The EconomistFebruary 10th 2018 Business 592
“T
HE success of Airbus is intimately
linked to the success of John,” says
Eric Schulz, successor to John Leahy, who
has been chief salesman for the plane-
maker since 1994. Mr Leahy’s aggressive
strategy to gain orders expanded Airbus’s
market share for civil jets from 18% in 1994
to over 50%. Salesmen at Boeing, Airbus’s
rival, say they wish their bosses were as
good. But this year’s Singapore Airshow,
which began on February 6th, will be Mr
Leahy’s lastbefore retirement.
That is in itselfa big change for Airbus,
but staff turnover doesnot stop there. In
December the firm said Tom Enders, its
German-born chief executive, would step
down in 2019; his French second-in-com-
mand, Fabrice Brégier, will leave this
month. These changes follow the news
that several countries, including Britain,
France and America, are investigating alle-
gations that in the past Airbus bribed offi-
cials to win contracts. That created divi-
sions between French and German
executives over how to respond.
The recent troubles began in 2014,
when an internal review of supplier pay-
ments at Airbus exposed irregularities. Itended up reporting itself to Britain’s Seri-
ous Fraud Office and to France’s equivalent
body for lying to export-credit agencies
about bribes given by third-party consul-
tants to secure sales. In October Airbus
said it may have violated American rules
on arms exports because of fees paid to
sales agents to secure deals. Austrian and
German authorities are also investigating
bribery claims tied to the sale of $2.1bn-
worth of Eurofighterjets back in 2003 (Mr
Leahy is not implicated in any scandals).
Analysts at Kepler Cheuvreux, a broker,
estimate that Airbusmay face fines of up to
$3bn as a result of the investigations. That
is not so unusual in the aerospace busi-
ness. Last year Rolls-Royce, an engine-mak-
er, agreed to cough up £671m ($809m) to
settle regulators’ allegations that it had
used third-party consultants to secure
sales with bribes. In 2006 Boeing was
fined $615m for using corruption to win
military contracts from the Pentagon.
Mr Enders reckons the answer is to em-
ulate Rolls’s response—co-operate with in-
vestigators, excise corruption and oblige
top bosses to take responsibility. In 2016 Mr
Enders closed the sales unit in Paris that
had hired the external sales consultants
who got Airbus into trouble, calling it “bull-
shit castle”. He has tightened compliance
and is not seeking another term himself.
That has reportedly irked Airbus’s
French staff as well as some civil servants
at France’s defence ministry (the French
and German governments each own 11% of
the firm). They say Mr Enders is going too
far in making cultural changes at its head-
quarters in Toulouse. A perception that Mr
Brégier may have been connected with
those in the French business establish-
ment making such complaints turned Air-
bus’s board against his bid to succeed Mr
Enders. Instead, the board is firmly behind
Mr Enders’s approach. The firm needs to
secure a settlement with investigators, for
which a sweeping change in management
is needed. Prosecution, after all, could lead
to a ban on public contracts, damaging its
defence arm.
The search is on for a new generation of
top executives. Investigations aside, they
will inherit a mixed bag. Airbus’sA320neo
short-haul aircraft are flying off the shelves
and have a market share of 59% in the fight
against Boeing’s rival 737 MAX. Its acquisi-
tion of half of Bombardier ofCanada’sC-
Series programme forone dollarlast au-
tumn will strengthen its position in the
market for smaller jets. But Airbus is strug-
gling to shift the rest of its range. Its larger
wide-bodies were outsold almost 4:1 by
Boeing in 2017. It is also running out of or-
ders for the A380. Although Emirates or-
dered a further36 lastmonth, keeping pro-
duction going until 2030, some analysts
think that producing a trickle of superjum-
bos could lose Airbus up to €250m a year.
Production problems on itsA320neo andA350 jets and cost overruns on itsA 400 M
military transporter are still hurting profits.
That will not help Airbus’s margins,
which have been lower than Boeing’s. In
2012-16 the American planemaker had an
average margin of7.5% and Airbusjust
4.3%. Airbus’s shares have underper-
formed, too; in 2017 they rose by a third as
much as Boeing’s. The European group’s
operational problems alone do not explain
this, says Adam Pilarski, an economist
who worked for McDonnell-Douglas, now
part of Boeing. The risk of political interfer-
ence at Airbus—which can raise costs by
forcing it to keep unprofitable factories and
aircraft programmes—worries investors.
With Mr Enders’s departure, that factor
may loom larger. He fought in recent years
to reduce governmental influence and
make Airbus more normal. As Allan McAr-
tor, a former chairman of Airbus North
America, puts it, the firm no longer wants
to be seen as a European planemaker in
America or China but as a local one. In 2013
the French and German governments lost
their right to appoint directors to the board.
Yet President Emmanuel Macron of France
recently hinted that he sees Airbus as a
European champion against the Ameri-
cans and Chinese.
So investors now want a strong new
boss, able to push back against national
stakeholders. Many think the real test of
Mr Enders’s transformation of Airbus into
a normal company is whether the board
can avoid appointing a Frenchman or Ger-
man to the top job. “As halftheir business
now comes from Asia, it should be natural
to look further afield,” says Sandy Morris
of Jefferies, a bank. The job of sales chief
used to be reserved for a Briton. In the
1990s Mr Leahy, an American import,
broke that tradition, and did rather well. 7AirbusChanging the
pilots
SINGAPORE
Corruption probes could mean revived
national rivalries at the aerospace giantonly 64% of ordinary corporate criminals.
In the past, kinder treatmenthas often
been justified by pointing to the economic
might of the chaebol (Samsung alone ac-
counts for one-fifth of South Korea’s ex-
ports). That defence is wearing thin. Sam-
sung has been thriving without Mr Lee. A
global semiconductor boom led it to post
record profits in 2017, and last month the
company announced its first stock split.
Outside the courts, the mood is unfor-
giving. An online petition calling for an in-
vestigation into the bias of the judge
gained 212,000 signatures in three days.
That would threaten the independence of
the judiciary, says Mr Choi, “but you can
see why citizens are angry”. They must
now trust Moon Jae-in, the left-leaning
president, who has vowed to stop collu-
sion between corporates and politicians.
A final judgment is still to be made at
the Supreme Court, where Mr Lee’s fate
could take yet another turn. But his release
leaves many convinced that the old ways
persist. In 2009 the elder Lee got his pardon
to help secure South Korea’s bid for the
Winter Olympics. Lessthan a decade later,
in the very week that the Games start, his
son has also walked free. 7