Enders Rings Alarm Bells Euro Strength Knocks Airbus Off Course
Thomas Enders on Thursday didn't mince words. Speaking before his company's German works council in Hamburg, the Airbus CEO laid out the dramatic risks currently facing the company, according to sources present at the meeting.
With one euro currently fetching $1.48, the exchange rate, he said, has "crossed the pain threshold." Worse, the rate of the dollar's fall "hardly leaves room for reasonable adaptation," Enders said. "That is life threatening." Although the company is expecting a record number of orders, it still must reckon with "tremendous losses."
The recent fall of the dollar is creating major problems for Airbus. The company builds its planes in the euro-zone, but sells its machines in dollars; when the dollar loses 10 cents of value relative to the euro, Airbus mother-company EADS loses €1 billion. Even worse, Airbus earlier this year launched a restructuring program called "Power 8." The idea was to massively cut costs and stop the bleeding at the European plane manufacturer. The problem? Power 8 assumes an exchange rate of $1.35 to the euro.
Further savings measures, Enders said, must be taken -- and he left no doubt that the cuts wouldn't be minor. In the coming weeks the company will have to decide where to make additional changes. "We must put our business model to the test; it is not sustainable as it currently stands," Enders said on Thursday. "It will take radical measures." All major outlays must be examined to see where cuts can be made.
"First and foremost we have to examine our future capital investments," Enders said. "Some projects currently on the drawing board will have to be cut." He did not, however, clarify exactly which projects those might be.
Even more plants for sale?
Still, business circles doubt that Enders' fire-and-brimstone speech will result in layoffs. Given the backlog of orders, there's hardly any wiggle room. The speech is nonetheless likely to unsettle Airbus employees, as Enders also said of the upcoming measures that "there cannot be any more taboos; this concerns the entire value-added chain -- including outsourcing." More outsourcing could lead to more plants being put up for sale. Currently, within the terms of "Power 8" in Germany, partners or buyers are being sought for the plants in Varel, Laupheim and Nordenham.
Enders' speech comes just days after Airbus went public with major losses for the first nine months of this year. Raw figures show a hole of €343 million ($509 million) on the balance sheet. By contrast, the corresponding period last year resulted in an operating profit of €1.43 billion ($2.12 billion).
On Thursday, though, Enders went out of his way to avoid the impression that he was calling for help. "So that no one misunderstands me, I am just describing soberly what the depreciation of the dollar exchange means for our business and what we have to do," he said. "I am calling neither on policy makers nor on the ECB (European Central Bank) for monetary-policy measures."