Commentary from Down Under
Once again, we're calling this as material from a confidential source because the source hasn't replied to my request which means he's gotten involved in some serious stuff. Bit it's worth study as it comes from a construction project manager.
Schopenhauer had this to say on the general subject of truth:
All truth passes through three stages.
First, it is ridiculed.
Second, it is violently opposed.
Third, it is accepted as being self-evident.
Our author shall remain cloaked in anonymity until he gives me the thumbs up.
What strategy should Airbus follow?
I don't think that there IS a strategy that Airbus can follow - or, rather, that they will be ALLOWED by the two governments that are in virtual control of them to follow - that will do anything constructive about the problems they face.
First of all, the problem is not so much a falling dollar as it is a rising Euro.
The Euro has appreciated roughly twice as fast against the $US as any other major currency.
This is no accident, it is fundamental EU strategy. A high Euro means lower import costs, and therefore lower inflation within the EU, which in turn means political popularity in the short term.
(parenthetically, it also means that you can pay off your debts at a low cost and as we've noted here before, Europe is the home of ridiculously high government debt to GNP ratios-ed.)
Unfortunately it ALSO means uncompetitive export industries in the medium term.
But how much that worries Europoliticians - particularly French ones - is amply shown by these classic quotes from a Eurocrat (who also happens to be the current head of the World Trade Organisation):
PARIS, Dec 5 (Reuters) - Firms such as Airbus-maker EADS should look beyond the short term when taking decisions about whether to move production abroad to cope with the strength of the euro, WTO chief Pascal Lamy said on Wednesday.
The head of the World Trade Organisation told France's i-Tele television that competitiveness was the key to job creation in the globalised economy and noted that German firms had managed to adapt to the euro, which recently hit record highs of about $1.4965.
His comments come two days after EADS boss Louis Gallois said the firm would have to move production outside the euro zone if it were to survive the dollar's weakness.
Gallois is not only one to issue such warnings. Dassault Aviation's chief said in a weekend interview that his company could move some production abroad to shield the French jet maker from the dollar's sharp fall against the euro.
"I don't think that these are things that one can decide on in the short-term," Lamy, a Frenchman, told iTele. "Today, compared to five years ago, the euro is a lot stronger and the dollar a lot weaker, but it will come back.""The euro hit record lows of $0.8225 in 2000."If I take the case of EADS and Dassault (Aviation) ... my feeling is that they also have a lot of costs in dollars. So I don't think these are issues that can be looked at in the short term," Lamy said."http://www.guardian.co.uk/feedarticle?id=7128052
Furthermore, not content with telling Airbus that they must somehow magically find a way of becoming competitive regardless of the Euro's uncontrolled appreciation, the two governments that effectively run EADs (French and German) continue to prevent the company from doing anything constructive.
The original strategy, first put forward by Streiff (at the cost of his job) and further promoted by Enders and Gallois, was to reduce the workforce by at least 10,000 and sell off a number of plants to raise cash.
So far EADS employment figures have gone UP, not down - and it is becoming perfectly clear that government-supported guarantees to the unions have meant that EADS can only sell factories to people who will undertake to maintain the full existing labour force after purchase.
Not surprisingly, this means that there are very few takers for the offered plants; and those that there are are not offering much money for them.
For this reason EADS is STILL not sure if any sell-off deals will actually be finalised: and there remain doubts as to whether some of the plants earmarked for sale will ever actually be sold off.
PARIS, Dec. 5, 2007 (Thomson Financial delivered by Newstex) -- EADS is rethinking its plans to sell subsidiary Airbus's plant in Augsburg, Financial Times Deutschland reported, citing industry sources.
Although the plant is still officially up for sale, EADS now prefers to keep the site while selling the Varel and Nordenham plants to US investor Spirit Aerosystems Holdings Inc (NYSE:SPR) , the paper added.
A separate tender process is running for the site in Laupheim.'There are no new developments,' a company spokesman told Thomson Financial News. 'We are currently in talks with all bidders and we intend to reach a solution until the end of the year.'http://money.cnn.com/news/newsfeeds/articles/newstex/AFX-0013-21438037.htm
I would submit that the only solutions to EADS/Airbus' developing longterm problems are (as they have always been)
1. The EU should 'manage' the value of the Euro in the same way that all other nations do - seeking a balance between short-term internal prosperity and long-term external competitiveness.
2. The company should be freed from day-to-day political influence, and allowed to concentrate on doing whatever it takes to produce competitive products and return to profitability.
3. The best managers should be appointed to run the whole show - regardless of nationality or political 'acceptability.'