Airbus's new chief hopes for clear skies as the new-look A350 taxies in

Some see Airbus's new A350 aircraft as another exercise in 'betting the ranch'
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The Independent Online

A package of measures to protect British interest in the Airbus programme was unveiled yesterday in the event that BAE Systems sells its 20 per cent stake.

The Government will retain the right to a 16 per cent work share on the programme, helping preserve the 100,000 UK jobs which depend on production of Airbus wings at sites in Broughton, north Wales and Silton near Bristol.

In addition EADS, the Franco-German aerospace group which owns the remaining 80 per cent of Airbus, has agreed to set up a research and development centre in the UK to work on civil and military technology and will also examine a secondary listing of its shares in London.

Details of the package were given on the first day of the Farnborough Air Show by the Trade and Industry Secretary, Alistair Darling, after a meeting of ministers from Britain and three other Airbus countries - France, Germany and Spain.

News of the package came as the crisis-torn aircraft maker sought to put its troubles behind it with the formal unveiling of its $10bn (£5.5bn) wide-bodied A350 jet and a promise to be more "humble'' in future.

The new chief executive of Airbus, Christian Streiff, also served notice that the organisation was ready to redouble its cost-cutting efforts to recapture the ground lost to its rival, Boeing.

In his first public appearance since taking over at Airbus a fortnight ago, M. Streiff, a former senior executive with the French building materials giant Saint-Gobain, admitted the company was in the midst of a "serious crisis'' and pledged it would "learn humility and change our bad habits''.

Mr Streiff's predecessor, Gustav Humbert, was axed at the start of this month along with Noel Forgeard, the co-chief executive of EADS, after a warning that production delays on the Airbus A380 super jumbo would wipe €2bn (£1.4bn) from its profits over the next four years. The warning knocked a quarter off EADS's share price and contributed to the very low valuation put on BA Systems' stake in Airbus.

The A350 EWB (standing for extra wide body) will cost twice as much to develop as the original A350 design which was ditched after customers said they wanted a more advanced aircraft. The new plane, due to enter service in 2012, will have a greater range and seating capacity than the rival Boeing 787 Dreamliner which enters the market four years earlier. But the A350 is also being designed to compete with some versions of the larger Boeing 777.

The new Airbus plane will cost $185m at list prices but so far Airbus has received only 182 orders from 14 customers. Boeing by comparison has 403 orders from 28 customers for the 787 and says it is talking to airlines about orders for a further 1,000 aircraft.

John Leahy, Airbus's commercial director, claimed that with a range of 8,500 miles, a passenger capacity of 250 to 375, a wider fuselage and greater fuel efficiency the A350 would be a "step ahead'' of the 787.

But rivals wonder if the A350 represents a second huge gamble for Airbus in the space of a decade, following the original decision to launch the A380. So far, Airbus has sold only 159 of the giant 555-seater jets and needs at least double that level of sales just to break even. Some see the A350 as another exercise in "betting the ranch". Apart from the cost and time delay in getting the aircraft on to the market there is the gamble of taking on two Boeing aircraft simultaneously.

Alan Mulally, head of Boeing's Commercial Airplane Division, said: "It is very difficult to make one aeroplane competitive against two different models when you're talking about a passenger capacity ranging from 200 to 400 seats.''

M. Streiff said he wanted to spend the next three months conducting a root-and-branch review of Airbus before launching the A350 in October. This will give him time to assess Airbus's cumbersome supply chain which involves component parts being shipped to its Toulouse final assembly site from four countries.

He is adamant that Airbus must learn the lessons from the A350 fiasco which has resulted in aircraft deliveries being delayed for seven months because of problems with the plane's electrical harness. He has also promised to give details later this year of a new efficiency plan designed to counter the resurgence of Boeing and the threat posed by an exchange rate of $1.30 to the euro. Most of Airbus's costs are in euros but it sells its aircraft in dollars. A three-year €1.5bn cost-cutting plan ends this year and Airbus is likely to want to repeat that at the very least or opt for an even more aggressive efficiency drive.

M. Streiff said, despite the setbacks to the A380 programme and concerns about cracking on parts of the wing, the tests and certification procedure was going to plan. "I want to assure our customers that stabilising the production, securing the timetable given and the recovery of the industrial ramp-up are priority tasks and my main focus as new CEO," he said.

The next programme, the A350, will require a government subsidy to get off the ground, as have all previous Airbus jets. The UK Government gave £530m in refundable launch aid for the A380 and had agreed to provide a further £379m for the A350 before Airbus went back to the drawing board.

M. Streiff said Airbus was "obviously looking for government support'' but Mr Darling said that because the A350 was, in effect, a brand new aircraft the aid negotiations would have to begin all over again. The current agreement between the EU and the US, governing subsidies for large commercial aircraft dating to 1992, allows the four Airbus governments to provide up to one third of the development costs which in the case of the A350 would amount to $3.3bn. The two sides are in dispute at the World Trade Organisation over the aid agreement.

The issue of state aid is complicated by the likelihood that BAE will sell its stake in Airbus, meaning there will no longer be any direct UK ownership of it.

Robin Southwell, the chief executive of EADS in Britain, has dropped some not-so-subtle hints that if the UK wants to continue as a major production base for Airbus then it would help if EADS gets a bigger share of the UK defence market. The company has been trying without success, for instance, to persuade the Ministry of Defence to start buying helicopters from its Eurocopter Division.

Tom Williams, Airbus's executive vice-president for programmes, said no single country within the Airbus set-up had a "God given right'' to a guaranteed work share. It is also known that the Spanish are eager to gain a bigger role within the programme. But Mr Williams stressed that Airbus's heavy investment in the UK had had nothing to do with BAE's ownership of a stake. "None of this will change whether BAE is a shareholder or not,'' he said. "We build at the sites which are the most competitive and possess the best competence. It is not a political decision.''

Arriving at Airbus after a lifetime spent in construction materials, M. Streiff said his two weeks in the job had been "like a kind of vertical take-off with full thrust, a full load on the shoulders and a lot of noise and speed''. His first three months will give a good indication of how firmly his hand is on the joystick.

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