This past week Airbus owned up to another delay in production of its prestige jumbo jet, the A380. The debacle will cost billions in concessions and possible cancellations, and open old wounds in French-German relations.

At the International Air Show in Berlin last month, Airbus CEO Gustav Humbert showed once again how smoothly he can handle a setback. “The game isn’t over,” he said, in a challenge to his arch-rivals at Boeing. “This summer it’s just starting in earnest.” Word had just come out that Humbert’s new long-distance jet, the A350, would have to be completely overhauled because of a lack of demand.

According to close confidantes, he still didn’t know at the time that shortly thereafter an even tougher setback would hit his company — grave production problems with the A380, Airbus’ new enormous jetliner.

Last Tuesday, Airbus and its parent company EADS had to make a surprise announcement that delivery of the flying giant would be delayed, again, by about half a year. A six-month delay had already been announced last year.

The project as a whole has taken a nosedive. Instead of 20 to 25 planes, as originally planned, the company will now roll 9 machines out of the assembly hall in Toulouse, France, next year. Between 2008 and 2009 there will be a shortfall of up to 14 jets. The company will have to pay millions in damages for the delays and suffer losses up to €2 billion. Cancellations by angry customers haven’t been factored in.

So EADS stock will move in exactly one direction: down. Lately, in fits, the stock has sunk to almost one-third of its normal value, and the company has lost about €6 billion in market value. The image of its Franco-German management has also suffered gravely.

The new French-German cooperation was trumpeted in 1999, when then-German Chancellor Gerhard Schröder and then-French Prime Minister Lionel Jospin celebrated a deal between the French national firm Aerospatiale and the DaimlerChrysler subsidiary Dasa. The marriage, they argued, was a master example for cross-border mergers. Now, though — in a matter of days — old enmities have surfaced as a result of the A380 production delays.

It’s the Hamburg plant’s fault, ranted Humbert’s boss Noël Forgeard, who’s been leading EADS for the past year with German ex-Daimler manager Thomas Enders. Nonsense, Enders replies. Rarely in the history of civil aviation has a new model of plane sent its manufacturers into such a dismal crisis. The once-prestigious French-German firm lately resembles a madhouse.

Half-built fuselages in Hamburg and Toulouse

Customers are complaining about outmoded or lacking models, and top managers are blanketing each other with accusations and legal complaints. As long as business ran smoothly, outsiders heard little about blunders or family feuds. But those days are over as of last Tuesday — even if the sources of Airbus’ trouble are small but still important parts like cables and the plane’s electrical systems.

Going nowhere. Half-built A380 fuselages sit idle at the Airbus assembly plant in Toulouse, France.

The electrical systems are needed to provide juice for the A380’s elaborate lighting and entertainment systems. But they’ve hit a supply bottleneck — they’re not always available in sufficient numbers or the proper quality. Airbus had similar problems a year ago, but apparently they haven’t been solved.

Now colossal, half-built airplane carcasses wait in assembly halls in Toulouse and Hamburg. They’ll have to be retrofitted by special emergency teams working by hand. And aviation experts wonder how Airbus will fill its enormous backlog of orders — valued at €250 billion — and still develop new models, if just assembling the A380 seems to be overwhelming managers and engineers.

Spokespeople for Airbus and EADS have been trying to play down this series of production failures. Technicians were working hard to get the problem under control; customers kept changing their orders for different planes that required different, and sometimes longer, cables. And by the time the problem came to a head, management had been informed too late. These facts may all be true, but they only tell half the story.

The extent of the troubles at the Franco-German model corporation, with Spanish and British also holding interests — have been increasingly apparent in recent weeks and, indeed, months. Instead of dealing with day-to-day business, EADS and Airbus executives have been looking out for themselves.

A few weeks back, suspicion increased that two high-ranking Airbus managers — who have since either quit or been suspended — provided incriminating documents (later determined to be forgeries) suggesting that French politicians received illegal kickbacks from the sale of French firgates to Taiwan. The so-called “Clearstream affair” has been keeping lawyers and French investigators busy; in the meantime it’s also tarnished the reputation of the massive firm.

While Airbus’ American rival Boeing dominates the long-distance airliner market with its popular 777 and its new 787 Dreamliner, Airbus — at the moment — has no plane to compete with. “For me, behind the whole product palette there’s a big question mark, with the exception of the A320 and the A380,” said Tim Clark, president of Emirates Airlines, which alone has ordered 43 planes in the A380 line. “The A350 has at most 340 seats, the A380 has 550. But in between? There’s nothing.”

Airlines, as a rule, seldom criticize manufacturers so openly. But up-and-coming Emirates had to cancel an order for two A380 freighters because Airbus managers — after several formal warnings — couldn’t deliver technical details.

Insider trading?

As if that weren’t enough, the EADS and Airbus managers will have to answer a few uncomfortable questions to the French stock-exchange supervisory authority. Majority stockholders DaimlerChrysler and the French media company Lagardère sold 7.5 percent of their shares only a few weeks before the latest production bottleneck was announced — for a good price.

Airduds. Noel Forgeard, left, and Thomas Enders stand in front of an Airbus A380 model in Paris.

Both corporations deny they knew about the crisis, but high-ranking EADS managers have said privately that delays with the A380 were being discussed in early April. Even Forgeard has fallen under suspicion by stockholder watchdogs and politicians, because in mid-March he sold options and stocks bought in his childrens’ names to the tune of several million euros. He resolutely denies misusing insider information.

This series of scandals has alarmed the chairman of the board, French media entrepreneur Arnaud Lagardère, son of the late EADS co-founder Jean-Luc Lagardère. With income from the investment in EADS, Lagardère wanted to strengthen his media empire, which consists of numerous magazines as well as TV and radio broadcasters. But now, with his co-chairman, former DaimlerChrysler board member Manfred Bischoff, he has to worry about airplane manufacture.

Last Wednesday, Lagardère announced that he would investigate exactly what and how much Humbert and Forgeard knew about the cable scandal — and, most importantly, when. Whether either or both of the high-paid executives will have to step down is a question he deliberately left open. (He said he wanted to discuss it with Bischoff, who last week was out of the country.) The corporation, at any rate, has lurched into a “severe crisis,” according to Lagardère.

The two top managers are dealing with the stress in their own ways. Humbert has been visiting one Airbus factory after another to calm the firm’s restless employees. He also made calls to all the company’s important customers. For his part, Forgeard has tried to deflect guilt for certain lapses and blame other people.

Responsibility for the slow-selling A350, which had to be fully redesigned, belongs (in Forgeard’s) opinion to John Leahy, Airbus’ Chief Commercial Officer. Leahy sounded the alarm last November, sending an angrily-written letter to Airbus’ entire management.

Forgeard is also quite clear on who to blame for the A380’s latest delay: Humbert and Hamburg. “When I worked for Airbus,” said Forgeard, “we never missed our own targets.”

But he seemed to have forgotten that that the first delay came under his watch as CEO at Airbus, and the development of the giant plane had already gone nearly €1 billion over its original budget.

The French-German supervisory board will have to find a solution to the management crisis at EADS and Airbus by July 17. That’s when the most important air show of the year will start at Farnborough, near London, and Boeing will no doubt take the occasion to announce a host of new contracts.

In fact, Boeing already announced one significant order last week — from Singapore Airlines, which should have received the first of ten A380s at the end of last year. The airline had been planning to wait for the new and completely revamped A350; instead the Asians registered their disappointment with Airbus’s latest delay by ordering 20 new jets from the American firm to the tune of €4 billion.

[From an article in Der Spiegel, June 19, 2006, by Dina Deckstein.]