Sarkozy, Merkel Will Meet to Iron Out EADS Management Overhaul

French President Nicolas Sarkozy and German Chancellor Angela Merkel are aiming to narrow differences over a management overhaul at European Aeronautic, Defence & Space Co., whose Airbus SAS division is headed for a second straight annual loss.

The government leaders and company executives are meeting from 11 a.m. tomorrow in Toulouse, France, where Airbus, the world's largest maker of commercial aircraft, is based. They'll try to iron out changes Sarkozy says are needed to attract capital to finance the new A350 XWB plane after a two-year delay in the superjumbo A380 led to the losses and plans to cut as many as 10,000 jobs.

Investors and analysts say communication and production troubles at Airbus stem partly from the political balancing act woven into the governance and management of Europe's biggest aerospace company. EADS has a German co-chairman and co-chief executive officer and a French co-chairman and co-CEO.

``Germany and France have been at odds over EADS and the talks will be far from easy,'' Raimund Saxinger, a fund manager who helps manage the equivalent of $17.3 billion at Frankfurt Trust, said in an interview. ``It's clear such a double-headed management is anything but efficient.''

Shares of EADS have fallen 23 percent since the beginning of 2006. Shares of Boeing Co., the second largest maker of commercial aircraft, gained 47 percent in the same period as profit tripled in the past three years.

`Maximum Uncertainty'

``We're tempted to go for'' EADS shares ``but that would really be entering a zone of maximum uncertainty,'' said Edouard Carmignac, chairman of Carmignac Gestion in Paris, which manages more than $13.8 million. ``I want a real manager and an end of the Franco-German pantomime'' because ``it leaves the market to Boeing.''

Both the Germans and the French agree there should be a single chairman and chief executive to streamline decision-making so that EADS becomes a ``normal'' company, in the words of French Prime Minister Francois Fillon.

Conflicting agendas may deter agreement on who would fill those posts and on matters beyond personnel. Sarkozy wants France to have a greater say in running the company -- since it owns 15 percent of EADS -- and is willing to buy more shares. Merkel, ruling out an investment, wants to ensure governments don't meddle further or that French influence outweighs German.

The squabble over EADS comes amid bickering over Sarkozy's economic policy. The French president, in office since May 16, advocates a weaker euro to boost Airbus's competitiveness, while German officials back a strong currency and defend the independence of the European Central Bank.

`Hard to See' Agreement

``There's anything but German-Franco unity over EADS at the moment,'' said Ditmar Staffelt, Germany's envoy on aerospace matters under Gerhard Schroeder, Merkel's predecessor. ``It's hard to see this thing resolved.''

EADS was formed in the July 2000 merger of Airbus's French, German and Spanish partners. The main investors from France and Germany are required to own equal stakes, according to the merger agreement, and the chairman and CEO positions are held jointly by executives from the two countries.

Beyond the French state's 15 percent stake, Paris-based Lagardere SA, France's largest publisher, owns 7.5 percent and also votes for the government. DaimlerChrysler AG, the world's second-biggest maker of luxury cars, owns 15 percent and controls voting rights for another 7.5 percent.

``We have a joint interest in having an efficient management structure between Germany and France so that the business can be run well,'' Merkel told RTL television on July 10. ``We want to have equal rights.''

Dassault Squabble

Arnaud Lagardere and Ruediger Grube are co-chairmen of EADS, which is based in Amsterdam. Tom Enders and Louis Gallois are co- CEOs. Gallois became Airbus's fourth CEO in two years last October, replacing Christian Streiff in the wake of Noel Forgeard's ouster following the A380 delays.

The latest public management squabble came last month when Enders told the Financial Times that EADS was considering selling a stake in business and fighter-jet maker Dassault Aviation SA. Six days earlier, Gallois had said the opposite. EADS then released a statement denying the newspaper report.

A month earlier, Enders told German newspaper Frankfurter Allgemeine Zeitung that the French government ``twisted our arm'' to get EADS to make a 8.6 million-euro ($11.8 million) severance payment to Forgeard, countering the French position that it played no role in the matter.

Airbus squandered its position as the dominant planemaker with its bet on the 555-seat A380, which is two years behind schedule and will cut profit at EADS by 4.8 billion euros through 2010.

Sales Reversal

Airbus logged more orders than Boeing in 2001 and remained ahead through 2005. By 2003, Airbus also surpassed Boeing in plane deliveries and retained its lead through 2006. Boeing attracted more customers last year with the 787 Dreamliner, a competitor to the A350, which isn't due to be delivered until 2013, five years after the Boeing model.

The U.S. planemaker forecasts that it will retake the lead in plane deliveries from Airbus next year. The A350 won't enter carriers' fleets until 2013 after customers snubbed earlier designs, saying the A350 was too similar to Airbus's existing A330 and didn't offer enough savings on fuel and other costs. EADS approved the A350's current design late last year.
Source : http://www.bloomberg.com