Airbus was forced to acquire discipline, partly by the so-called tyranny of the dollar. Contracts are negotiated in dollars, and as the currency weakened, Airbus had to drain some of the cost out of its system. Doing so added to the competitive tension between the various Airbus companies but did breed a higher level of efficiency, and hence productivity.
Boeing’s homogeneity contrasts sharply with Airbus, a collection of forty or so nationalities and, one is told, no sense of hierarchy. Airbus flatters itself on being a model of cohesiveness. A visitor is told repeatedly that the company’s diversity induces a collegiality among people who have had to reconcile different styles and perspectives on how best to get the job done. (Language differences are not a problem. Staff people are in many cases multilingual, and those who are not are in any case wholly comfortable with English; it has become the working language.)
The assumption in the 1980s and much of the 1990s was that Boeing’s monoculture would have little difficulty in overpowering Airbus’s multiculture. But it didn’t. Again, much, if not most, of the credit goes to Pierson, who took control of a group of companies beset by divergent business cultures and, even worse, by the sharply contesting priorities of their patrons, the four governments. In Airbus’s early days, each government felt it had to agree on a new project; the acquiescence of a national airline—such as Air France or Lufthansa—was also required. And there was the question of who would run the project. Since each project involved four different companies, a cooperative team—indeed, a team spirit—had to develop, and it did. The process is said by industry analysts to have generated high-quality decisions, although not always promptly.
“There was constant bickering,” says Pierson, “a constant need to find consensus. That wore me down.”3 He was just fifty-eight when he retired. He doesn’t say much about his decision to retire early. It was generally thought that while he may have been very tired (he had said as much, and was keenly aware of the heart attack he had recently experienced), he was also reluctant to begin having to deal with the politics of a very different corporate structure, this one spearheaded by companies and operating under dual CEOs, one French, one German. “Imagine a company with two CEOs,” he could be heard observing after he left. The comment turned out to be far more telling than he may have thought.
Much of Pierson’s energy over the years was used to settle disputes and smooth rough edges. He not only succeeded but had presided over the creation of more jet transport programs than any similar figure, American or European. “Airbus needed the combination of Pierson and Boeing’s ineptitude,” says Robert (Bob) Alizart, who worked closely with him for most of that time and who has also retired.4 This view is shared by most Airbus people, some of whom began worrying a few years ago that their own company had gotten just a little too comfortable—too willing to write Boeing off as a serious competitor. Boeing’s commercial aircraft division, they knew, had always been and remains a reservoir of surpassing talent, of people who remain dedicated to building airplanes of the highest quality.
A great many of Boeing’s gifted people, however, felt they had been let down by management, which in the late 1990s was taken over by a strongly risk-averse faction. This leadership was seen elsewhere in the company as having been narrowly focused on shareholder interests and reluctant to invest in new technology and new products. And since John McDonnell, the chairman, and Harry Stonecipher, the former CEO, are the largest individual stockholders, questions about motives, whether fair or unfair, were raised by people in and beyond Boeing.
“We are not the company we were fifteen years ago. We are a company very much focused on our shareholders.” That comment was made as recently as February 9, 2005, by a senior vice president of Boeing. He and others always thought that putting product and customer support ahead of shareholder interests, as narrowly defined, was the best way to promote those interests.
“Boeing has struggled with the development work needed to take the company into the 21st century,” said Tim Clark, president of Emirates, the Dubai airline that is one of the world’s major buyers of long-haul aircraft. “Airbus,” he told the Financial Times in January 2005, “has been braver, more brazen, more prepared to push the boat out. Boeing was more concerned about shareholder returns.”5
ALL THAT WAS LARGELY TRUE, but the talk of Airbus’s ascendancy or Boeing’s irreversible slide was exaggerated and deeply misleading, as events occurring just a few months later would richly illustrate. These companies struggle for advantage in a business where a single transaction can and often does loosen an airframe maker’s purchase on a major segment of the market. Handicapping long-term winners and losers is a dicey exercise. A new airplane may look highly promising in the conceptual phase, draw a fair amount of encouragement, make a promising entry into the market, and then flounder. Or it may succeed beyond reasonable expectations.
By committing itself to building a new middle-sized airplane in December 2003, Boeing’s management softened the criticism. It had been far from obvious that management and the board would decide in favor of the new product. The skepticism in-house and beyond didn’t then go away, but was less pronounced and disconcerting than before the decision.
Boeing got lucky—very lucky—with this new airplane. It had flirted for two years with a conceptually silly plane that did not arouse the interest of even one of the world’s airlines. Corporate management, which over a decade had gotten most things wrong, then decided, without much enthusiasm, in favor of a fundamentally different variant that should have been the choice from the beginning, because it was just the right airplane—one that offered Boeing a clear path back to the middle market.
In the spring of 2005 Boeing began making inroads on Airbus’s customer base by selling this new airplane, the 787, in large numbers and selling it to carriers that Airbus was counting on to help sustain its hold on the middle market. In June, Air Canada’s chief executive, Robert Milton, called the airplane “a game changer.” Not long before, he had appeared in an Airbus sales video saying that any carrier flying non-Airbus planes would be “left in the dust.”6
The 787 was still a “paper airplane” then, not yet out of the larval stage and not scheduled for delivery to customer airlines until the summer of 2008. However, in outline it impressed all sides, and its early success in the market indicated that Boeing had a winner, if the production phase proceeded without a serious stumble. Company morale improved, and so did shareholder returns.
Then, seemingly overnight, the sharp turnabout in Boeing’s fortunes was bolstered by a sea of troubles that befell Airbus on multiple fronts. These surfaced publicly in the run-up to the Paris Air Show in mid-June 2005. Airbus was compelled to announce then that the first deliveries of the A380 superjumbo would be delayed up to six months—from mid-2006 until early 2007. Airbus, it appeared, needed more time in which to align this huge airplane with the specifications and performance guaranties that had been promised. But delaying deliveries was likely to cost the company tens of millions of dollars in penalties owed to customer airlines.
The costs to Airbus were underlined by Chew Choon Seng, Singapore Airlines’ chief executive. “The late delivery,” he said, “extremely disrupts our capacity planning. Preparations were ready for the training of pilots, flight attendants and technicians. I am not going to get into a fight with Airbus…. I am a serious client. And I would like to think that Airbus is a serious company. Unless, of course, Airbus wants to send me a signal that I shouldn’t buy a single aircraft from them again…according to our contract, we are entitled to compensation. It is comparable to a taxi ride: the longer the ride, the more it costs. Each additional month delay will be more expensive for Airbus.”7
Then, Airbus had to disclose another painful postponement, this one the launch of a new airplane whose design hadn’t been settled on but was already being offered to airlines as a rival to the 787. The postponement, reflecting as it did an apparently soft market for this paper airplane, was an embarras
sing setback. The talk was that the company’s engineering resources were so taken up by the A380 that it wasn’t ready to take on a new and highly advanced project.
Worse yet, perhaps, the leadership of EADS, Airbus’s parent company, was imploding. Over a period of several months preceding the air show, senior French and German officials, not to mention boardroom heavyweights, had been quarreling bitterly. The parties were supposed to have coequal roles. EADS has two co–chief executives and two co-chairmen. However, the Germans saw the French as engaged in trying to seize de facto control.
Noel Forgeard, Pierson’s successor at Airbus, had been chosen by the French at the end of 2004 to become the next co–chief executive of EADS. However, Forgeard, with strong encouragement from French president Jacques Chirac, was lobbying hard to replace the dual management system with a single CEO, namely himself. Forgeard had at one stage served as Chirac’s industrial adviser.
The Germans dug in their heels, not because they were opposed to having a single CEO but because they felt that Forgeard was overplaying his political connections in Paris and because they didn’t think he was the right choice. Instead, DaimlerChrysler was believed to have favored an arrangement whereby Philippe Camus, a highly regarded French joint CEO of EADS who lost a bruising public battle with Forgeard and was ousted, would have become its sole chief executive. In turn, a senior executive from DaimlerChrysler would have been named sole chairman of EADS.
Around this time, Forgeard made a point of saying that the effort to block his bid for unitary leadership amounted to a vicious struggle by others to acquire the role he sought. He spoke of having just reread the memoirs of Saint-Simon, with its tales of intrigue and struggles for advantage in the court of Louis XIV. The campaign against him, he said, was orchestrated by a small Parisian clique (presumably supporters of Camus) operating between “the Café Flore [on the Boulevard Saint-Germain] and Fouquets restaurant” (on the Champs-Elysées) and a similar gathering place in Munich.8
Neither side gave way. The impasse became the most acute of Airbus’s midyear embarrassments and a deeply disruptive internal problem. EADS-Airbus appeared to be bereft of coherent decision-making procedures. In late June 2005, the management battle was settled. It was agreed that Forgeard and Thomas Enders, the head of the EADS defense division, would of become co–chief executives of EADS. The balance of nationalities would be maintained. Or so it seemed. It appeared to be a victory for Chirac: not only had his favorite, Forgeard, survived, but the division of labor left him presiding over Airbus.
Much of what lay behind the outcome probably had more to do with France’s resounding non to the European Union’s constitution than to the merits or the strengths of the personalities. For Chirac, who had campaigned strongly for it, this rejection was a stunning setback. To have lost ground to the Germans over the EADS-Airbus management issue immediately thereafter would have been a second political blow that his German partners were reluctant to deliver. Moreover, while the two parties are equal partners, the French continue to regard Airbus as a fiefdom.
A year later, in June 2006, the issue of corporate governance flared up again as the second and more injurious crisis involving the A380 struck Airbus/EADS. The production problems that were slowing down the program and that management should have disposed of had become enmeshed in cross-border politics and political infighting. This time, Forgeard was in the crosshairs, especially after he initially sought to hang the blame on the German factories, then, under pressure, included a French site in his critique, and still later expressed regret at having said anything at all.
Even worse for Forgeard, the storm broke amid revelations that three months earlier he had exercised options to sell EADS shares worth 2.5 million euros ($3.4 million). Three of his children also sold shares at the same time, as did two board members. Talk of insider trading ensued, and, predictably, an investigation was launched.
The gallery was less interested in whether Forgeard would be proved culpable than in when he would leave and who would replace him. Although he struggled to stay on, Chirac, quite clearly, couldn’t continue to protect him. And so on July 2, eight years after Pierson’s departure, his deeply flawed successor did go at last. However, the binational equlibrium held. The Wall Street Journal reported that “because decision-making power is split between French and German shareholders, the French side will request that a German executive [also] be dismissed. If Mr. Forgeard steps down…Airbus chairman Gustav Humbert could pay the price of such bargaining.”9 And he did. Humbert took responsibility for the A380 fiasco, although he had inherited the production problems from Forgeard.
Forgeard was replaced by Louis Gallois, chairman of SNCF, France’s national railroad company, and a member of the board of EADS. Before then, he had been chairman of Snecma, the French aeroengine company. Humbert’s successor at Airbus was Christian Streiff, a former chief operating officer of the Saint-Gobain Group, the glass and building materials group. Streiff had no previous experience in his new trade. Tom Enders would remain co–chief executive of EADS.
Gallois, like Forgeard, is politically astute, but his focus isn’t politics. Nor is it money and position. He is seen as a safe pair of hands and, unlike Forgeard, personally disinterested. Both are products of France’s so-called grandes écoles, and both belong to a hierarchy, but one that doesn’t bend easily to dynamic change and does have a statist tendency. Gallois is seen on all sides as blending decency with relevant experience. But at sixty-one, he is within three years of mandatory retirement and hence a transitional figure.
Within and beyond Airbus, the crisis seemed to present a golden opportunity to put an end to the politics and infighting and to streamline the company’s leadership. Instead, the uneasy French-German combine sustained what amounts to a corporate anomaly, dual sovereigns with limited commercial reach.
The changes appear to portend no less political tension of distrust between them. DaimlerChrysler, the single largest EADS shareholder, with 22.5 percent, is worrying aloud about interference by the French government, which has a 15 percent share and is said to be pressing to enlarge its right to intervene in company affairs. Tom Enders, the German co–chief executive of EADS, knows the military side, not the commercial. But he has insisted that Streiff report directly to him, not to Gallois, who does know the commercial side.
Enders wants to integrate Airbus more closely with EADS, and from his point of view, why not? Airbus is the engine that drives EADS, and Enders, along with various colleagues, wants to be sure that it is doing what they think it should be doing. But Airbus, not suprisingly, thinks that “integration” with EADS will kill the golden goose.
If asked how best to operate within the current management structure, numerous Airbus people would say: “We need someone who knows the commercial aircraft industry as well as anyone and is trusted in the places that matter.” Some of them, along with many Airbus watchers, do not hesitate to suggest that Jean Pierson comes closest to fitting these criteria. A decision to return Pierson to Toulouse with full control of Airbus would stretch but not exceed the political tolerances of the dual sovereigns. Although he is French, he was always seen first and foremost as a company man, and he was widely respected in relevant German circles. Having him back might be the best way to restore the company’s strategic focus, not to mention customer confidence. Airbus continues to live off his product line—his legacy.
Would Pierson do it? Alizart, who for many years was Pierson’s executive assistant and confidant says, “He might, provided he could set a limit of no more than two years on his term and would be reporting to Gallois.”10 Reached in Corsica, Pierson says that he would not have considered coming back, citing age as the reason. “I am over sixty-five,” he said. “That is too old.” And he does seem comfortable with the changes made at the top. “Gallois,” he said, “is a friend.” And he had heard good reports about Streiff, whom he was planning to see in a few days. Quite clearly, Pierson is going to be consulted regularly,
and he seems happy to be reengaged but in a nonstressful role.11
IN JUNE 2005, with the management issue in play, Boeing gave the edgy partners in the French and German combine a strong reason to begin trusting each other and doing something sensible. Just one week after Forgeard’s narrow escape, Boeing named a new leader, W. James McNerney, the highly regarded chairman and chief executive of 3M (Minnesota Mining and Manufacturing Co.). McNerney, then fifty-five, is a native of Providence, Rhode Island, who did his undergraduate work at Yale and went on to the Harvard Business School.
Boeing had wanted McNerney to become its leader for the long term and had pursued him unsuccessfully for some time. After periodically saying no to Boeing, once publicly, and insisting that he wanted to remain at 3M, McNerney changed his mind and took the job. He then said, “I was reluctant to leave 3M after only 4½ years with a great management team in place, but Boeing is such a special company in an industry I love. I figured I might never have another opportunity to run a company so crucial to the U.S. economy. The timing just seemed to be right.”12
Boeing rejoiced. In various jobs over the years, including management of GE’s aeroengine group, McNerney had made a uniformly strong and favorable impression on the aircraft industry and beyond. Indeed, within GE, he had been expected to succeed Jack Welch. But in 2000, Welch, a poor judge of talent by most accounts, instead chose Jeffrey R. Immelt. McNerney then left and became the first outsider to run 3M.
Although McNerney’s decision to take the Boeing job surprised the industry, a few of those who knew him best had expected it. One of them was Bob Conboy, who had worked closely with McNerney in the GE jet engine unit. “I think that in the end Jim will take the job,” he said several weeks before the event. “He knows he’s qualified and can do it. And given his age, he will see the job as the last big challenge he will face.”13
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