Unified Airbus company clears way for launch of `super jumbo’

The proposed A3XX airliner could create 22,000 jobs in the UK and promises billions in economic benefits across Europe. But how well will a pan-European partnership of French, German, Spanish and the UK companies work?

By George Paloczi-Horvath and David Fowler

Airbus Industrie’s decision to go ahead with the A3XX `super jumbo’ and to form the Airbus Integrated Company could lead to a domestic aviation jobs boom – with the prospect of locking wing manufacturing into the UK for the foreseeable future.

The A3XX’s first flight is scheduled for 2004. It will enter service in the last month of 2005 or early 2006 and reach its maximum production rate in 2005-2007. At that point, the UK can look forward to 22,000 new jobs, 8,000 of them in wing production. All Airbus wings are designed and built at Broughton, near Chester and Filton, near Bristol on sites currently owned by BAE Systems.

John Weston, chief executive of BAE Systems, says the creation of AIC has cleared the way for the A3XX project. The partners will transfer all their Airbus-related design, engineering and manufacturing assets in the UK, France, Germany and Spain to the new company, which will be incorporated in France and will employ 40,000 people.

The integrated company will replace the current Airbus loose consortium. It has been formed by fusing the 80% holding of the European Aeronautic Defence and Space company (Eads, formed by the merger of France’s Aerospatiale Matra, Germany’s Dasa and Spain’s Casa) with BAE Systems’ 20% stake. AIC will have an annual turnover of around e15.7bn (£10bn).

The 80/20 AIC split between Eads and BAE was agreed, despite concerns by BAE Systems that it was supplying more than 20% of the company’s assets, on the basis that BAE will have the right to enhanced dividends on its shareholding. This will depend on deliveries of the existing A340-500/600 airliner above an agreed rate over a 10-year period.

Weston would not reveal what this rate is, but based on current economic conditions it could yield BAE up to e237.5m (£151m). The amount will also be indexed to AIC’s future profits.

BAE will have two of seven seats on AIC’s board, plus two on its executive committee. All other positions will be taken by Eads but BAE will retain its veto over the financial planning of the company, and it has an option to sell its stake to Eads after three years if it is dissatisfied with the company’s direction.

Airbus estimates the formation of AIC will generate savings of e350m (£220m) by 2004 through economies of scale, greater purchasing power, removal of duplication and by cutting overheads. But Weston says there will be no job losses overall: `The jobs which will be created by the A3XX far outnumber those which may become superfluous through the creation of AIC.’

Iain Gray, director of strategy and external affairs for Airbus UK, says having a single focused management team empowered to make decisions without having to get authorisation from shareholders will make the new company more decisive and responsive, leading to improved operating performance.

On the UK’s future as the producer of Airbus wings, Gray says: `It will be up to us to prove the UK is the best place to build wings in terms of cost, efficiency, technical expertise and performance. But if we build on what we have done as BAE Airbus and the support given to the A400M and A3XX by the government, we have the opportunity of locking wing manufacture into the UK for the foreseeable future.’

That BAE Systems is a junior partner to Eads in the company does not concern him: `The company will be focused on a competitor who is out in the market, not competition from within.’

He says savings in procurement, on the aircraft and non-aircraft side, would be relatively easy to make. `As a single company with operating subsidiaries in France, Germany, Spain and the UK, the real challenge will be harnessing cultural differences to create a single Airbus culture.’

BAE Systems says the A3XX will bring the UK economic benefits for at least 40 years and should generate around £20bn in net exports. The company plans to recruit up to 600 aerospace design engineers across various disciplines over the next 18 months to work at Filton on A3XX design and development, and on other new Airbus aircraft.

`We are already seeing an increase in value-added jobs in the UK as a result of the A3XX,’ says BAE chief operating officer Mike Turner. Some 300 new engineers are needed at Filton this year and a similar number will be recruited next year.

Companies which have so far expressed interest in the 480-650 seat passenger airliner include Air France, Emirates, Singapore Airlines, Virgin Atlantic, US leasing firm ILFC and three as yet unnamed airlines. Airbus says the £8bn project would break even with sales of under 250 planes in 20 years, though it forecasts around 750 sales over that period.

`If negotiations with the eight companies which have expressed interest in the A3XX translate into binding letters of intent, this will provide sufficient grounds for a full-scale launch,’ Weston says. `I hope this will happen in the second half of this year.’

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