EADS Boss Louis Gallois on the A380 'I Was Told There Was a Problem'
SPIEGEL: Monsieur Gallois, what is your opinion of German Defense Minister Karl-Theodor zu Guttenberg?
Louis Gallois: He is clever, he grasps issues quickly and he is a good conversationalist. In short, he has impressed me, even if we sometimes hold different views.
SPIEGEL: Guttenberg wants to trim the German defense budget by more than €8 billion ($10.6 billion), a move that will include cancelling orders for EADS helicopters.
Gallois: I hear rumors like that again and again. But they are certainly not as noteworthy as the minister himself!
SPIEGEL: Other European countries are also reportedly seeking to reduce their military budgets.
Gallois: Our home countries are indeed facing tight budgets. But it doesn't look quite so grim yet. Our orders are safe in Great Britain, for example, where they see the A400M, the tanker and the Eurofighter as being indispensible for their own security. In France, spending has at least remained constant. We expect more detailed information for Germany in early 2011. The focus there, for now, is probably that the Defense Ministry wants to reduce spending and adapt the structure of the Bundeswehr to future missions. As far as our contracts are concerned, we are taking a wait-and-see approach, and I'm not without hope. After all, the budgetary situation in Germany isn't nearly as tight as in other European countries.
SPIEGEL: Although governments have accommodated you on orders for the A400M military transporter, you have still had to lower your expectations. Will you ever make money with it?
Gallois: We are grateful to the governments for having supported us in reaching an agreement. However, the project is still a substantial burden for us. We have written off €4 billion for the first 170 aircraft. That was a shock for us, but now it's over. The aircraft has strong export potential for the future, because it's extremely cost-effective for operators and can be used in a broad range of applications. We are already in touch with potential buyers, including the United States, which is also interested. However, we can only offer them delivery dates starting in 2020, because our production is fully booked up until then.
SPIEGEL: You also want to grow your security business. Is the defense business becoming less important for EADS?
Gallois: Not at all, but we do have to promote exports. In addition to Europe, the biggest potential clearly lies in the United States. We represent about half of the worldwide defense market. As a third regional pillar, we are expanding our presence in Asia, the Middle East and Brazil, where we need to make massive investments in research, labor and production. At the same time, we want to expand our security-solutions business, which is growing rapidly. It's something that affects each and every one of us. Just think of the recent discovery of a dummy bomb at the airport in Namibia.
SPIEGEL: A recent engine problem on an A380, your civilian flagship jet, owned by the Australian airline Qantas, attracted a great deal of attention. How did you find out about it?
Gallois: I received a call from Airbus and was told that there was a problem with one engine. I was initially very calm, however, because I knew that the plane has four engines and can easily fly with three.
SPIEGEL: And were you dismayed when you saw how much damage the explosion had caused?
Gallois: Yes, but I quickly realized that, despite the incident, the aircraft continued flying safely for another hour and 40 minutes. The autopilot initially remained switched on after the incident, which is a clear sign of sufficient redundancies. The A380 is certified according to the strictest safety standards today, and in this case it survived an incident that lies well outside the certification framework. We see safety in aviation as a top priority, and we don't make any compromises in that respect.
SPIEGEL: The Australian investigative agencies list a number of systems that failed as a result of debris from the explosion. Do you anticipate new safety regulations that will require changes not only to the engines but also to the aircraft itself?
Gallois: In the context of certification, one assumes that in a case like this only one projectile penetrates the aircraft. Given the fact that there were three projectiles here, the A380 stood up remarkably well, thanks in part to two hydraulic and two electrical systems. Don't forget that despite the failure of a few circuits, there was still a sufficient number of intact systems, which enabled the crew, in a tour de force of flying skill, to safely maneuver and land the aircraft without anyone being harmed. Naturally Airbus will take a close look at the authorities' recommendations. For now, however, the investigation is still underway.
'We Definitely Have the Better Aircraft'
SPIEGEL: Your customers, at any rate, are nervous that there could be delays in delivery. Will you stick to your plans to increase A380 production next year?
Gallois: Yes, we will. Airbus is in close contact with Rolls-Royce and is currently supporting the affected airlines with replacement engines from the production line. This could lead to rearrangements during 2011, but Airbus will do everything it can to prevent this from causing delays for airlines.
SPIEGEL: A production error was the cause of the engine explosion. How could this happen to such a prestigious manufacturer as Rolls-Royce?
Gallois: You'd have to ask Rolls-Royce that question. However, we are certain that the company will do everything it can to correct this problem as quickly as possible and limit the negative effects on airlines and passengers. At the same time, the ongoing inspections and, if necessary, the replacement of the defective part will continue to guarantee the safe operation of the A380 fleet with Trent 900 engines.
SPIEGEL: How much have you billed Rolls-Royce for the damage?
Gallois: At the moment, we are focused on working together with Rolls-Royce and the airlines to get the affected planes back into the air as quickly as possible. We'll look at everything else later.
SPIEGEL: Your chief financial officer said recently that the A350 program is a "big challenge" for your company. What did he mean by that?
Gallois: We are just being careful, because we know that Airbus has already used up a large part of its built-in time buffer. That's why we are notifying the markets and our customers. Some of Airbus's subcontractors were late in delivering, or details in the design of some components had to be changed. To put it bluntly, we have now somewhat widened the initial delivery window for the A350 -- from July 2013 to the second half of the year.
SPIEGEL: Why are EADS and Boeing, with its Dreamliner, having such a tough time sticking to promised delivery dates?
Gallois: Both are working with ambitious time targets, because of growing competitive pressure. In the civil aviation business, both companies are currently transitioning from the traditional metal technology to the new carbon fiber technology, while simultaneously developing new aircraft. The constantly growing number of suppliers also causes problems at times. That's why we don't go as far as Boeing in this area.
SPIEGEL: You are competing with Boeing for the contract to build refueling tankers for the US Air Force. What are your chances?
Gallois: We definitely have the better aircraft. And the risk is manageable for us, because we have already completed a large part of the development and have export orders from US allies Saudi Arabia, Great Britain, the Emirates and Australia. Our aircraft is therefore superior, and we can also offer a competitive price and still make a profit.
SPIEGEL: That profit will be significantly higher if the price of the euro against the dollar continues to fall as a result of the euro zone sovereign debt crisis. After all, you pay your bills in euros but are paid in dollars. Are you secretly speculating that the euro will decline?
Gallois: I am a European citizen, and I don't want to see our common currency in trouble. What makes me much more worried is the threat of a currency war. It hasn't happened yet. But the Americans and the Chinese are already sharpening their weapons and betting on a devaluation of their own currencies. This could spell serious problems for many European export businesses.
SPIEGEL: Including EADS and Airbus?
Gallois: The absolute exchange rate between the euro and the dollar is indeed an important issue for us. We have learned to live with it in the last few decades, and we engage in the necessary hedging transactions. But the key issue is that first we need stability and the ability to plan ahead. That cannot happen if the euro loses more than 15 percent of its value against the dollar in only about three weeks, as we have seen recently. This sort of yo-yo effect makes things extremely difficult for an export-oriented company like EADS.
SPIEGEL: Your contract as CEO of the group ends in June 2012. Do you believe that the dispute over illegal subsidies for aircraft makers Boeing and Airbus, which has been going on for six years now and which both sides deny, will be resolved by then?
Gallois: The ball is in the middle of the playing field. I would say it's even a little more in Boeing's half. Each party argues that it's the other party's fault and tries to reinforce its position with extensive statements.
SPIEGEL: Why don't you just sit down with the Americans and negotiate a compromise?
Gallois: Well, the arbitration proceedings before the World Trade Organization have been going on for some time. Both parties can appeal the WTO's decisions, and they have made full use of that option.
SPIEGEL: The Chinese, who have already unveiled the design of a model that would compete with your A320, could emerge in the end as the winners.
Gallois: That could happen. While we continue to fight with each other and try to prevent each other from receiving financial assistance for new aircraft programs, countries like China are supporting their industry at a completely different level. China is an extremely attractive market for us, but the Chinese also want to develop their own aviation industry. We know that we will have to compete with them in the future. And we can only do that if we offer more innovation, better quality and better service.
SPIEGEL: What other plans do you have before your departure from EADS?
Gallois: It'll be quite a while before then. The operational side of our business, especially the A350, will continue to keep us busy. We will become more profitable. The outlook for 2012 onwards is in any case positive. And we have to develop a third pillar for the group in the emerging economies. To achieve that, we urgently need to change our mindset…
SPIEGEL: … which sees Europe as the center of the world.
Gallois: Yes, the emerging economies are practically mature now. It was mostly thanks to them that we got through the financial and economic crisis relatively unscathed. We will not leave Europe, but we know that growth and dynamism are being driven by Asia, the Middle East and Latin America. We will expand our presence there and develop domestic companies in each region. I can easily imagine that our board of directors will also include an Asian in a few years.
SPIEGEL: Monsieur Gallois, thank you for this interview.