Airbus squeezes suppliers to cut £1bn from costs

By Michael Harrison,Business Editor
Friday 21 February 2003 01:00

Airbus Industrie, the European aircraft manufacturer, is seeking to cuts costs by £1bn over the next three years with most of the savings coming from its suppliers.

Noel Forgeard, the chief executive of Airbus, briefed 350 of the company's senior managers in Toulouse yesterday on the radical plan that would reduce the company's €15bn cost base by 10 per cent by 2006. There is unlikely to be much impact on Airbus's 46,000-strong workforce.

The cost cuts are part of an efficiency drive designed to make Airbus more competitive against Boeing and also protect it against a further weakening of the US dollar.

Mr Forgeard said at least half and probably more of the efficiency gains would come from suppliers, with whom Airbus spends €10bn to €11bn a year. Its major subcontractors include GKN, Rolls-Royce and Smiths Industries in the UK, Thales of France and, in the US, General Electric, Pratt & Whitney, Honeywell, Rockwell and Goodrich.

"All of the community that we work with will have to share the burden. Often, the margins of our subcontractors are much above out own," Mr Forgeard said.

He stressed, however, that Airbus remained confident of its profitability over the next two years even if the dollar did weaken substantially, saying that it had hedged $40bn of future revenues at an exchange rate of $1 to €1 or below. About half Airbus's annual revenues are in dollars.

Mr Forgeard said that at $1.40 to the euro, Boeing had a better cost base than Airbus, but at $1.18 Airbus was more competitive. Airbus has based its production plans on a euro exchange rate of $1.12.

The Airbus chief executive said he remained confident that it would produce more aircraft than Boeing this year for the first time. Airbus has firm commitments from customers to deliver 317 aircraft and has a production target of 300 aircraft. Mr Forgeard refused to speculate on what would happen to deliveries in the event of a new Gulf war but said Airbus planned to update the market in April.

Separately, John Leahy, the chief commercial officer at Airbus, said it intended to account for half the aircraft market among low-cost carriers after its success in winning an order for 120 A320 jets from easyJet last year. He shrugged off Airbus's failure to win a similarly sized order from Ryanair, saying Michael O'Leary, the chief executive of the Irish carrier, had been "half-hearted" in his interest. Mr Leahy and Mr Forgeard did not bother to go to Dublin to see Mr O'Leary because they felt the competition for the order was not "transparent".

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