FRANCE - UNITED KINGDOM

EADS: Stymied at every turn?

Tuesday 01 April 2008

Every time Airbus’s parent company, EADS, finally seems to reach cruising speed in its lofty ambitions, something happens to slam on the reverse thrusters.

 
Pity the plane maker.
 
Every time Airbus’s parent company, EADS, finally seems to reach cruising speed in its lofty ambitions, something happens to slam on the reverse thrusters.
 
Last July, French President Nicolas Sarkozy and German Chancellor Angela Merkel read the last rites to the company’s clunky, dual management structure in favor of a single chief executive and chairman.
 
But whatever PR “bounce” EADS might have gotten from the summit-level streamlining, it was lost amid the fallout over a major restructuring known as Power8, involving some 10,000 job cuts.
 
And consider the Airbus A380 superjumbo project: it was meant to be the Mother of all Super-jumbos, a paradigm of pan-European cooperation and a harbinger of Europe’s high-tech prowess for future generations.
 
But that grand scheme – while ultimately successful – got bogged down in epic production delays which, in turn, got mixed up in another scandal over alleged insider trading.
 
And now, just weeks after EADS’ publicity coup of the century – Airbus beating out arch-rival Boeing to snag a 26 billion dollar contract to build new refueling tankers for the Pentagon – events are conspiring to dispel the euphoria.
 
On Tuesday, France’s financial market regulator, the AMF, played the role of spoiler. It confirmed that it had found evidence that past and present managers at EADS had sold company stock before Airbus went public in June 2006 with a major announcement about production delays to the A380.
 
The EADS share price tumbled by more than 25% in the immediate wake of that June 2006 announcement.
 
The regulator also accused the company of failing to keep markets abreast, as required by law, of possible delays as they became apparent to top management.
 
The latest twist could even give Boeing fresh ammunition in its own battle to convince US lawmakers that the Air Force went with the wrong contractor in its choice of EADS.
 
The AMF findings followed an 18-month investigation by the regulator. Separately, a report on Tuesday in French financial daily, Les Echos, said that the AMF had singled out 17 current or former directors on suspicions of insider trading.
 
That’s well below the figure of 1200 suspects that had been cited in a leaked report to the French press last October. The article, in France’s Le Figaro newspaper, was supposedly based on the AMF’s draft report into the insider trading inquiry. The AMF, at the time, was said to have narrowed its focus to 21 top managers. Now, Les Echos says that number has been further winnowed down to 17 – a number that remains unconfirmed.
 
The AMF, for its part, is not pointing the finger of blame at anyone.
 
It plans to send its conclusions to a sanctions committee for further consideration. The suspects themselves will then be given an opportunity to lay out their defense.
 
Early indications are for a messy battle ahead, with lots at stake for both the regulator and EADS itself.
 
The aerospace group has vowed to “vigorously exercise its right of defense”. Its executives have asserted all along that they are guilty of no wrongdoing. EADS stuck to that line on Tuesday, asserting that it “acted with total transparency”.
 
The company is said to be planning a counter-attack, taking aim at the methods of the investigators themselves who allegedly failed to appreciate the complexities of decision-making within the company.
 
Sanctions against EADS remain, for the time being, a far-off prospect.
 
But the regulatory scrutiny is likely to cause more than a little wind shear as EADS struggles to regain altitude in the months ahead.