VZCZCXRO3376
PP RUEHAG RUEHDF RUEHIK RUEHLZ
DE RUEHRL #1803/01 1791455
ZNR UUUUU ZZH
P 281455Z JUN 06
FM AMEMBASSY BERLIN
TO RUEHC/SECSTATE WASHDC PRIORITY 3948
INFO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCNMEM/EU MEMBER STATES
RUCPDOC/USDOC WASHDC
RUCNMEU/EU INTEREST COLLECTIVE
RUCNFRG/FRG COLLECTIVE

UNCLAS SECTION 01 OF 02 BERLIN 001803 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EUR EUR/AGS, EUR/ERA AND EB/IFD/OMA 
PASS TO USTR MOWREY 
 
E.O. 12958: N/A 
TAGS: EAIR ETRD PGOV EINV PREL EUN GM
SUBJECT:  Germany and the Airbus Management Squabble 
 
 
SENSITIVE BUT UNCLASSIFIED. 
 
¶1. (SBU) SUMMARY: Pressures on Airbus to re-design its A350 and to 
resolve production problems with the jumbo A380 have focused German 
official and press attention on shortcomings in the current 
Franco-German management of Airbus.  Inquiries into insider trading 
of Airbus shares have increased pressure for changes.  Airbus' 
indecision about the changes needed for a successful A350 has 
stalled German officials' review of a possible approval of launch 
aid.  END SUMMARY 
 
¶2.  (SBU) French Airbus CEO Noel Forgeard publicly pointed the 
finger at the Hamburg Airbus production plant on June 19 as the 
major cause of expected delays in the delivery of Airbus' flagship 
model A380 to customer airlines in 2007.  The Airbus manager at the 
Hamburg assembly plant swiftly rejected the allegation.  Although 
Forgeard has since offered a public "mea culpa" in Germany's 
business press, the atmosphere has reportedly soured between the 
Franco-German management of both Airbus and its parent company EADS. 
 Calls have grown to reduce the complexity of a cumbersome 
management structure designed to balance the Franco-German political 
equities in the enterprise.  Specifically, Daimler-Chrysler and 
other German shareholders reportedly want an end to dual supervisory 
board chairs, which would likely cost French incumbent Forgeard his 
job.  The German press speculates the current German CEO of Airbus, 
Gustav Humbert, would also resign as part of a shakeup. 
 
¶3. (SBU) The Merkel government's press spokesperson Ulrich Wilhelm 
expressed confidence Airbus could ably deal as a private firm with 
its sales and management crisis.  He told a June 26 press conference 
"the Government expects and is convinced that the company will 
succeed in meeting the challenges that have arisen particularly now 
over the A380 and A350 models."  Economics Minister Michael Glos 
used the June 23 budget debate in the German Bundestag to emphasize 
that "it is up to private industry to get things in order" and that 
he saw no reason for the German government to become involved. 
 
QUESTIONS OF CORPORATE GOVERNANCE 
 
¶4. (SBU) The hint of scandal involving insider trading of Airbus 
shares adds to the fuel in the "crisis in the Franco-German 
marriage," as the influential newsweekly Der Spiegel remarked.  Many 
shares were apparently sold on the Frankfurt exchange before the 
embarrassing revelations in May and June concerning the A350 
re-design and the A380 delays.  The German financial oversight 
authority, Bafin, is looking into possible trading abuses by Airbus 
and EADS managers who sold their stock options at that time.  The 
Bafin inquiry is also looking into possible negligence by EADS and 
Airbus managers when they failed to alert investors in a timely 
manner about Airbus' problems.  In addition, Daimler Chrysler 
reduced its 30% stake in Airbus when it sold 7.5% of its shares in 
April through intermediary investment banks.  (Reportedly, the 
buyers of the shares absorbed the financial losses when the share 
prices plunged in May and June.)  Daimler Chrysler has claimed it 
was unaware of the mounting problems of Airbus' flagship products at 
the time of the sale.  EADS Co-chair Thomas Enders, Forgeard's 
German counterpart at the helm of EADS, has emphasized he did not 
sell any shares at the time. 
 
LAUNCH AID 
 
¶5. (SBU)  The German Chancellery and Economics Ministry are 
currently examining the question of launch aid for a re-designed 
A350.  German officials tell us Airbus management problems are 
affecting their assessment of whether to extend government-backed 
soft loans for Airbus' radical changes in the A350.  Chancellery 
officials say the internal Airbus spat and uncertainty about the 
firm's future leadership have delayed the Chancellery's risk 
analysis for a launch aid package.  Economics Ministry officials say 
Airbus indecision about the market segment it will serve by a 
redesigned A350 has also stalled its review of launch aid. 
Officials are skeptical Airbus will be able to clarify the situation 
with the A350 sufficiently to warrant a decision on launch aid by 
the time of the UK's July 17 Farnborough Air Show.  Economics 
Ministry sources say they would need sufficient details to consult 
with relevant Bundestag committees concerning Airbus model strategy 
before the Government could extend a launch aid package. 
 
¶6. (SBU) Both Chancellery and Economics Ministry officials say 
Airbus parent company EADS already has significant financial 
resources to tackle the A350 model design.  Officials also say they 
are sensitive to the risk that a decision to give launch aid would 
block further bilateral U.S.-EU talks on aircraft industry 
subsidies.  They claim they would prefer a bilateral solution. 
However, once Airbus sets its house in order, they feel they will 
 
BERLIN 00001803  002 OF 002 
 
 
come under more pressure for aid due to the major challenges recent 
failures in Airbus planning and management have created. 
TIMKEN JR