A skilled pilot for Airbus

Two shapers of industry: Noel Forgeard is taking Airbus private, while Karel Van Miert safeguards competition amid a flood of mergers

NOEL FORGEARD takes the controls of Airbus Industrie this month as the European civil plane maker braces itself for its toughest challenge yet - becoming a stand-alone company.

Forgeard, 52, is charged with keeping up Airbus's growth momentum while steering it from a loose four-nation marketing alliance into a cost-efficient company that owns plants and builds aircraft - a crucial move if Airbus wants to match rival Boeing in sales by 2003. Indeed it may go public as soon as 2000.

"Forgeard's got to be the guy who manages to turn the thing into a single corporate entity, and he could end up having to bang some heads together," says Sandy Morris, aerospace analyst at ABN Amro in London.

Airbus, which sold almost as many aircraft as Boeing last year, has much to boast of in its 28-year history, which has seen the industry shrink to just Airbus and Boeing and a few small players. But its fractious partnership and lack of central management has hampered cost efficiency. And Boeing is betting on more efficient production to compensate for aircraft prices that have shrunk 20 per cent in two years in a dogfight for market share.

Forgeard, who started as managing director on Wednesday, will be under pressure to hold up Airbus as a model for European defence and aerospace restructuring. Europe's biggest companies have been ordered by their governments to reorganise in order to compete with the giant US corporations.

"He's the right person at the right time for Airbus," says Emmanuel Dubois-Pellerin, an analyst with Standard & Poor's in Paris. "And one of the few people who could perhaps speed up the process of restructuring."

Forgeard has a good relationship with British Aerospace managing director John Weston, who worked with him in 1996 to seal the Matra BAe Dynamics missiles venture that is seen as a model of how European consolidation should proceed. Indeed, Forgeard's outspoken advocacy of consolidation and calls for industrial reform make him the French equivalent of Weston. The relationship is even more important after Weston was named this week to succeed Sir Richard Evans as BAe's chief executive on 1 May.

Airbus's member states say they are on track to change from risk-sharing partnership to stand-alone company by January 1999 - although that could be optimistic. Early negotiations to transform the group's structure were deadlocked by French intransigence on shifting assets out of state-owned Aerospatiale and into the new company.

The partners are still struggling to decide who builds what and where. Daimler-Benz Aerospace (Dasa) of Germany is keen to start building wings, traditionally the domain of BAe, and move more assembly to German soil away from France.

Then there's the thorny issue of how to value assets brought to the new Airbus by each partner, and how to compensate any partner whose contribution is larger than its stake in Airbus. BAe has a 20 per cent stake, compared with 37.9 per cent each for Aerospatiale and Dasa, though the British company's factories are considered more efficient.

Forgeard's diplomatic skills will help cut the knot. Formerly chief executive of Lagardere's Matra Defence and Space unit, he is known as a manager with a talent for achieving consensus. It was he who forged cross-border joint ventures between the French missile and satellite maker and BAe and General Electric, and he who later brought some of Dasa's missile operations into Matra BAe Dynamics. Forgeard also has strong political connections from his days as technology adviser to Jacques Chirac when the French president was prime minister in the 1980s.

"Forgeard has set up strong ties with the British and Germans," says Doug McVitie, managing director of Arran Aerospace, an aviation consultancy based in Scotland. "And he hasn't made any enemies at any of the partner companies."

But another tough job will be grappling with the risky decision of whether to spend $10bn developing the 600-seat A3XX jet, or whether to chip away at Boeing's dominance in the large aircraft sector by revamping models such as the A340-500 and A340-600. "The A3XX is the tough one," says McVitie. "I'm assuming his biggest challenge is to launch that programme."

The 600-seater would certainly break Boeing's monopoly in large commercial jets, but it could also sink Airbus financially if it fails. Already, Airbus has pushed back the entry-into-service date to late 2004 from 2003 to provide more time for tackling tough design problems.

Forgeard will also have to make a decision on a 100-seat jet. The Airbus partners and President Chirac signed an agreement with the Chinese last May to develop and build a 100-seat plane, but interest appears to be fading.

Airbus has done extremely well this year, winning around 250 firm orders or letters of intent from carriers including United Airlines, Swissair, Sabena, Iberia and Latin American carriers Taca and LanChile.

British Airways, which has never bought an Airbus aircraft, in February asked Airbus and Boeing to bid for a contract to supply up to 100 shorthaul jets worth an estimated $4bn. A victory there, and Forgeard will truly have made his mark.

Copyright: IOS & Bloomberg