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Flying high with Major Tom

Despite headwinds in the global economy, Airbus chief Thomas Enders is confident of the future as he drives the planemaker towards becoming a truly international company.
Saturday, March 5, 2016 - 05:50

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We've made big progress in integration, particularly in (recent) years where we rebranded the group. But internationalisation, innovation and digitalisation are things we need to drive forward relentlessly in the coming years.'

FROM where Airbus Group chief Thomas Enders is sitting, things must be looking pretty good right now. Last year, the Europe-based planemaker racked up 1,080 net orders for commercial planes - surpassing the 1,000 mark for the third consecutive year - drubbing US rival Boeing, which snagged nearly 770 orders.

Boeing, however, pipped Airbus in deliveries by producing 762 jets, while Airbus' customers took delivery of 635 planes in total.

The group also recently unveiled a pretty solid financial performance, with revenue up 6 per cent to 64.45 billion euros (S$98.31 billion) for FY2015, while net income rose 15 per cent to 2.7 billion euros.

This year, Airbus plans to ramp up deliveries to more than 650 jets, with the group projecting its financial performance to remain stable. In contrast, Boeing has flagged that its deliveries this year could drop by 22 planes.

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But this has raised questions from some corners as to whether headwinds in the global economy, coupled with bargain level oil prices and volatile stock markets, might threaten demand for commercial aircraft as it did during the global financial crisis of 2008/2009. Stubbornly high jet fuel prices previously served as an incentive to trade in older aircraft for next-generation models, which are more fuel efficient. There is also talk that suppliers might not have the capabilities to meet the steeper pace of production.

"I know there's a lot of nervousness around the commercial market. For us, it still looks pretty strong," Mr Enders says, adding that the company can certainly survive with fewer than 1,000 orders per year. "We do what we can to increase production, (and) at the same time, make sure that the supply chain can follow us."

"We've advised in recent years (not to) expect this to go on forever because we would be building up our backlog higher and higher," Mr Enders adds, commenting on hitting a four-digit order tally yet again. "We have more than 6,800 aircraft on backlog."

Already, Airbus needs to boost production in the coming years to fulfil orders for popular models such as the widebody A350XWB and the A320 family. Currently, the group produces 46 A320s a month, an aircraft which is the workhorse of choice for many budget carriers in this part of the world. That production rate will jump to 60 by mid-2019, bolstered by its new assembly line in the US. (Some deliveries for the new A320neos, however, will be deferred this year due to over-heating issues with Pratt & Whitney's Geared Turbofan engine.)

Meanwhile, the European aerospace group aims to ramp up production of the A350 to 50 aircraft this year - up from just 14 last year - and restore its A330s to seven a month in 2017, reversing an earlier decision to trim production for the model.

He also remains upbeat about its A380 programme, which has seen a revival in interest after a slump in orders in recent years. Japan's ANA has ordered three of the jumbo jets, while Iran Air is keen on 12 of the double-decker planes, following the lifting of international sanctions against the country.

The A380 is being marketed as a solution to congested hubs amid growing air traffic, allowing airlines to feed demand without having to tack on additional frequencies.

"The A380 is a very efficient machine with a very high operational reliability. At oil prices way below US$100/barrel, it is probably the best seat-mile cost for long range travel," he emphasises, adding that investments into programmes are a long-term decision. "You have to expect that you will not have evenly growing demand year after year."

Today, Airbus' commercial aircraft segment contributes about 65 per cent to group revenue, while the rest comes from its defence and space as well as its helicopters businesses. And the Asia-Pacific, which accounts for about a third of group revenue, is the single most important region worldwide for Airbus. This could even swell to 40 per cent in the next 10 to 20 years, Mr Enders reckons.

But that is not to say that the pace of growth is identical across the entire region.

The rapid growth of low-cost carriers in South-east Asia in recent years has contributed to cut-throat competition and overcapacity in the market, depressing yields.

On the other hand, China - where Airbus operates a A320 final assembly line and an A330 completion centre in Tianjin - remains a crucial customer for the European planemaker, with Chinese players taking delivery of over 100 planes each year.

The Asian market is dynamic, so much so that some airlines that place orders today might not be around long enough to take delivery of them, Mr Enders notes. But at the same time, there is enough demand in the market to absorb any surplus planes that find themselves without an owner, he adds.

"We look at the overall growth of the market and that gives us a lot of confidence that we're not at the end of this growth period in the Asian market. Particularly, if you compare the saturation level with the European (and) North American markets, this makes us very optimistic," he continues.

Similarly, Mr Enders sees the Asia-Pacific as a source of potential growth for Airbus Defence and Space, with defence budgets in this part of the world holding steady amid rising tensions while those in the Europe were scaled back.

"Defence spending in the region . . . has remained stable and in many countries, has increased," he says. "Countries in Asia continue to invest in protecting themselves against the uncertainties that exist in the region and beyond. So in that sense, our defence business will remain robust."

There are needs to modernise the fleet of helicopters and military transport aircraft and to expand existing fleets with a demand for mission aircraft, maritime surveillance and tankers. In particular, the A400M four-engine military transport aircraft, which is being operated by the Royal Malaysian Air Force, could do well in this part of the world, he says, singling out countries such as Singapore, Indonesia, New Zealand and Thailand as potential markets for the A400M.

Asia-Pacific presence

With the Asia-Pacific cementing its position as the most important region for the European aircraft and defence group, it comes as little surprise that Airbus will continue to build up its presence across its different businesses in this part of the world. "When we started, we had virtually nothing in Asia, except for some hubs for product support and services," says the straight-talking German.

Since then, it has established engineering centres and a final assembly line in China, joined hands with Korea Aerospace Industries to work on South Korea's light-armed helicopter and light-civil helicopter development programme, and set up an engineering and training centre in Bangalore, to name a few ventures. A number of key suppliers are also based in the region.

In Singapore, where it employs more than 600 staff across its commercial and helicopter businesses, the group has airline support operations, South-east Asia's largest helicopter sales and maintenance facility, an aircraft spare parts distribution centre, and a joint venture flight training centre. It has also invested in research activities by tying up with local universities and A*Star. Most recently at the 2016 Singapore Airshow, Airbus announced a joint venture with SIA Engineering Co to provide airframe maintenance and other services for its aircraft flying around the Asia-Pacific. In the same week, Airbus Helicopters and the Civil Aviation Authority of Singapore announced plans to study the use of unmanned aircraft to deliver business parcels in Singapore, a project dubbed Skyways.

"Singapore is a unique place for us because (of its) business environment with a highly educated workforce, lots of engineers, great universities," he says. "If anything, we will probably catalyse on that even more in the future."

As a company which gets much of its business from outside Europe, Mr Enders believes that the group needs to be more international when it comes to sourcing the best and brightest, which means tapping Asia for talent as well. Singapore, which is home to an Airbus innovation cell, will increasingly play a role in Airbus' efforts to drive innovation.

"Asia being such an important market for us - one third, and growing in proportion - will have to be the place where we increasingly generate new ideas for products, processes and methodologies," he asserts. "Likewise, we need more Asian talent to become part of our mainstream management in the company. The bottom line is, we need a much stronger Asian identity for Airbus in the future. We still have some way to go."

Integration isn't exactly a foreign concept to Airbus either, he notes, pointing to its beginnings with different European stakeholders.

Airbus Group - or European Aeronautic Defence & Space Co (EADS) as it was formerly known - was founded in 2000 by France's Aerospatiale Matra, Spain's Casa and Germany-based DaimlerChrysler Aerospace (Dasa).

Until a 2012 overhaul, the three countries held sizeable stakes in EADS, which afforded voting rights and the ability to block strategic moves, such as the scuppered merger with BAE Systems. The restructuring did away with those veto rights as the governments pared their stakes, and gave Airbus greater autonomy.

Mr Enders describes the restructuring - which also saw the group rebranded as Airbus - as one of his biggest achievements of his 25-year career with the group.

Besides internationalisation, the other big "I" word for Airbus these days is innovation, and here digitilisation will play a huge role, he believes. Recent investments by the group in Silicon Valley for instance - which is no stranger to the development of aerospace technology - includes an innovation centre and a US$150 million venture capital fund.

For Airbus, Mr Enders reckons there will be a lot of lessons to be learnt from Silicon Valley, and the people they are working with.

"First of all, (the) speed of putting ideas into concepts, prototypes and products," he says. "They go after concrete projects and execute them fast. If the route doesn't make sense to pursue, they give it up and try something else. This is something that big companies can learn."

Secondly, new technologies invented could potentially cut development costs for major projects and bring them to market quicker. For Airbus' clients, it could also mean products which can be operated more reliably, or at a lower cost.

Delivering a brand new commercial aircraft or helicopter could take seven to eight years, he points out.

"We have to break this and hopefully we'll find ways and means to do this in the future. I put a lot of hope in data analytics and data analysis. We are an industry that generates tons of data. We use a tiny, tiny amount of that; that's a lot of waste."

Digitilisation can not only change the way the world works but how people work too, and companies need to be less silo-based or risk becoming dinosaurs, he goes on to say. Airbus has recently enabled its staff to connect via an Intranet platform, which allows them to help solve problems outside their existing scope.

"Then we should be able to realise the full potential of the company much better than we do today. And that I see very clearly as a consequence of the digitilisation efforts that we and other companies are undertaking today. It's very motivating, especially for the younger people."

Major Tom

The son of a shepherd, Mr Enders started out his career as a research assistant at various academic and political institutions before joining the German Defence Ministry and later, Dasa. He started with EADS when it was born in 2000, rising to positions such as chief executive of the group's commercial aircraft unit.

He divides his time between Toulouse - where he is based - and Tegernsee, Germany, where his family lives.

In his downtime, he enjoys flying helicopters, sky-diving and hang-gliding - perhaps unsurprising, as he was a former paratrooper and major in the Germany Army.

"I love everything which has to do with flight," he says. "I love to feel the power and roar of the engines."

His lean frame is testament to the "relaxed" sports that he enjoys as well, such as early morning jogs - which help him prepare for the day ahead - and chopping wood on weekends.

And when he isn't running a multi-billion dollar company, he enjoys reading, turning to biographies as well as books on history; these serve up useful lessons on leadership, he says.

Asked what keeps him up at night, the answer is immediate. Nothing.

"I sleep well," he says, adding that he sleeps short hours.

But what keeps him going is seeing how far the company has come.

"We've made big progress in integration, particularly in (recent) years where we rebranded the group. We're not the company we were - a conglomerate of national entities, partially government owned," he said. "But internationalisation, innovation and digitalisation are things we need to drive forward relentlessly in the coming years."

The competition is coming fast and furious, not just from Boeing, but up-and-coming Chinese aircraft maker Comac, which is entering the market with its narrow-body C919 and could be a force to be reckoned with in decades to come. In the mid-to-long run, the duopoly that Airbus and Boeing currently enjoy will likely see a shake-up, he believes.

What's more, the technology titans are also entering the fray, with Google and Facebook experimenting with drones and satellites.

But Major Tom, as he is known to some, is unfazed.

"This doesn't keep me up at night," he says. "It motivates me to try to drive the company forward in the coming years, from the integration we have achieved so far to new successes, and to make it a truly international company."


THOMAS ENDERS

 

Chief executive, Airbus Group

 

1958: Born in Neuschlade, Germany

1983: University degree in Economics, Political Science and History at the University of Bonn, Germany

1982-90: Research assistant at various academic and political institutions: German Parliament, Konrad Adenauer Foundation, German Council on Foreign Relations, Bonn, Germany; and International Institute for Strategic Studies, London

1987: Doctorate in political science, University of Bonn

1989-1991: Policy planning staff, German Ministry of Defence, Bonn

1991: Joins DaimlerChrysler Aerospace (Dasa)

1995-1998: Corporate secretary, Dasa

1998-2000: Head of corporate development and strategy, Dasa

2000-2005: Chief executive, Defence and Security Systems, EADS

2005-2007: Co-chief executive, EADS

2007-2012: Chief executive, Airbus

Since 2012: Chief executive, Airbus Group (EADS was rebranded Airbus Group in 2014)

Other positions

2005-2009: Chairman, Atlantik Brücke eV

2011-2015: Member of the Business Advisory Group to UK Prime Minister David Cameron

Since 2014: Advisory Council of the Munich Security Conference; and the Senate of the Max-Planck-Gesellschaft

 

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