One of the two largest global manufacturers of heavy commercial aircraft.
Airbus, headquartered in Toulouse, France, is owned by two leading European aerospace companies. One is the European Aeronautic Defense and Space Company (EADS), born of the merger between Airbus consortium partner companies Aerospatiale-Matra of France, Daimler Chrysler Aerospace of Germany, and CASA of Spain; the other is BAE Systems of the United Kingdom. In June, 2000, EADS and BAE Systems announced the creation of Airbus Integrated Company, intended to consolidate Airbus Industrie resources and practical knowledge in existing locations around Europe into a single entity. As a result, all Airbus-related design, engineering, and manufacturing assets located in France, Germany, Spain, and the United Kingdom became part of a new Airbus company under the day-to-day control of a single management team. As of 2001, the company employed some forty thousand people throughout Europe. The consortium members are both industrial participants and shareholders. Their role is to carry out most aircraft design and all manufacturing under Airbus’s management.
Each partner company operates under the laws of the country in which it is incorporated. The partners are responsible for their own financing of the research, development, and production phases of the aircraft programs. Airbus Industrie’s production system is flexible and appears to be quite effective and efficient, as evidenced by the fact that approximately 96 percent of all aircraft work is performed in plants operated by the partner companies. Fully equipped sections of Airbus Industrie aircraft are produced in factories throughout Europe and transported to Toulouse, France, or Hamburg, Germany, for the final assembly. The production network is set up in an innovative way that uses the specialized skills of each partner and associate.
Airbus Industrie has more than 1,500 suppliers in twenty-seven countries and cooperative agreements with aerospace industries in nineteen countries. More than 35 percent of the components for the company’s aircraft are supplied by over five hundred United States companies. Numerous suppliers are also located in the Asia-Pacific region, such as Singapore Technologies Aerospace, which produces wing ribs and passenger doors for the A320, A321, A319, and A318 and engine mounts and thrust reverser doors for the A340 and A330; and the Indian company Hindustan Aeronautics, which also builds A320 passenger doors.
One of the keys to Airbus’s sales success has been the flight operational commonality that exists among all the company’s fly-by-wire, or fully automated and computerized, aircraft. The Airbus philosophy has been to develop families of fly-by-wire controlled aircraft with similar cockpits and flight handling characteristics and common systems and hardware. As a result, pilots trained to fly any Airbus fly-by-wire aircraft feel equally at home in any of the single-aisle models in the A320 family, such as the A318, A319, A320 and A321, and the wide-body A330 and A340 models. This commonality may result in millions of dollars of savings for airlines. It reduces training costs, increases crew productivity, and provides pilots with the flexibility of flying a wide range of routes, from short-haul to ultra long-haul.
Airbus Industrie was created on May 29, 1970, and was formed as a public interest group on December 18, 1970. The company was formed under French law, in the absence of a functional legal framework accepted throughout the European Union, then known as the European Economic Community. The public interest group is a form of business organization that permits participating firms to integrate their activities in certain domains while preserving their individual identities. The French public-interest law was used as an appropriate legal framework for the company as it was beneficial to Airbus Industrie’s goals in establishing itself in the market and managing its risk, at least initially. Originally, two partners, Aerospatiale and Deutsche Airbus, had equal ownership of the company. Each partner assumed equal unlimited liability relative to the project. Because the company was a public interest group, new members could be admitted with the consent of both partners. To provide oversight of the entire project, an organizational structure was formed in December, 1970. This department dealt directly with third parties to sell aircraft and provide pilot and crew training. There were two representatives from each industrial partner in the assembly of members. A supervisory council was organized to administer the assembly. This structure was intended to act as a true multinational collaboration.
Airbus is an outstanding example of successful multinational cooperation in the large commercial aircraft sector of the aerospace industry. Airbus was developed with the support and cooperation of the governments of the European Union member states with companies in the consortium (France, Germany, Spain, and the United Kingdom). This cooperation greatly contributed to Airbus’s success. Even though cooperation within the consortium took place among technical experts, it was the governments’ willingness to create a large producer of commercial aircraft that provided the impetus for such cooperation to occur. Airbus’s strategy was to develop large civil aircraft that were both distinguished and economically attractive.
The explicit and systematic arrangement of the Airbus project began with the structure of its management. True collaboration, the goal of the new European industry, required joint financing, marketing, and work-sharing agreements, and thus some sort of transportation decision-making and administrative structure. To define the mutual rights and responsibilities to which the collaborative agreement would be subjected, Deutsche Airbus (now Daimler Chrysler Aerospace Airbus, a member of EADS) had a limited liability of DM 100 million (approximately 55 million U.S. dollars), while both the Spanish and French members were liable for the entirety of their resources. Deutsche Airbus was privately owned and consisted of independent firms. In contrast, Aerospatiale, the French participant, could rely on the assistance of the state for its liability.
Airbus’s first project was the development of the A300, envisioned as a short- and medium-range aircraft. By 1971, two basic designs had been decided upon, the A300B2 and the A300B4. Both were wide-body, twin-aisle, two-engine aircraft having a capacity of 220 to 270 passengers for air travel over 1,200 nautical miles. The first fuselage was completed in September, 1971. In November, 1971, the first two wings were shipped from Britain to Toulouse. The landing gear was attached in January, 1972, engines were mounted in April, 1972, and the systems testing progressed throughout the year. On September 28, 1972, the aircraft was rolled out and one month later, on October 28, 1972, it flew its first flight.
In July, 1978, the A310, a shortened version of the A300 seating 218 passengers in a standard two-class configuration, was launched. Airbus was set to expand from a sound base and to create a complete range of airliners with a common theme. Following the A310 project, British Aerospace, which had taken over Hawker-Siddley, became a full partner on January 1, 1979.
Airbus brought the new A320, a single-aisle, 130- to 170-seat aircraft, into the family during the same year. The launch of the A320 filled out the product line. The A320 was revolutionary, incorporating the very latest technology and, as a result, providing better operating efficiency and better performance. The flight deck set the standard for all subsequent Airbus cockpits, with obvious advantages to pilots and operators. Among the innovations installed were fly-by-wire controls, which removed cumbersome mechanical controls.
The A320 itself was followed in 1989 by the A321, a lengthened version seating from 180 to 200 passengers, and in 1992 by the A319, a 120-seat version. The family was completed in 1999 with the introduction of the 107-seat A318.
In 1987, Airbus launched two larger aircraft in a single program: the A330, a 235-seat, twinjet, medium-haul aircraft, and the A340, an ultralong, four-engine, 295-seat jetliner. The two new airliners shared the same airframe, the same wing design, and the same popular twin-aisle cross-section of the A300/A310. The proven fly-by-wire controls of the A320 were extended to both the new aircraft. The A340 entered service in 1993 and the A330 joined it one year later, the first commercial transport jointly certificated by European and U.S. aviation authorities. The twin-engine A330-200 and A330-300 carry 253 passengers and 335 passengers respectively, with the A330-200 capable of a 12,000-kilometer range.
Airbus as a consortium had a unique funding mechanism compared to those of other commercial producers in the market. The supervisory council approved Airbus Industrie’s routine payments for the purchase of major equipment items and overhead expenses. The partners incurred nonrecurring costs resulting from the development process as well as production funding expenses. Each partner was responsible for financing research, development, and production. The industrial firms involved in the Airbus program have historically looked to their respective governments to secure this money. Usually this has been accomplished through low-interest loans repaid through sales proceeds.
The manner in which the Airbus consortium secured its money through government subsidies and loans, especially during its first years, has been a major issue of friction between Airbus and its competitors, particularly the Boeing Company of the United States. Airbus’s competitors argued that the company’s project financing practices were in direct violation of fair trade rules set by the General Agreement on Tariffs and Trade (GATT), specifically as they applied to fair trade in the commercial aircraft manufacturing industry. These rules were later more formally institutionalized by the World Trade Organization (WTO).
In 1985, the GATT agreements were updated, further limiting the ability of governments to provide financial assistance by requiring governments to lend money to companies such as Airbus at the same rates that would be charged to consumers taking out bank loans, thus preventing such companies from having their loans subsidized through lower interest rates. Airbus was accused of receiving over $13 billion of subsidies from European Union governments between its inception and 1990. European Union governments were also accused of providing loans to Airbus at much lower than market rates, and in some instances at free rates. It has been estimated that the subsidy amount, if compounded at commercial rates, would amount to over $25 billion.
Airbus is an example of regional and global economic cooperation to produce a valuable high-technology product. By practicing cost diversification, Airbus has engaged in prudent risk management. They have hedged against downturns in the financial cycle and in the long selling cycles that prevail in the industry. Airbus was successful because it was able to develop a unique corporate structure and culture, which were to a large extent independent from the influence of politicians and were developed based on business principles and economic planning, rather than political necessities.
On its World Wide Web page, Airbus states its corporate philosophy: “Setting the standards’ means anticipating the market, offering innovation and greater value, focusing on greater passenger comfort, and creating a true family of aircraft.” Airbus also claims that “Real competition always creates a better product,” and Airbus’s two aircraft manufacturing partners brought European competition to the forefront of the world market. At the start of 2001, when its turnover reached $17.2 billion, Airbus had received more than 4,200 orders in total and had over 2,400 aircraft in service with 176 operators.
Addisson, Colin. Airbus. Shepperton, Surrey, U.K.: Ian Allan, 1991. A well-organized historical and introductory account of Airbus to the early 1990’s. Collision Course in Commercial Aircraft. Cambridge, Mass.: Harvard Business School Publishing, 1991. A well-written case study on the fundamentals of the international trade aspects of commercial aircraft manufacturing. Lynn, Matthew. Birds of Prey: Boeing Versus Airbus. New York: Four Walls Eight Windows Publishers, 1997. Highlights contentious issues in the business of commercial aircraft manufacturing trade as told by both contenders, Boeing and Airbus. Subcommittee on Technology and Competitiveness. Airbus Industrie: An Economic and Trade Perspective. Washington, D.C.: U.S. Government Printing Office, 1992. A U.S. government publication outlining the competition issues involved in commercial aircraft manufacturing. Thornton, David. The Politics of an International Industrial Collaboration. New York: St. Martin’s Press, 1995. A comprehensive account of the relationship between politics and economics in the development of Airbus Industrie and an excellent introduction to its business organization.
Airline industry, U.S.