Wall Street Journal

p Power 8 Plan for Airbus

Power8 Prepares way for `New Airbus`

Article Summary

EBIT contributions of ?2 .1 billion from 2010 onwards and additional ?5 billion of cumulative cash flow from 2007 to 2010 . Such a plan is required for Airbus to retain competitiveness in the market in light of market changes like the Dollar weakness and delays in A380 delivery

It provides for both strategic and operational measures . The key strategic measures include the following

Development of a global network of partners through the extended enterprise concept that

transfers risk and part of investment to partners in exchange of long term s

Focus on core business activities that are critical for the integrity and safety of the aircraft , or vital for technological and commercial This will be implemented in the `make or buy` strategy as adopted for the A350 XWB

Full industrial integration of Airbus by establishing a new organizational structure with transnational `Centres of Excellence replacing the existing national structures . In addition rationalization of final assembly lines would bring benefit in scaling up with demand

The key operational measures include the following

Strong cost reduction and cash generating efforts : A large part of the cost savings will be achieved through reducing the workforce by 10 ,000 over four years , an hiring freeze , an executive salary freeze for 2007 , as well as significant cuts in general expenses In addition , Airbus and the parent EADS will work together to implement the strategy of shared services and sourcing

Develop Faster : This module aims at the reduction of cycle time of new aircraft development from 7 .5 to 6 years , while establishing robust development processes and maintaining the required aircraft maturity at entry into service . It also aims at improving the productivity of the company 's engineering activities by 15 per cent

Lean Manufacturing : It is meant to further integrate manufacturing and associated engineering , and ensure the deployment of consistent lean production principles across all plants . A productivity increase by 16 per cent is targeted by 2010

Smart Buying : This is planned to be achieved through reshaping and consolidation of the supply base and streamlining the logistics organization from 80 to 8 logistic centres

The immediate impact to the company is that the measures adopted require a provision of ?680 million to be taken in the first quarter of 2007 . In addition , Airbus will also report a negative EBIT in 2006

The article also identifies certain risks as well . The key risk is that in view of the headcount reduction and A380 delays , Airbus needs to handle the need for significant cash needs and deteriorating profits in the future and the large investments needed for current and future programmes such as the A350 XWB

Author 's Comments

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tz nd also identifies certain risks . The measures are very logical and in line with the industry trends . However the author feels that there is an additional key risk in building a unified leadership which has been lacking...