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Airbus chief gambles on giving managers their wings

Airbus CEO Fabrice Bregier is seen during an interview with Reuters in London, December 3, 2012. REUTERS/Simon Newman
Airbus CEO Fabrice Bregier is seen during an interview with Reuters in London, December 3, 2012. REUTERS/Simon Newman

By Tim Hepher and Cyril Altmeyer

PARIS (Reuters) - Frenchman Fabrice Bregier is waging a quiet revolution at the world's biggest planemaker, Airbus, gambling that he can achieve spectacular profit growth by letting his managers manage.

After years of top-down reforms to fix poor coordination that once reduced Airbus to disarray, Bregier has ushered in decentralization since becoming chief executive in June.

The industrial engineer has already played a leading role in turning around Airbus, the global rival to U.S. Boeing , since joining six years ago as number two at the subsidiary of the European aerospace group EADS .

Now he believes that keyhole surgery will help to multiply Airbus profit margins five-fold and keep up with strong demand for its airliners from Asia.

"We have extra potential if we behave again as a small business unit. That is what we need to target," the recently promoted chief executive told Reuters in an interview.

Such change is risky in an industry where tiny errors can cost billions, as investors and airlines learned to their cost when coordination broke down on the A380 superjumbo or Boeing lost control of the supply chain for its 787 Dreamliner.

But after reaching 60,000 workers, Airbus has become too big to run from the center as Bregier aims to lift profit margins to 10 percent by 2015 from a meager 1.8 percent in 2011.

"We have decided to change the organization a little bit, which was very concentrated," he said in the interview conducted in London. "We will of course keep all of the harmonization of our ways of working, but will decentralize further to local teams that can manage their objectives."

It is a delicate maneuver for the 51-year-old head of a company that started out 40 years ago with lofty European ambitions but a patchwork structure of national fiefdoms.

It is also a potentially astute one following a row between Airbus and Germany over jobs, taking the sting out of charges that power is concentrating at the company's French headquarters in Toulouse. Bregier is tipped as the next chief executive of parent EADS, following Germany's Tom Enders.

France and Germany agreed last week on the biggest overhaul of EADS in over in a decade, following a failed attempt at merging with UK defense company BAE Systems . The German state will take a direct stake for the first time, but analysts say the deal also severely curbs government powers to interfere.

POLITICAL ENVIRONMENT

Bregier admits that politics still plays a role in his part of the group, as well as its rival. "Airbus is in a political environment; I will not deny it, of course," he said. "Who can say that Boeing is not in a political environment?"

When Bregier joined Airbus as operations chief in 2006 after running sister company Eurocopter, Airbus was at war with itself and Franco-German industrial relations were at a low point.

The crisis, which cost the company billions of dollars and brought down three CEOs, was traced to a simple decision by engineers in Toulouse and in the German city of Hamburg to use different versions of the same digital design software.

As a result, cables were found to be millimeters short when sections of A380 superjumbos were delivered for assembly, setting the prestigious project back by years.

The mistake led to a huge profit warning and accelerated a restructuring involving 10,000 job cuts. Power was centralized and "transversal" teams created in a drive for ever deeper integration between staff in France, Germany, Britain and Spain.

But Bregier, who also ran Europe's largest missile company MBDA before joining Airbus, believes centralized organization has reached its limits as Airbus spreads its wings outside Europe with plants in China and, soon, the United States.

Today, for example, a factory manager might have to wait two weeks instead of two days for new drawings from a central engineering pool because of competition from other departments.

From January 1, the factory manager will have operational authority over some engineering resources, avoiding delays.

"It is a huge change," explains Marc Fontaine, Airbus company secretary and one of Bregier's closest aides.

"It sounds normal but you have to understand this company has long been organized around functions and geographical units which are difficult to manage at the scale of Europe, so we are striving to empower our people more."

Investors appear to believe Airbus, which accounts for two thirds of EADS sales, is serious about closing a profitability gap with Boeing, whose 2011 commercial margin was 9.7 percent.

EADS shares have risen fourfold from a low of less than 8 euros in 2006. But markets remain on alert for any new problems.

"In theory, decentralization is a good idea as it takes out layers of bureaucracy," said Societe Generale analyst Zafar Khan. "But it is like an orchestra; the danger comes if it is not monitored and coordinated. On the A380 in 2006, everyone was doing a great job, but collectively it was a disaster."

BOXING GLOVES

Bregier was educated at two of France's elite engineering schools, the Polytechnique and the 17th-century Ecole des Mines.

The approachable, soccer-loving Frenchman lacks the aloof demeanor of many who trod the same path - even Polytechnique's famously short nickname, "X," enhances its cult status - yet his methods and philosophy remain an enigma to many in the industry.

One reason is Bregier has spent most of his time at Airbus pushing through the "Power8" restructuring plan. It earned him a reputation for being tough but gave away little about his long-term vision for Airbus as a CEO-in-waiting.

"I am seen as being very direct. Sometimes I can be seen as a bit harsh. We should not hesitate to tell the truth," Bregier said. "If ... you start with a white sheet of paper and you are told 'please save 2.1 billion euros (a year) by 2010', then you imagine putting gloves on, but they are more like boxing gloves than the kind of leather gloves you wear to drive a Jaguar."

Analysts say his tenure will be defined by the way Airbus handles existing projects such as the upcoming A350, a $15 billion project to compete with Boeing's lightweight and fuel efficient 787 Dreamliner.

Similar challenges face his counterpart at Boeing, Ray Conner, another publicity-shy insider promoted to be boss of the planemaking division within weeks of Bregier's appointment.

Bregier is coy about a major strategy review under way at parent EADS, but company watchers believe he favors a concentration around Airbus and Eurocopter following the failure to carry out the BAE Systems merger, which he says he supported.

Asked how he sees his role as chief executive, Bregier said: "The first thing is to be consistent. You have to show that you have a backbone, that you believe in something; that you don't change your mind every minute, especially when you run an international company like this."

In meetings, he is said to drive ruthlessly to the heart of a presentation, ask probing questions and even order up flight test data to verify a point - occasionally losing his cool but never straying from the problem at hand.

He visits the shop floor regularly and is reputed to have a broad network of sources inside the company, both high and low, coordinated by aides who know where to go for quick answers.

Besides Fontaine, his tight inner circle includes fellow veterans of missile maker Matra where he sprang to the attention of the late Jean-Luc Lagardere, one of the founders of EADS.

He is the last serving member of a group known as the "Lagardere Boys" who took over state-run Aerospatiale then cut a deal to forge EADS, but says the days of such factions are over.

One of his first actions in his previous role at Airbus was to bring in a black-belt in program management from outside the commercial aircraft industry, Didier Evrard, the former leader of Europe's Storm Shadow cruise missile project.

It was an uncompromising signal that while Airbus was not short of brilliant engineers, it had to become disciplined in handling complex projects to survive brutal competition.

Program management has been lifted up the pecking order to be a separate discipline, as valued as aircraft design.

In the rarefied world of French engineering, which dominates boards of blue-chip companies, that is a radical shift in style.

If successful, Bregier's entrepreneurial changes could please both politicians and investors. If his gamble backfires, Bregier will join a list of Airbus bosses tripped up by the task of turning Europe's dreams of co-operation into steady profits.

(Additional reporting by Jane Barrett, Sarah Edmonds, Paul Taylor; Editing by David Stamp)

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