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EADS, a Franco-German Adventure

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EADS, a Franco-German Adventure

By Richard Labévière and Joël-François Dumont (*)

Défense magazine Nr137.Louis Gallois, CEO of EADS meets the international  press and comments the results for 2008 at Newport (UK) on January 13, 2009. Joël-François Dumont.© Photo.

Louis Gallois, CEO of EADS meets the international  press and comments the results for 2008 at Newport (UK) on January 13, 2009

Ever since its creation in 2000, the European group EADS has been in the news more often than necessary, with the result that a controversial image has been created that is very different from reality. The reality is a group that, in a period of nine years, has become the European champion in aeronautics and defence, the only one capable of competing with the large American groups and establishing its position in the top rank worldwide in aircraft construction, a fast-growing group that has created 15,000 jobs over the past seven years!

Without going back over the now well-known history of the emergence of this new giant, it is necessary to consider the position it holds in the four major domains – aeronautics, space, helicopters and defence – in order to demonstrate that the foundations of this construction are solid enough to guarantee the future.

This success, however, rests first and foremost on a pillar, the Franco-German pillar, which was built up long before the EADS adventure through a series of successful cooperation programmes, some of which go back a long way, in missiles, aeronautics and space. It is this long-standing binational cooperation that has allowed EADS to take root, in spite of the ups and downs of Franco-German political relations.

All the more so, at a time when the drive towards European defence industry integration, triggered by the Letter of Intent in 1996-97, a drive that gave rise to the EADS group, seems today to have lost momentum with a return towards what is not yet chauvinism but in any case national susceptibility in the main European countries, it is truly the Franco-German axis that through EADS has survived all these criticisms and whose solidity is standing up to the current economic crisis.

  • Airbus, a modest GIE becomes a world leader

There can be no denying that the success of Airbus is the success of four countries closely united on civil aeronautics programmes – Germany, Spain, France and the UK. It was their union within the Airbus economic interest group (GIE) which made it possible to pursue the successful but isolated cooperation programmes such as between France and Britain on Concorde, a futuristic programme that came to an end notably because of the barriers created to the US market and which prevented the programme from achieving the level of commercial success which one could have expected from a plane combining so many technological accomplishments.

The Airbus GIE, less spectacular to start with, represented a massive investment by the German aeronautics industry, which wanted to become a major player in the aeronautical industry again, which it had been prevented from doing in the aftermath of 1945. After a modest start with the single-aisle family (A300, A310, A320), the Airbus product line gradually expanded and made its mark in the widebody segment, which was dominated by US firms in the process of merging at that time (Boeing, McDonnell Douglas, etc.). A330, A340, right up to the A380 super-jumbo, known as the A3XX when EADS was created in 2000 before receiving its definitive designation.

In an unintentional swipe at Boeing, Airbus signed “777” new orders in 2008, retaining the number one position with 54% of the market and an order book of 3,715 aircraft, which is exceptional in spite of the uncertainties hanging over these orders due to the crisis.

Airbus A380 at the Berlin International Airshow (ILA). ILA © Photo.

The Airbus A380 at the Berlin International Airshow (ILA). 1.3 million passengers already transported since October 25, 2007...

Criticised as unrealistic, accused of all kinds of defects, including financial and legal inquiries currently ongoing, the A380 programme is nonetheless today one of the most successful, the most promising and the most popular members of the Airbus range: with 13 aircraft already in service with three airlines (Singapore, Emirates and Qantas), including 12 delivered during the 12 months of 2008, a total of 900,000 passengers have already travelled on this unique aircraft, which is still flying with full loads because demand is so strong!

In 10 years, Airbus moved from a 19% world market share to more than 50% today, in a fast-growing and ultra-competitive market. Over 12 years, production rates have increased three-fold.

Pierre Bayle, Head of Corporate Communications, EADS group. Joël-François Dumont © Photo.Joël-François Dumont © Photo.

Pierre Bayle, Head of Corporate Communications, EADS group

“The keys to Airbus’ success are simple,” explains Pierre Bayle, director of media relations at EADS, “For each aircraft type, production is distributed with no overlap between the countries (wings in the UK, tail assembly in Spain, nose section in Méaulte, fuselage sections in France and Germany, and always a single final assembly line, in Toulouse or Hamburg).”

From the Tower of Babel represented by the initial GIE, the dynamics behind Airbus shifted with the integration of the French, German and Spanish components within EADS, followed by the purchase of the BAE Systems share, finally allowing the creation of an integrated Airbus company. The last step in this integration process is the merger announced at the end of 2008 of the Military Transport Aircraft division within Airbus, so that all military activities will now be grouped together within Airbus Military, in particular the A400M and the A330 tanker. It should be underlined that this integration comes at the perfect time to get the immensely complex and very ambitious A400M military transport aircraft programme back on track.

HM King Juan Carlos in Sevilla on June 26, 2008. Joël-François Dumont.© Photo.Rollout of the Airbus A400M in Sevilla. EADS © Photo.

HM King Juan Carlos in Sevilla on June 26, 2008 -- Airbus A400M in Sevilla (SP)

  • The A400M, a successor for the Transall

Only France and Germany had risen to the challenge of producing a dual (strategic and tactical) military transport aircraft capable of carrying large payloads over long distances and landing on unprepared runways. The Transall, born 30 years ago out of a fruitful Franco-German cooperation, is still in service, even though the German partner did not follow France in developing a successor, the Transall NG (New Generation).

The A400M comprises the same ingredients for success: a rugged and tactical aircraft with large capacity, but with much more ambitious specifications: speed of Mach 0.7, capable of flying (and air-dropping) at high altitude, increased payload, civil and military navigation standards, capable of flight and tactical landings in zero visibility, countermeasures, etc. The initial contract, signed in 2003, brought together from the outset France, Germany, Spain, the UK, and also Belgium and Turkey.

Managed by OCCAR, the programme, which was unfortunately launched as a civil programme with an overly rigid contractual framework, has become bogged down by additional, diverging specifications from different military customers, to the point where the financial balance has been completely overturned. In addition, the difficult development of an all-new powerplant has resulted in a series of delays which have obliged EADS to make financial provisions, with more to come. All of this has prompted EADS CEO Louis Gallois to comment that “the complexity of the programme has been completely underestimated,” adding: “we collectively bear much of the responsibility; nobody in the world has ever built a military aircraft in less than 10 years. We wanted to do it in six and a half, and quite clearly the difficulty was underestimated.”

Tom Enders, CEO von Airbus in Farnborough. Joël-François Dumont © Photo.  KC-30 Tanker Refueling B2. Northrop Grumman © Computerized Picture.

Tom Enders, CEO von Airbus in Farnborough --  KC-30 Tanker Refueling B2. Northrop Grumman © Computerized Picture.

Airbus CEO Tom Enders, who is responsible for the programme now that it has been fully integrated into Airbus, says: “to say that we want to abandon the A400M is nonsense; but it would be irresponsible to continue on the current contractual, financial and technical bases.”

And so the contractor is on the point of convincing its customers and industrial partners that the problem is not so much to find out who will pay penalties for the delay, as to ascertain whether everyone is not linked by the same desire to complete the project by reaching agreement “on a realistic approach”; today there is no alternative product, and all the interim solutions that have been mentioned only meet the strategic transport requirement, for which a freighter aircraft is sufficient, without meeting the tactical transport specifications. Once again, beyond the public expressions of impatience on the political level, it is probably the Franco-German axis (expanded to include Spain) that will guarantee the success of this exceptional aircraft.

  • A350, the future is on the move

Another example of success, and once again with a big lead over Boeing, the launch of the Extra Wide Body (EWB) version of the A350, completely redesigned in this new version, an enormous amount of work which has frozen the design and effectively launched development, while stabilising production through a process of outsourcing aerostructures activities on the programme to new subsidiaries. This has involved the creation of Aerolia in France (Méaulte and Saint-Nazaire-Ville) and Premium Aerotech in Germany (combining the Airbus sites at Nordenheim, Augsburg and Varel): once again the Franco-German dynamic, the Franco-German symmetry in successes and in extra efforts.

In presenting the programme on 14 January in Toulouse at a ceremony to lay the first stone of the final assembly line (FAL), Tom Enders, the head of Airbus, Fabrice Brégier, COO in charge of programme management, and Didier Evrard, in charge of the A350 programme, gave a two-sided image: a visibly united and dynamic Franco-German team, and a programme presenting the future configuration of an entity focused on its core business.

The production work-sharing arrangements show the complementarities between a certain number of subcontractors, including Spirit of the USA, Aerolia of France, Premium Aerotech of Germany and Britain’s GKN (which has recently purchased the Filton site of Airbus. This is a very faithful implementation of Vision 2020, launched by Louis Gallois with the aim of balancing the group’s Euro/Dollar production activities and focusing on core business.

A350 © Airbus SAS 2006 - Computer rendering by Fixion - HCSGM.

A350 © Airbus SAS 2006 - Computer rendering by Fixion - HCSGM

For this new aircraft, which is positioned in the widebody twin segment, demand for which is estimated at 5,700 new aircraft over the next 20 years, success is written in the genes: although the first aircraft (in the A350-900 version) is not due to enter service until 2013, Airbus has already logged 478 orders from 29 different customers in two years! Which prompted Tom Enders to present it as “the fastest-selling plane ever”. As proof of its confidence in the aircraft’s market potential, EADS has financed A350 development investments out of its own resources, i.e. almost 140 million euros for the facilities in Toulouse.

  • Astrium, military and commercial leader

Franco-German cooperation in space has a long history. In satellite programmes, the merger of Matra Marconi Space with the activities of DASA (Germany) and Casa Espacio (Spain) created Astrium, which brought together the activities of Aerospatiale, builder of the Ariane launchers for Arianespace. Successive mergers and the creation of Astrium have created this space giant which, although it is not the only space player in Europe (there is also the Thales Alenia Space group), is the only one to have capabilities in all sectors of the space business: launchers, manned space stations, satellites and satellite services. Without going back over the well-known success of the Ariane 5 heavylift launchers, where France exploited the know-how gained under the ballistic missile programmes for the nuclear deterrent, Germany has made a major contribution to the success of Astrium with the ATV spacetug and its participation in the Columbus programme. However, we must not forget flagship programmes like Helios, Spot or, on the military side, the M51 strategic missile, which has successfully completed its most recent tests.

Spot 5 satellite in orbit : A fantastic success. EADS Astrium ©¨Photo.

Spot 5 satellite in orbit : A fantastic success

EADS Astrium, which is on the cutting edge of development and marketing of satellite services in secure telecommunications and navigation, has established itself as the central and only access point for military satcoms services. EADS Astrium Services, well known as the key partner in the consortium selected to lead the deployment and operation of Europe’s Galileo satellite navigation system which is due to enter service at the end of the decade, has satisfied the communication requirements of military customers in several countries: framework contract with the French MoD to supply secure satellite telecommunications services to the French armed forces (ASTEL-S agreement), and the SATCOM-BW programme in Germany, which will be operational in 2009. Astrium Services provides secure military telecommunications to the British armed forces, NATO and the armed forces of Portugal and Canada through its fully owned subsidiary Paradigm Secure Communications.

Astrium is a truly global space industry leader with extensive prime contractorship experience and an international reputation for excellence across all sectors of the space business.

François Auque, CEO of Astirum. EADS Astrium © Photo.The Automated Transportation Vehicle (ATV). F. Watbled EADS Astrium ©¨Photo.

 François Auque, CEO von Astrium --  The Automated Transportation Vehicle (ATV)

The reorganisation decided in December, whereby Astrium and the “Defence and Security” division are now part of single coordination led by François Auque, constitutes a new dimension which should further expand this binational cooperation. There is one domain in which EADS offers top-level skills that are not yet sufficiently developed – ground stations and satellite data reception and interpretation systems used for mission preparation by air, land and naval forces.

  • Eurocopter, leading helicopter builder

One of the longest-standing Franco-German cooperation initiatives, in helicopters, is also one of the most successful: today Eurocopter is the world leader, in financial results and above all in terms of technology, ahead of its rivals in the USA (Bell, Sikorsky), Italy (Agusta Westland) and Russia, to mention only the main ones. German know-how was initially developed through production of Bell models under licence, helicopters in the 2-3.5 tonne class (Be105 and BK117), before German engineers teamed up with their French counterparts, who had built up even greater expertise producing helicopters from 2 to 15 tonnes (Super Frelon) developing the family of Alouette, Gazelle, Ecureuil, Dauphin and Puma, from which the company has derived the very diverse range of military, civil and parapublic products that it offers today. And so it is not by chance that a German, Lutz Bertling, has taken over from Frenchman Fabrice Brégier, following the latter’s move to Airbus to become Tom Enders’ right-hand man.

Lutz Bertling CEO of Eurocopter. Joël-François Dumont © Photo.NH90 in testing. Deulin Photo © EADS.

Lutz Bertling CEO of Eurocopter  --  NH90 in testing

The Tiger combat helicopter was initially Franco-German before being adopted by Spain and Australia. The NH90 is also a Franco-German cooperative programme, extended to include Italy. The reputation of Eurocopter products worldwide today is such that the company can boast of supplying machines to a very demanding customer, the US DoD, with 50 Light Utility Helicopters (LUH) already delivered to the US Army and around five machines scheduled for the US Navy, in addition to the 50 EC725s ordered by Brazil at the end of last year.

From Donauwörth on the Danube to Marignane on the Mediterranean via La Courneuve on the outskirts of Paris, the Franco-German axis is truly the source of the dynamism of a helicopter builder which today is present on all continents.

  • Defence and Security, a range of assets

DS, which inherited the defence electronics activities of DASA, Matra and Aerospatiale, today offers a range of services extending from conventional military defence (the division is known above all for its lead role on the Eurofighter programme, a combat aircraft shared by four European countries, which has around 700 orders; 170 aircraft have been delivered by the international consortium to date) to civil security systems (DCS), with offerings adapted to different missions. For example, the use of unmanned military reconnaissance aircraft for civil security applications, as was done for the recent visit of the Pope to France. Major border security contracts have also been signed with Romania, Brazil and Saudi Arabia.

At Newport Stefan Zoller, CEO of Defence and Security Division provided the international press with someimpressive data : “Indeed, 2008 was a record year for Defence & Security”, he said. “Our revenues increased by 5.1% to € 5.7 billion. Both our return on sales (RoS) margin and our EBIT have doubled since 2005: with an EBIT increase of 18% to €408 million and the already stated RoS margin of 7.2% we were the most profitable division within EADS in 2008. And in 2009, we will even do better... We do not expect major shortfalls in our business. As planned, that should lead us to a further ramp up in our businesses also for the year 2009.

Eurofighter from the 73th Wing "Steinhoff" flying over Schönefeld during the ILA Airshow. ILA © Photo.Stefan Zoller at Newport (UK) on January 13, 2009. Joël-François Dumont.© Photo.

Eurofighter from the 73th Wing "Steinhoff" flying over Schönefeld during the ILA Airshow -- Stefan Zoller at Newport (UK) on January 13, 2009

Another example: secure broadband communication systems to safeguard major events such as the Olympic Games: EADS/DS, led by Stefan Zoller of Germany, was officially congratulated by the Chinese authorities for the successful operation of the secure radio telephone network during the Beijing Olympic Games (1.6 million calls handled on the opening day) and is preparing to offer its know-how to the UK to safeguard the London Olympic Games in 2012.

Secure Communications Systems for the Atlantic Alliance  EADS © Photo.

Secure Communications Systems for the Atlantic Alliance

The new site at Newport in Wales is a laboratory where DS engineers can develop systems appreciated by the most demanding customers, such as NATO, which recently awarded a £43 million contract to EADS/DS to supply the deployable secure communication system for the NATO Response Force (NRF).

  • Franco-German governance

Born with a totally parallel and paralysing structure (two chairmen of the board, two CEOs, two COOs, and a whole parallel hierarchy with multiple overlaps and factors of inertia), the EADS management structure was radically modified and simplified by a political decision on the part of the French and German authorities in August 2007, at a meeting between Chancellor Angela Merkel and President Sarkozy in Toulouse.

Since then, there has been a single CEO, Louis Gallois of France, a single chairman of the board, Rüdiger Grube of Germany, and a single CEO of Airbus, Tom Enders of Germany: all the overlaps disappeared one after the other.

The balance is visible in the distribution of operational responsibilities (a German at the head of Airbus, another at the head of Eurocopter and a third at the head of Defence and Security; a Frenchman at the head of Astrium, another for strategy and marketing, etc.

EADS Headquarters in Paris. EADS © Photo.Marwan Lahoud Chief Marketing and Strategy Officer of EADS meeting the international press at Farnborough (2008). Joël-François Dumont © Photo.

EADS Headquarters in Paris -- Marwan Lahoud Chief Marketing and Strategy Officer of EADS meeting the international press at Farnborough (2008)

“The reality is that nationality is no longer the criterion for nominations, and that within each division, nationalities are largely mixed up without any notion of mathematical equality. In addition, we have the increasing integration, including at management level, of the UK and Spanish components of the group,” explains Marwan Lahoud, Chief Strategy and Marketing Officer.

Looking ahead to the future challenges of Europe, whether they concern problems relating to the supply of raw materials or demographics, and whatever the multiple rivalries (employment, finances, the economy, etc.), “EADS, based on Franco-German resolve, has the great good fortune of being able to propose and realise innovative projects in these sectors of activity thanks to creative structures,” explains Georg Bucksch, who is responsible for management under Marwan Lahoud. “We are convinced of this because we share the same common destiny. So we must succeed by rising above our divergences, as in the past, and transforming them into shared global assets.”

As the structures of the divisions move closer together, EADS continues to advance in the direction of an integrated company. The CEO has launched the project to create a company under European law, and the legal teams are at work: “it will be the final phase in the integration of EADS to form a single company,” explains Louis Gallois.

And, in comments on the 2008 results made to the press in Newport on 13 January, the CEO of the European group adds: “performance is remarkable; it shows that the company has a strong capacity to react and I think that it is wrong to have a vision of catastrophe: the crisis is also a means for EADS to become more efficient, to better focus on its priorities and to come out of the crisis stronger than we entered it.”

  • The most successful example of European industrial consolidation

EADS is still a young group, built from companies whose historical and cultural differences have proved to be an asset, which has had to handle exceptional growth from its founding countries, as well as its industrial integration. In EADS, Europe, and especially the founding countries, led by France and Germany, has an industrial group on a par with Boeing. It is the most successful example of European industrial consolidation, and it has rewarded each of the founding States by becoming, in France, the leading employer for young engineers. However, our nation, as Louis Gallois recalled, should think of training even greater numbers in order to be ready to meet future challenges…

EADS © Photo.Louis Gallois : « Our nation should think of training even greater numbersof engineers to be ready to meet future challenges…» Photo © Joël-François Dumont.

Louis Gallois : « Our nation should think of training even greater numbersof engineers to be ready to meet future challenges…»

With more than 116,000 employees, including 44,000 in France, EADS, which owns a share of the MBDA joint venture, the world leader in missile systems, is the largest employer in the sector, ahead of Dassault and Thales combined and represents almost 50% of net French aerospace exports. EADS reported revenues of 39.1 billion euros in 2007. Thanks to “extremely positive cashflow, we had no need to borrow money”. For Louis Gallois, “this situation will not continue in 2009. Our customers and suppliers are going to be hit by the economic crisis, not only the financial crisis… We are trying to offer them our support but we cannot put ourselves in their place. We will increase financing for our customers in 2009 and 2010. We have done it in the past, we will do it again; we will do it cautiously. We are taking a very close look with our customers, one by one, to see what their difficulties are, their needs, their expectations, in order to adjust our production according to what we will actually deliver in 2009.”

(*) Auditors of the Institute for Advanced national Defense Studies (Institut des Hautes Études de Défense Nationale - IHEDN).

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Directeur de la publication : Joël-François Dumont
Comité de rédaction : Jacques de Lestapis, Hugues Dumont, François de Vries (Bruxelles), Hans-Ulrich Helfer (Suisse), Michael Hellerforth (Allemagne).
Comité militaire : VAE Guy Labouérie (†), GAA François Mermet (2S), CF Patrice Théry (Asie).

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