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Jet's Delay Shows Cracks in the Top Tier at EADS
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By NICOLA CLARK and KATRIN BENNHOLD
Published: June 16, 2006
PARIS, June 15 — As European Aeronautic Defense and Space grapples with a tumbling stock price and major delays in the delivery of Airbus's superjumbo jet, the A380, signs of tension among the top ranks are beginning to surface.
Arnaud Lagardère, the co-chairman of EADS, the parent company of Airbus, said in an interview that he had no knowledge of the delays until shortly before Airbus made its announcement on Tuesday. Airbus said that delivery of the double-decker A380, the world's biggest passenger jet, would be delayed by six to seven months, which would reduce operating profit by a total of $2.5 billion from 2007 to 2010.
In the interview with Le Monde, the French daily, on Thursday, Mr. Lagardère said EADS would begin an investigation to determine what caused the delays and how much Noël Forgeard, co-chief of EADS, and Gustav Humbert, the chief executive of Airbus, knew about the problems and when.
But as analysts raise questions about executive management and strategy, Mr. Lagardère seemed to try to diffuse criticism over finger-pointing. He said he had no intention of making "heads roll just to please the market."
He added: "I'm not in the habit of not standing as one with my team."
The A380 setback has been a blow in particular to Mr. Forgeard, 59, a hard-charging executive who is the manager most closely identified with the jet. Known as much for his brusque style and steely ambition as for his deep-rooted connections with French political power, Mr. Forgeard ran Airbus from 1998 until last year.
The project's latest stumble has raised questions among investors about the credibility of management at both EADS and Airbus and prompted some to wonder privately if Mr. Forgeard's days at EADS may be numbered. There is a growing demand for explanations about why A380 production problems took so long to become public. EADS and Airbus executives said Thursday that the first indications that the production of the A380 was experiencing difficulty filtered up the company hierarchy in early April, prompting Mr. Humbert to order a production audit.
The auditors reported back to him last weekend, explaining that serious delays had to be expected, a result that led to the announcement two days later. Mr. Forgeard was apparently kept informed about the suspected problems.
During a meeting at the French finance ministry in mid-May, Mr. Forgeard alluded to the fact that there were some doubts about the timetable, according to government officials. But he clearly did not pass this information on to EADS's private shareholders until weeks later.
While many acknowledge that Mr. Forgeard has stepped on toes, the A380 problems alone are unlikely to unseat him from his job.
"Airbus is a company that has come from nothing to more than half of the market in 30 years, most of that during Forgeard's watch," said Nick Cunningham, an analyst with the Panmure Gordon brokerage in London. "So there is a danger that by getting rid of him you would be throwing the baby out with the bathwater."
Mr. Forgeard is emblematic of France's tightly knit world of business and politics, in which many senior decision makers, most of them educated in a handful of exclusive schools, move in the same small circles. He is a graduate of École Polytechnique, the top French engineering school, whose annual pool of about 500 graduates supplies many of the country's boardrooms and has produced 15 of the 40 chief executives heading the largest listed French companies.
But Mr. Forgeard also owes his steep rise to political connections. He was the defense adviser to President Jacques Chirac of France when Mr. Chirac was prime minister from 1986 to 1988. Sixteen years later, Mr. Chirac was instrumental in installing him at the helm of Airbus, against the will of major shareholders like Mr. Lagardère and Jürgen E. Schrempp, then the chief executive of DaimlerChrysler.
Airbus employees and finance ministry officials who have seen Mr. Forgeard both in management meetings and in public describe him as charming, even seductive, in private, but also deeply political and fiercely hierarchical.
None of these officials or former colleagues were prepared to comment about Mr. Forgeard's personality on the record. Still, the public has had a few glimpses of his actions.
In the summer of 2004, when Rainer Hertrich told colleagues of his plans to step down as co-chief of EADS, the news came amid rumors that the French government was trying to orchestrate a merger of EADS with the French defense contractor Thales and to replace Mr. Hertrich and his French counterpart, Philippe Camus, with Mr. Forgeard as sole chief executive.
Mr. Chirac again came to the aid of his protégé, urging Mr. Lagardère to back Mr. Forgeard as head of EADS, rather than Mr. Camus, who had been an aide to Mr. Lagardère's father, Jean-Luc. After months of wrangling, Mr. Camus agreed to step aside in January 2005. But he went out saying that the French government's campaign to replace him was "pathetic and unworthy of a country like France." EADS's corporate culture today is a highly politicized one, marked by factionalism that does not always cut across national lines.
Though some people close to top management say that there is some tension in the top ranks, Michael Hauger, an EADS spokesman, characterized the working relationship between Mr. Forgeard and Thomas Enders, the German co-chief at EADS, as "business oriented."
"They work closely together and they are in contact very regularly," Mr. Hauger said.
The French financial markets regulatory body, AMF, said Thursday that Mr. Forgeard, his three children and several directors of the group had sold shares worth several million euros in March after exercising stock options, according to Agence France-Presse. EADS said that Mr. Forgeard would answer questions about problems with the A380 program Friday and that it was preparing an explanation of the share dealings.
Live, and let live.