Entire transcript of Airbus CEO Christian Streiff's frank speech to employees over A380 delay

The entire transcript of the speech delivered by new Airbus chief executive and president Christian Streiff on the full review of the A380 programme has been leaked by company insiders to a series of aerospace blogsites.

In addition to the A380 programme update, Streiff in the speech, given to Airbus employees yesterday, details of the Power8 cash-cutting and business process improvement programme. Finally, he gave his assessment of the company after his first 100 days in the top job.

Internet weblog sites, including those hosted by the Innovation Analysis Group (IAG) and the Seattle Post Intelligencer , have seen the entire transcript posted on their sites following a mailing from Airbus's ofifce in Washington, DC. Airbus in Toulouse did not initially release the speech.

In the speech (featured below) he hints at wider changes in the future, saying that Airbus is not yet an integrated company. "Airbus doesn't yet have a simple and clear organisation. There are shadow hierarchies – leftovers from the never-finished integration. And the change we bring about must also include the management culture," he says.

In the frank address, Streiff said that the A380 delays – along with such issues as the weak US dollar – would result in deferred revenues and a drain on the manufacturer’s cash-flow.

Streiff did not indicate how soon Airbus would proceed with its new A350 aircraft programme. Airbus says officially that it is still planning to make a decision on the industrial launch of its revamped A350 twin-jet this month, although it admits that the date could slip in the wake of the problems centred on A380 production.“We must generate cash to afford the A350 and continue investing in our future,” he stated.

“We also want to build the basis for the launch of the A350 quickly to satisfy the strong demand in this segment and compete effectively against Boeing,” Streiff said.
--------------------------------------
Speech delivered by Christian Streiff, Airbus President and CEO [unedited]

3rd October 2006

Ladies and Gentlemen, good afternoon….and Tom, thank you.

Yes, indeed, Airbus and EADS have jointly completed the full review of the A380 programme. And, of course, we studied the Airbus' overall situation in depth. We have come to joint conclusions and we fully share the situation analysis as well as the challenge for the way forward.

I will update you today on three topics:

1) The status of the A380 schedule and our path forward for that great airplane programme

2) An overview of a comprehensive business improvement programme for Airbus, which will make our company more nimble and profitable – and will position us better to meet our commitments to customers and shareholders more consistently

3) Finally, I will share with you my assessment of the state of Airbus after my intensive, 100-day review

A380

First things first: An A380 production and delivery schedule our customers can count on. I will cut straight to the chase. As we have informed our A380 customers over the past few days:

The first A380 will be delivered to Singapore in October 2007.
In 2008 we will deliver 13 A380s (to Singapore, Qantas and Emirates)
In 2009, 25 A380s will leave the Final Assembly Line
The industrial ramp-up will really be achieved 2010, when we shall deliver 45 A380s, including the first freighters.

This means another delay of over one year on average. It is very disappointing that we find ourselves in this situation, but we need to be realistic with ourselves and our customers. It is the most reliable schedule we can deliver today following our in-depth review of the A380 programme.

Let me summarize the key findings:

Great plane

First, the A380 is a truly great airplane. We have completed over 2,100 hours of test flights with four aircraft. It will fulfil customers' expectations and beyond. It is meeting the guaranteed performance. Airline pilots who've flown it, love it. The flight test programme is going very well, in fact exceeding expectations in many key areas, and certification is on target for the end of the year. This is a great achievement and Airbus teams have worked extremely hard to bring to the world this magnificent machine. I want to pay tribute here to all those who have achieved this "tour de force".

Complexity

However, this is a very long and complex value chain. While everyone on board was on top of their job, the production process… not the airplane… but the production process has one, big flaw – one weak link in the chain: that of the design of the electrical harnesses installation in the forward and aft fuselage.

To be clear: This is the weak link in the manufacturing chain, this is the reason why ramping up the production is hampered.

But the electrical harnesses are not the root causes why we at Airbus are in a crisis – Tom has already mentioned the fundamental reasons. And I will come back to that.

Let me return to the issue why we are not yet able to ramp-up the production.

The issue of the electrical harnesses is extremely complex, with 530km of cables, 100,000 wires, and 40,300 connectors . It is twice as complex as for our next largest aircraft, the A340-600! And the depth of the problem was not fully understood in June. The full analysis over these past weeks has revealed it is much worse than expected.

Root causes

The root cause of the issue is that there were incompatibilities in the development of the concurrent engineering tools to be used for the design of the electrical harnesses installation. Quite simply, while the A380 is the most-advanced and modern plane ever made, the wiring harness installation design package in the forward and rear fuselage could not keep pace with the rest of the aircraft programme. Also, the learning curve for wiring harness changes was too steep during the complex development phase. We have to update and harmonize the 3D- design tools and data base – and it will take time to do this.

The problem became first apparent when the electrical harnesses were installed into the fuselage: there were mismatches between the designed routing of the electrical harnesses and the real aircraft.

What I can firmly say is that it is not the electrical design team of " Hamburg" who failed. Airbus is one company. It is Airbus as a whole which failed, the management on several levels with several passports who failed, and certainly not the teams on the shop-floors.

I want to be very clear: the problem we are tackling does in no way put into question the integrity, quality or safety of the A380 that have been produced to date, which are flying today and which are part of the first production wave.

Measures

What we are doing to resolve the problem? We now are putting in place the right people, the right tools, the right training and the right oversight to ensure it gets resolved.

1) Right People : A number of changes have been implemented in the A380 programme management. In Hamburg, everything to do with the A380 is now consolidated under the full responsibility of one manager: Rüdiger Fuchs. A reinforced management team, all co-located, with the right expertise from across Airbus supports him and reviews progress twice a day. Rüdiger, who has valuable experience in the field of cabin customisation for long-range aircraft, reports directly to Mario Heinen, who is now in charge of the A380 Programme overall.

In addition, specific teams of experts from across Airbus are being formed to finalise the electrical installation in the forward and aft fuselage sections for the aircraft currently in production. For example, specialists from Broughton or St Nazaire will be called upon to help their colleagues in Hamburg and Toulouse.

2) Right Tools : Since the concurrent engineering tools are at the heart of the problem, I took the decision in July to launch the immediate implementation of the best and most uniform tools and practices on all sites. Tools such as CatiaV4, CIRCE and GILDA, which have already demonstrated their robustness on other sites, are being put in place throughout the A380 centres of excellence – and the Airbus professionals in those sites will be trained to use them effectively. So, we are going to do two things in parallel:

Finish the production of the first wave of A380 aircraft with the present tools, but with a better organisation (as I already mentioned), and...

In the meantime install new tools, redo the installation design, and complete the Digital Mock-Up. To achieve this, we are also creating an integrated multi-national Airbus team to make best use of the available resources and best competences. That will allow for the full ramp-up beginning 2010.

3) Right Training : Through training of people has been launched to overcome the learning curve effect.

4) Right Oversight and Management : The overall programme management has been changed:

A fully transversal, cross-functional and cross-sites project management has been established – with daily reporting and tracking of all issues and tracking of progress. Nothing is hidden and all issues are addressed. After all, it is only by facing the reality in all honesty that we can overcome the problem.

Furthermore, I personally will be overseeing this, with a weekly meeting to review the status and evolution of the situation.

I have committed to keep our customers closely in the loop and regularly informed of all issues in a very open and transparent fashion on a monthly basis. We are of course also trying to find ways and means to help them out of the problem the delay in deliveries represents for them. They are our prime concern. I must say here that I have been humbled by the first-class dialogue we have with our customers and by their constructive reaction to this news.

We will also need to address the challenges our suppliers are facing. For them this is as painful as for us. We are aware of the fact that after the customers, our suppliers are our most important partners. We will, therefore, do what we can to find a way forward for all of us. We will start with a supplier conference call in the coming days.

Last but not least, we shall also use the time of delay to ensure full maturity of the A380 at entry into service.

There are no miracle solutions, and our production problem is not going to be solved overnight. But these measures will ensure a sound recovery, which will allow the A380's global success for the years to come.

Our A380 programme recovery alone, of course, will not guarantee a bright future for Airbus. We must also speed up our development process for new products, generate sufficient cash to finance their development, and drastically cut costs to remain competitive in the face of a persistently weak dollar.

That brings me to my second topic: our 4-5 year improvement programme, Power8.

Power8

Why do we need an overall business-improvement programme?

The A380 delay means delayed revenue streams and a high working capital requirement. This drain on our cash is compounded by the threat from the persistently weak dollar that penalises the competitiveness of our Euro-zone manufacturing. We also have to face the difficult pricing and we must generate cash to afford the A350XWB and continue investing in our future.

We also want to build the basis for the launch of the A350 quickly to satisfy the strong demand in this segment and compete effectively against Boeing.

This means: We need a much faster and extremely robust development process. We need to maximise cash. And we need to reduce costs. This is what Power8 will do.

Our change programme is called Power 8 because Power is what Airbus will generate through the 8 modules of this programme.

The programme is designed to speed up the development processes, deliver €2.1 billion in cost reductions, and drive €5 billion in cumulative cash savings by 2010.

We have already been working for two months to set-up this programme. We are currently further detailing Power8 at this point. We will need another two months at least before we can have the full programme up and running.

Let me summarize:

Power 8 is about

1/ First getting back to basics – in other words making great single aisle and long-range aircraft.

2/ Its about doing things the RIGHT way, FASTER, with as little capital as possible and the lowest possible costs.

3/ It's about real change. It will be difficult; there will be no room for complacency. But it will also be worthwhile and rewarding. We will make Airbus a true architect and integrator. We will move away from the heavy 1:1 sales-to-capital ratio that limits our potential and achieve a much less capital intensive structure. We will free ourselves from the legacy will become truly one integrated Airbus.

To conclude:

To conclude, after my first 3 months with Airbus, and looking at it still with a fresh pair of eyes, I can tell you: Airbus is a great company made up of many talented, very skilled, and highly motivated and dedicated people. They encompass the best know-how in the industry and a unique innovative spirit. They are what makes Airbus a very strong and sound company which has all the ingredients to regain its leading position.

But Airbus is not yet an integrated company. Airbus doesn't yet have a simple and clear organisation. There are shadow hierarchies – leftovers from the never finished integration. And the change we bring about must also include the management culture. Until recently, it has been more a "green culture" where truth was not brought to light.

The Airbus management has the full backing of EADS. Thus, we will be able to create an open spirit, a simpler organisation. We are establishing as a guiding principle for everybody "tell the truth, ask for the truth, the right to error".

The measures to get the A380 back on track, the Power8 programme and changes in the organisation and in our behaviour will deliver a sound basis for Airbus to regain its competitive edge.

And let us not forget:

We are producing record number of aircraft each and every month. By the end of the year we will have delivered around 430 Airbus aircraft. This was never achieved in Europe. And next year we will deliver even more. This should not be forgotten. Nor should it be forgotten that we have a backlog of around 2,100 aircraft on order. They will fill our production lines for the next 4.5 years. Coming from another industry, I know what it means to have such a backlog.

So, we DO have a sound, even enviable, basis to address and master our challenges and ensure a bright future for Airbus.

I have come to Airbus to shape, together with all our teams our future.

Such a future requires no huge leap of imagination. It is simply the realisation of Airbus' incredible potential.

I am convinced that the Airbus employees and management teams are ready to face the challenge – we will meet the targets – together.

Thank you.