VZCZCXRO7783
PP RUEHAG RUEHDF RUEHIK RUEHLZ
DE RUEHMZ #0437/01 1941241
ZNR UUUUU ZZH
P 131241Z JUL 06
FM AMCONSUL MUNICH
TO RUEHC/SECSTATE WASHDC PRIORITY 3358
INFO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUCPDOC/USDOC WASHDC 0007
RUCNMEU/EU INTEREST COLLECTIVE
RUCNFRG/FRG COLLECTIVE

UNCLAS SECTION 01 OF 03 MUNICH 000437 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EUR EUR/AGS, EUR/ERA AND EB/IFD/OMA 
PASS TO USTR MOWREY 
 
E.O. 12958: N/A 
TAGS: ECON EAIR ETRD PGOV EINV PREL EUN FR GM
SUBJECT: EADS/AIRBUS CRISIS -- THE VIEW FROM EADS' MUNICH 
HEADQUARTERS 
 
 
SENSITIVE BUT UNCLASSIFIED.  NOT FOR INTERNET DISTRIBUTION. 
 
REFS: A) Berlin 1803, B) Paris 4277 
 
------- 
SUMMARY 
------- 
 
¶1.  (SBU) Senior German EADS officials told the Consulate 
that Noel Forgeard's departure was necessary for EADS to 
move beyond its current mess, and the Forgeard affair was 
but one example of the challenges of dealing with spotlight- 
seeking French partners.  As for BAE's divestiture of its 
EADS shares -- it was a case of good riddance.  The 
officials said the A380 program was unfairly suffering from 
bad press due to inevitable teething pains, but would 
ultimately prove a technological and commercial success. 
Nevertheless, Airbus had made some mis-steps that 
contributed to an improved competitive position for Boeing. 
End summary. 
 
--------------------------------- 
EADS -- NOT JUST A FRENCH COMPANY 
--------------------------------- 
 
¶2.  (SBU) POL/ECON Officer and Econ Specialist met July 10 
with two senior European Aeronautic, Defense and Space 
Company (EADS) officials.  One of the officials manages 
DaimlerChrysler's 22.5 percent EADS share, and the other is 
in the office of EADS' German co-CEO, Thomas Enders.  EADS 
is the corporate parent of Airbus and Eurocopter, and also 
has defense and space divisions.  EADS has a dual CEO 
structure, with one German, the other French.  Similarly, 
the corporate headquarters is physically split between 
Munich and Paris.  DaimlerChrysler is generally viewed as 
representing the German national interest in EADS as the 
German government does not directly hold shares in the 
company, unlike the French government. 
 
------------------- 
THE FORGEARD AFFAIR 
------------------- 
 
¶3.  (SBU) When asked about Noel Forgeard's unceremonious 
exit from the French co-CEO slot at EADS, one of our 
contacts made clear Forgeard's departure was for the good 
of the company.  He described Forgeard was an over- 
ambitious "maniac."  The German-half of EADS never knew if 
he acted with the backing of the French government, or was 
promoting his own agenda.  This was especially true last 
year when he attempted to abolish the shared French-German 
leadership structure at EADS and claim the top job for 
himself.  Our contact assumed this power-grab was driven by 
prestige.  To be on equal footing with his counterparts in 
French industry, namely the CEOs of the CAC-40 firms, 
Forgeard needed to be unrivaled in his leadership of the 
company -- not a co-CEO. 
 
¶4.  (SBU) Both officials told us that from the German 
perspective, it made sense to preserve co-leadership at 
EADS for the time being because, as the French made the 
current mess, it should, after-all, be cleaned-up by a 
Frenchman.  It was a positive development that former 
French railways chief Louis Gallois had been picked to 
replace Forgeard.  Thomas Enders would have had less clout 
with French managers and government officials. 
Additionally, Gallois was a skilled manager with experience 
in the aeronautics industry. 
 
----------------------- 
DEALING WITH THE FRENCH 
----------------------- 
 
¶5.  (SBU) Our contacts said many of EADS' internal problems 
stemmed from France's inability to come to terms with the 
fact it was incapable of maintaining its own national 
aerospace industry.  They mentioned the late-1960's 
Dassault "Mercure," a French attempt to compete with the 
Boeing 737, of which only 17 units were ever sold.  They 
continued that the French view seems to be that France is 
the innovator, uniquely capable of coming up with aircraft 
concepts/designs, while the Germans are content with 
product execution.  Not only was this not the case, but the 
A380 was actually the brainchild of a German engineer, 
 
MUNICH 00000437  002 OF 003 
 
 
Juergen Thomas.  As if to illustrate the French penchant 
for dominating the spotlight, one of our contacts turned to 
the other and joked, "What, you mean we're not a French 
company?" 
 
¶6.  (SBU) One our contacts related how after some French 
officials reacted to the Forgeard crisis by publicly 
calling for more French government influence over EADS, 
French government officials called Enders' office and asked 
for copies of the EADS shareholder agreement.  [Note: The 
shareholder agreement excludes the French government's 
influence on operational decisions.  End Note]  Having 
studied the agreement, the French then stepped back from 
their push for greater influence the next day. 
 
¶7.  (SBU) Asked about the recent decision by the British 
BAE Systems to divest itself of its 20 percent stake in 
EADS, our contacts characterized this as a case of good 
riddance.  BAE had been a schizophrenic partner anyway, 
never quite knowing if it was a European company, or a 
quasi-U.S. firm. 
 
----------- 
A380's Woes 
----------- 
 
¶8.  (SBU) Both officials reported that EADS' management had 
been taken by surprise over the reaction by the media and 
financial markets to the delays with the Airbus A380. 
Further, Forgeard's comments blaming Airbus' Hamburg 
production facility for the wiring harness problem were 
unjustified.  This was a case of "garbage in, garbage out" 
-- Hamburg was producing harnesses with configuration 
information from Toulouse -- the problem did not lie in 
Germany. 
 
¶9.  (SBU) Our contacts downplayed recent reports that the 
A380 would generate significantly more wake turbulence than 
expected, resulting in an ICAO requirement that other 
aircraft have a 10 nautical mile safe following distance 
from A380s -- double the normal separation.  They said the 
reports overstated the problem, and in reality, an A380 
would generate only slightly more wake than a Boeing 747. 
One of the officials confided that on the day of our 
meeting, Airbus was doing wake testing in Oberpfaffenhofen 
on one of its four flight-capable A380s, as well as a 747. 
The company hoped these tests would vindicate the A380. 
Even if the 10 nautical mile separation rule remained in 
place, the official said he did not expect there would be 
enough A380 traffic at a given airport for it to be a 
significant problem. 
 
¶10.  (U) In spite of the delivery problems, our contacts 
were confident that the A380 project would ultimately be a 
success.  Airbus needed to sell 300 of the aircraft to 
break-even -- a goal they believed to be attainable given 
that the A380 is only at the beginning of its 25-year 
product life cycle. 
 
----------------- 
BOEING VS. AIRBUS 
----------------- 
 
¶11.  (U) Both men conceded that Airbus was facing a tough 
year in its competition with Boeing, but both were 
confident that Airbus would catch up.  [Note: Airbus orders 
are down 58 percent for the first half of 2006 compared to 
the same period last year, with Airbus trailing Boeing by 
363 orders year-to-date.  End Note]  Our contacts 
acknowledged that with its focus on the A380, Airbus had 
misjudged customer's interest in Boeing's 787 Dreamliner. 
Airbus had also not expected the remarkable reliability of 
the twin-engine Boeing 777, which had pulled customers from 
the less-efficient four-engine Airbus A340.  One of our 
interlocutors, while expressing admiration for the 777's 
record, pointedly said that a mid-ocean failure of both 
engines on a 777 would bring customers back to the A340. 
 
¶12.  (U) The officials also blamed the media for ignoring 
good news from EADS, including the U.S. Army's recent 
announcement that it had awarded a USD 3 billion contract 
to EADS subsidiary Eurocopter to provide up to 352 UH-145 
light utility helicopters -- Eurocopter's first U.S. 
defense contract.  They expressed the hope this was a good 
 
MUNICH 00000437  003 OF 003 
 
 
omen for EADS' bid to get a contract to build tankers for 
the U.S. Air Force, even if only a split contract with 
Boeing. 
 
------- 
COMMENT 
------- 
 
¶13.  (SBU) The Forgeard/EADS crisis has been widely 
portrayed by the media as a French affair -- a notion the 
German management of EADS appears content not to challenge. 
However, underneath the stoic German face of EADS is 
obvious frustration with the damage and embarrassment the 
French partnership has caused the firm.  Despite our 
contacts' stated optimism regarding the prospects of the 
A380 program and the ability of Airbus to respond to the 
challenge of the 787 Dreamliner's success, one had the 
impression they, and their colleagues, feel at present a 
little like Hans Brinker -- in this case doing their best 
at damage control. 
 
¶14.  (U) This report has been coordinated with Embassy 
Berlin. 
 
¶15.  (U) Previous reporting from Munich is available on our 
SIPRNET website at www.state.sgov.gov/p/eur/munich/ . 
 
ROONEY