a tug of war with some of its airline customers over the limited supply of new GTFs.

Last week, the company announced the promotion of longtime veteran Christian Scherer to run its commercial aircraft business. Airbus says the move will allow CEO Guillaume Faury to focus on strategy and the company's defense business. But moving commercial aircraft out from under the CEO is also a major shift in Airbus's corporate setup.

So what does it all mean? Here to help us read the tea leaves are: Jens Flottau, Aviation Week's Executive Editor for Commercial Aviation, who has just spent two days with industry insiders at the ISTAT conference in London. Tony Osborne is Aviation Week's European Military Editor and has covered Airbus's military business for us for more than a dozen years. Joining Jens and Tony is special guest Sash Tusa, an aerospace analyst at Agency Partners in London. Jens, let's kick off with you. How is the industry responding to this executive realignment at Airbus?

Jens Flottau:

Very positively. As you just indicated, I spent two days with some of their most important customers, the lessors, discussing this and the feedback that I got was very, very positive. They felt that Airbus needed more focus on commercial aircraft, not in the strategic sense, but in the operational sense, getting production up to the levels that Airbus and the customers want it to be. Sorting out the delays that have hampered deliveries for a long time now and continue to do so. And they think that Scherer is very, very customer focused. He's been heading sales, he's been heading strategy where he was deputy to John Leahy for a long time. So he's very well regarded on the customer side and the hope they have is that he will bring that focus into the rest of the Airbus commercial business as well and over time lead to improvements. It won't be something that he can achieve overnight of course, but clearly the message has been perceived as a very positive move.

Joe Anselmo:

Sash Tusa, welcome. Thanks for joining us. Why make this change now? Is this a case of Airbus declaring victory over COVID? We're resetting and moving forward. Or is it a case of investors maybe not being so happy with the company's operational performance in the last year and looking for Mr. Scherer to shape things up?

Sash Tusa:

I don't think it's that investors have been unhappy with Airbus’ performance in the last year, although clearly the end of 2022 when Airbus really did miss a good slug of deliveries was a disappointment, and the company recognizes that. I think much more, what we're looking at here as governance issue. If the CEO of the whole group, Guillaume Faury, is also CEO of the largest division, Airbus Commercial Aircraft, that's not terribly good governance.

And really it does mean that he isn't spending enough time looking at the overall group structure. He isn't spending enough time looking at the challenges in really what are three separate businesses, a defense business, a space business, and a helicopters business. But there is an element, I think you're right, I think victory over COVID might be a bit bombastic, but certainly the crisis of COVID is over. The business is normalizing, the challenge now is less one of recovery from a really low production rate and much more, how quickly, how smoothly and frankly from the point of view of customers, how credibly can Airbus get the production rate up to, in the case of the totemic A320neo, rate 75 by 2026.

That's a big ask and it's probably much better that a CEO of Airbus commercial aircraft does that, rather than the CEO of the whole of Airbus focusing on that number and perhaps missing quite a lot of what else he really should be doing.

Joe Anselmo:

So what are the biggest challenges that Mr. Scherer faces?

Sash Tusa:

In the short to medium term, it is the production rate, but specifically it's managing the whole Geared Turbofan crisis. We heard back in June that there was going to be a recall of some Geared Turbofans and we heard last month that it was way worse than anybody had expected, and it will probably continue to get worse. So Airbus is going to be competing for the very same Geared Turbofan engines that its airline customers want as spares. And frankly, I suspect that the phone lines between Christian Scherer and his opposite numbers at Pratt and Whitney are going to be red-hot for months to come. Because Pratt can only produce a certain number of spare engines every month, however hard they try. We know that the production system is quite tight and Airbus wants every single one of those, but so did their airline customers, as spares.

Joe Anselmo:

Tony Osborne, we've been hearing for years that Airbus wanted to balance itself a little better between commercial and military a la what Boeing did by buying McDonald Douglas in 1997. But that really hasn't happened, has it? I mean, we haven't seen Airbus's military business take off even with this military spending bonanza we've seen in Europe since the Ukraine war began.

Tony Osborne:

I mean you could probably partially blame that on the success of the A320 family, that I guess the balance of their business has gone through the roof with the commercial business. But the reality is that Airbus's military aircraft products haven't taken off in the way they perhaps hoped. I mean, A400M was supposed to be the great white hope, I guess, in terms of replacing all sorts of airlifters around the world. And we've only really got a couple of export customers beyond the initial batch of national customers, the six partner nations. And then Eurofighter is just being outsold by the French Rafale, and also the US F-35. And of course the US continues to dominate the outlook for spending, particularly in Europe. I mean we've just seen the Czech Republic sign on for F-35. In fact, I think it would be a total of 11 or 12 countries in Europe will have signed on for that aircraft. It has become the Eurofighter and the Eurofighter is less Eurofighter and probably more of a Middle Eastern Fighter at this point.

And then there's a whole challenge around getting more sales of Eurofighter and there's a whole political spat now occurring in Europe, where Germany is preventing additional sales of that airplane into Saudi Arabia, an existing customer of that aircraft. So Mr. Faury may have to deal with some of those political issues.

Another one will be around the future combat air system where last year we saw a whole issues around intellectual property and work share around the Future Combat Air System (FCAS) and the combat aircraft at the center of that. And that delayed the whole program by a year. But it also meant that Dassault in France was taking a lot more control over that program. I think that's going to be a major task for Guillaume when he comes in, is to going to be to try and settle some of the dramas around FCAS.

Joe Anselmo:

Jens, are there any worries that the old EADS structure that was very politicized and was sort of torn apart by Mr. Faury's predecessor, Tom Enders, could be reasserting itself now with this new structure?

Jens Flottau:

In the outside world, I would say no. Inside Airbus, yes, maybe a little bit. I would say it's not really fair and it's not really comparable. You have to keep in mind that in a way they're going back to the old structure. There has been an Airbus commercial CEO for a long time, until Tom Enders joined the roles of group CEO and commercial CEO in what was also a very political move back then. When Guillaume Faury succeeded Enders in 2019, he kept that dual role and as I've said, that wasn't ideal. I fully agree with that. But Airbus remains political. So everything they do in the senior management level will also be viewed in that context.

It's also going to be interesting who's going to be the new Chief Commercial Officer at Airbus Commercial. What I'm hearing is that Benoit de Saint-Exupery is going to be the new Sales Chief. He's now the Head of Contracts and one of the closest colleagues to Scherer. He also happens to be French. So you've now got a German running the commercial aircraft business and of course his number two in the organization has to be French.

Joe Anselmo:

Sash, what are some of the challenges that Mr. Scherer's going to face in this new job? You talked about the GTF crisis. There's also looking at the potential launch of an A220-500, right?

Sash Tusa:

A220-500 is the plane that a lot of A220 customers really, really want. And Airbus have been playing this one I think, quite cleverly. They're holding off launching that because they know there'll be a bit of cannibalization from the existing A320neos at the smaller end of the line. So I think they're holding off until the A320, specifically, backlog has burned down a bit and they can then do a relatively bump free transition to the 220-500. Now that stage then the A320 family to all intents and purposes becomes the A321 family. You just have a variety of different ranges and capabilities of A321s. We're already seeing A321s north of 60% of some month's deliveries. It's phenomenally successful. So yeah, A220-500 is important. Ramping up though, all of Airbus's production rates should be going up.

The A220 production rate should be more than doubling. Their target is 14 a month. Well, they're about six a month at the moment. That's a big ask and in particular, they don't yet have a backlog for that, certainly on our numbers. The widebodies are going to nearly double in rate from the post-COVID troughs out to about 2025, 2026. That's not easy given how strained the supply chains are.

But then there's this much broader issue, which is how much does Airbus invest in what they refer to as digital, but it's basically the new production systems, the new integrated design systems, that will enable them to do the next generation of aircraft much more smoothly. I'm not sure about cheaply, I didn't think anything ever becomes cheap in the next generation, but much, much more smoothly than previous generations.

Because at some stage in the next three, four, maybe five years, I didn't think we can wait that long, there's going to be a new generation of aircraft launched by both Boeing and Airbus. And they can't do them the same way they did in the last time. So I think the investments in digital -- and Airbus is spending about 400 million a year on that at the moment, euros -- it's a very, very expensive process. And sorting out the internal production and supply basis, those are big ongoing challenges even away from the basic job of just trying to make sure you have enough geared turbofans to put on half the A320s you produce.

Joe Anselmo:

And Airbus has gained a big lead in what used to be a 50/50 market, the narrowbody market. Is digitization the one area where maybe Boeing could try to come in to catch up to Airbus?

Sash Tusa:

Yeah, I think it is. Boeing is certainly spending a lot. Boeing's now got the X-66 truss wing demonstrator. Airbus clearly has been spending money quietly on new generations of wing and fuselages and so forth. But I really think that Boeing has an advantage in terms of digital, to use the broadest term there. And that's Boeing's big hope for the next generation. Airbus can't afford to get that one wrong.

Jens Flottau:

On the other hand, one of its challenges is that it has to ramp up production and modernize at the same time, which has been a difficult balance to strike. And just strategically, you talked about the A220-500. Yes, that's a project, but there's also more to it, right? They have to launch the A220-500. Many of us think it'll be by the 2025 Paris Air Show. They also have to decide which engines to put on it and whether it's going to be just one manufacturer or two. And I guess right now, the mood is, it's certainly going to be two. The question is who's the second one and will Pratt even be on it? So that's one.

I just want to go back to Scherer as an Airbus executive for a moment, and remind people that he's 61 years old. He will retire in like four or five years probably, and he's got all these strategy decisions to make. Launch the A220-500, reset the relationship with engine suppliers probably in a big way and possibly as Sash says, launch a new narrowbody project.

So he's kind of toward the end of his Airbus career, but he's got huge decisions to make. And it seems to me that he's the right person here at the right time, because he's got this strategy background. He's been with Airbus for all of his life. When he was 10 years old, he was on the top of Toulouse airport, watching his father take off in the first A300 flight, Gunter Scherer, who was a flight test engineer on that first flight. So it seems to me that everything's coming together at this moment in time, and now he has to really deliver.

Sash Tusa:

It's a great backstory, isn't it? It's a lovely, lovely sort of circle of career and life there.

Joe Anselmo:

Tony, don't mean to put you to sleep with all this commercial talk, but tell us what are some of the ways the defense business needs to be transformed?

Tony Osborne:

I'm no business expert, but the key thing is to try and get exports, I think, for all of these programs. These are all really niche platforms that were built for European customers. They're expensive, they're exquisite. They need to move on with that. They need to try and get sales for these platforms. That's always going to be a struggle. Inevitable supply chain issues as well. So I think those are going to be the key challenges, just getting more and more of them out the door. We know that A400M program was basically, the numbers were cut back roughly eight or nine aircraft a year, to give them more time to get more exports out. At the Paris Air Show, the Eurofighter GMVH was talking about trying to get another 150, 200 Eurofighter sales in the next few years.

And the challenge there is that at least 48 of those are compromised by the German government's decision not to sell to Saudi Arabia. We've just seen the British Prime Minister, Rishi Sunak, step into that argument. So I think it is literally about building up that export orders, changing possibly their approach to development. Also, they're also hindered also by the fact that so many nations have differing requirements. We saw that with the NH90. We've seen that with the Eurodrone. We've seen that with the A400M. We know that the head of the Defense and Space Division wants to see a different approach to having a minimal viable product that can then be improved. And I think that's going to be one of the ways forward that they will approach that.

Joe Anselmo:

And Tony, I thought your point about the neo just supercharging Airbus's commercial business was a really good one. If you go back to 2012, even Airbus didn't project that they would sell nearly this many neos and grow the business that fast.

Tony Osborne:

How do you balance against that, I guess, if that's suddenly 70% of your sales? Military sales are not going to balance off that and they never will. I mean, commercial will just now outpace defense sales astronomically now.

Sash Tusa:

I think Tony's absolutely right about the challenges in defense. I think there's one other issue that I'd like to raise. Airbus has got the world's number one commercial helicopter company, but the entire vertical lift industry is changing. It is actually fragmenting at the moment. On the one hand, you've got the very, very futuristic, frankly, the vertical military vertical lift programs in the US, and Airbus seems to be a long way away from that sort of program at the moment. On the other hand, you've got eVTOL, which is an absolute bottom end of the market, but may well take some of the future vertical lift market. And I think that the challenge with Guillaume Faury is to think what is the viable shape and direction for Airbus helicopters for the next 10 to 15 years. I do wonder actually whether Airbus Helicopters should be a standalone business or part of the much larger defense and space business, just accept, and that might actually help then Airbus helicopters do a better job in the military market, which is actually an area where they're very, very weak at the moment. Tiger is in its closing years. The attack helicopter NH90 has also clearly got challenges. I think the helicopter's business, there are some big strategic issues there, and I think giving Guillaume Faury time to actually look at those and probably make some quite hard decisions, would be a very, very good thing for the board.

Joe Anselmo:

Okay. Well, unfortunately we are out of time, so we'll have to end it on that note. But thanks to all of you for an insightful conversation, and Sash, it was great for you to join us, and we'll definitely have you back. That is a wrap for this week's Check 6 podcast. A special thanks to our podcast producer in London, Guy Ferneyhough. If you're listening to us in Apple Podcast and want to support the work that we do, please leave us a star rating or write a review. Thank you for your time and have a great week.