Sabre-rattling at Airbus precedes the real pain

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Barely two weeks into the new year and the sabre-rattling at Airbus has already begun. Even as Louis Gallois, the European aircraft manufacturer’s chief executive, attempts to boost morale on Wednesday by declaring the group’s second best year in terms of orders, unions are up in arms at suggestions that he is planning to revisit the awkward Franco-German process for assembling aircraft that led to the dire problems of 2006.

French unions have said it is “out of the question” to transfer the assembly of the lucrative A320 single aisle aircraft to Hamburg, while German labour leaders have warned any attempt to shift their share of the flagship A380 superjumbo to Toulouse is “non-negotiable”. The Germans fear losing a competitive technological edge to France after investing heavily in the cutting-edge A380, while the Toulousains believe they will be landed with the high-risk gambles.

In truth, though, both sides would do well to hold their fire. A more sensible assembly process is inevitable and, in fact, making Toulouse the base for wide-bodied aircraft and Hamburg the home of smaller planes will cut costs significantly with a minimum impact on jobs in either country. Any protest about assembly lines in effect boils down to little more than yet another row about national prestige.

The real pain will come when Mr Gallois starts talking about just how much of an aircraft he thinks Airbus should outsource and, then, how to share out that lower burden of work. That could come far sooner and will surely take a heavy toll on jobs. But it is clear that Airbus cannot afford to ignore the example of its rival Boeing, which is becoming little more than a designer and assembler of aircraft. Even the announcement today of an encouraging 800 new orders in 2006 cannot assuage the pain Airbus will face tomorrow should management and unions fail to reach a speedy agreement.

Swiss pine for past

Visitors to Switzerland over the coming weeks should brush up on their recent corporate history, as the small country relives in the courtroom the collapse of Swissair, the former national airline. Other carriers failed in the wake of the September 11 terrorist attacks but few have had the same profound domestic impact as that of Swissair.

While British Airways going bust or Air France being grounded would cause tremors, the end of Swissair was tantamount to an identity crisis for the small alpine nation that saw its flag carrier as an ambassador of its self-perceived national virtues.

So the trial of former executives, board members and advisers, that opened on Tuesday has turned into a spectator sport. Few expect the case, five years in the making and involving assorted financial irregularities such as diverting funds to the detriment of creditors and issuing misleading statements, to lead to convictions, let alone custodial sentences.

After all, unlike at Enron, none of the 19 in the dock was motivated by greed or obviously enriched themselves.

But what the Swissair disaster demonstrated conclusively was the end of an era in Switzerland’s once notoriously intertwined business and politics, with the failure to prevent collapse dealing a body blow to the establishment’s credibility.

Since then, most of those involved have disappeared from sight in a society unforgiving about failure. But, as Switzerland’s big companies and the economy recover, the proceedings will be a timely reminder that business does not always function like clockwork, even in Switzerland.

Commercial wars

Hypermarket is no longer a dirty word on French television. Carrefour will this week advertise for the first time on the small screen in its home market after the government loosened one of the many rules that constrain its big grocery chains.

The ads are expected to stress that everyday products are cheap at Carrefour – and it looks like French shoppers need another reminder. Having made progress shedding its domestic reputation for being expensive, the retailer had a poor finish to 2006 after being outflanked by aggressive promotions at rival chains such as Leclerc and Auchan.

These offers left Carrefour curiously flat-footed. Like-for-like sales at its French hypermarkets fell 2.8 per cent. Its shares fell 5 per cent on Friday.

TV ads will only be one way in which it seeks to regain momentum in France. The grocer will continue to place a premium on marketing directly to holders of its loyalty cards.

In that field Carrefour still has a lot to learn from the UK’s Tesco, which on Tuesday released strong sales figures for the Christmas and New Year period.

The gap between the two companies is evident when their sales figures are compared with their market capitalisation.

Including sales tax, Carrefour posted sales of €87bn in 2006. Its market capitalisation is about €31bn. Tesco has only three-quarters of the sales of its rival, yet its valuation is the equivalent of about €50bn.

World View

Hyundai finds itself parked at a critical juncture

The boy who cried wolf should serve as a lesson for Hyundai Motor.

Every year South Korea’s top automaker suffers from disruptive and costly strikes by its belligerent union, and every year it responds with tough talk, even filing lawsuits against its workers.

However, in the face of action from its 44,000 unionised staff in Korea, who have the power to cripple domestic production, Hyundai has always caved in.

Will this time be different? Hyundai insists that it is fed up with its union, whose leaders now face arrest for repeatedly organising “illegal” strikes, and says that it will break from past practice and institute global management standards.

As a company it is at a critical juncture – its union is eroding its competitiveness and profitability in the cut-throat world of car manufacturing; and giving rivals a chance to steal a march in developing markets such as India and Russia.

At the same time it is facing a year of management change. Lawyers say that if a prison sentence is imposed on Chung Mong-koo, the chairman, for alleged embezzlement and breach of trust – as prosecutors are demanding – it is likely to be suspended.

Whatever happens in court, however, the 68-year-old is preparing to put his son, Chung Eui-son, who currently runs affiliate Kia Motors, in the Hyundai driving seat. That could be a test for a company used to operating under the famously micro-managing elder Mr Chung.

Hyundai has made great strides in recent years, shaking off its old reputation as a maker of cheap unreliable vehicles to collect quality awards in the US. Investors will now be watching to see if it can also shake off its labour problems and solidify its place in the car industry’s global ranks.

Time for new FSA faces

John Tiner may be stepping down as chief executive of the UK’s Financial Services Authority before his work is done. But this is a good moment for the regulator to rejuvenate its top team.

Mr Tiner is the FSA’s first “pure” chief executive. Previously the role was combined with chairman. He and Sir Callum McCarthy, who became chairman at about the same time, have arguably proved a successful double act. Sir Callum has become the regulator’s public face and is unafraid of controversy, warning of the risks of foreign ownership of the London Stock Exchange and recently accusing the savings industry of having a broken business model. Behind the scenes, Mr Tiner has been putting the regulator’s vision into practice.

Financial bosses credit Mr Tiner with crushing the FSA’s civil-service culture and replacing it with a can-do attitude. But the FSA would also benefit from hiring a new broom who could bring fresh energy to this exhausting role. The past four years have been a benign period for the UK economy. Yet the financial system has become more complicated. Surely there will be some kind of shock that really puts the regulator – and its chief executive – to the test.

So good luck to Mr Tiner as he returns to the real world. He vacates a post likely to offer his successor many chances to prove their mettle.

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