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How Britain lifts Airbus to record sales high

Jan. 21, 2014, London, U.K. - It is not every day that you hear a Frenchman speak so warmly about the U.K. and its government. But in the south of France, the president and chief executive of Airbus, Fabrice Brégier, does just that.


January 21, 2014
Carey Fredericks

The head of the European plane manufacturer, the maker of the world’s largest
passenger airliner – the double-decker Airbus A380, which comes fully
equipped with double beds if you have the money for a first-class ticket –
actually goes one step further and hails the British government’s support of
industry.

 

“I must say the UK has an approach which is to support industry, to support
the economy and to be very pragmatic,” the 52-year-old says.

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“We would like at times for other parts of Europe to have the same pragmatism
and support.”

In fact, so happy is he with the British government, that when asked if there
was more the U.K. could be doing for Airbus, he replies: “No. I’m happy with
the support. I have no specific requests.”

A French company, Airbus is an important employer in the UK. An announcement
of a new order for 25 Airbus A330-300s from Air Asia in December will
guarantee 1,500 direct jobs as well as thousands in the indirect supply
chain. Airbus employs 6,000 people at its factory at Broughton in North
Wales and 4,000 people at Filton, near Bristol.

 

In a large cream-painted room with one wall of floor-to-ceiling windows
overlooking a selection of the company’s aircraft, Brégier is in high
spirits. And he has reason to be. He is speaking to The Telegraph at the
business’s headquarters in Toulouse after the company has announced
an industry-record number of gross orders of 1,619 airliners in 2013,
worth a total of $240.5bn (£146bn).

 

That sees the company reclaim top spot in commercial orders from arch-rival
Boeing.

 

After adjusting for cancellations, Airbus total net orders rose 80pc from the
previous year to reach 1,503 aircraft. That equates to a 53pc market share
of orders from the industry, versus Boeing’s 47pc share.

 

However, the company did lose out to Boeing in terms of aircraft delivered
last year, despite hitting an internal record of 626. That is 22 behind its
American rival.

 

The company also reported an industry-wide record backlog of 5,559 aircraft,
worth $809bn at list prices. That means any airline looking to replace its
fleet or add new capacity would have to wait nearly nine years before their
order could find a production slot. Boeing’s backlog stands at 5,080
aircraft.

 

“The transformation of our company into a simpler, more agile and faster one
is clearly taking shape,” Brégier says.

 

He will not be drawn on figures for the coming year, saying that it is
“difficult to forecast”.

 

“At the beginning of 2013 we would not have planned for 1,600 orders, even if
the market was bullish,” he notes.

 

What he will say is that the company expects to have a book-to-bill ratio of
one. That simply means that orders and deliveries will be stable.

 

“So last year we delivered 626, that means we expect to go over 620 this year
and if we can go higher, then we will not hesitate,” he says.

 

Brégier is realistic that it may not be possible to beat the industry record
of gross orders set last year.

 

“We cannot have 1,500 orders again. That makes no sense. But the trend of the
market is that there is growth of 4pc to 5pc year-on-year, so all in all we
will continue to grow,” he says.

 

Growth in 2014 will be helped by the first delivery of a new aircraft, the
A350, which is expected to be handed over to the first customer, Qatar
Airways, in the fourth quarter.

“This [A350] programme is progressing well,” he says. “We are on track with
our ambitions.”

While the first delivery is on schedule, Brégier maintains a hint of caution
and says 2014 will be a “very big challenge” and a “very intense year for
the programme”.

 

As well as using the cash on its balance sheet to expand its fleet on offer,
Airbus is also a key player in investing and developing the aerospace
industry and it works closely with the

 

Government in the UK to do this.
Brégier explains that the British government “brings very good support to
innovation”, in particular noting the Aerospace Technology Institute (ATI),
which he describes as a “recipe for future success”.

 

The ATI was a key outcome of an unprecedented £2bn, seven-year investment
programme into UK aerospace, announced by Nick Clegg, the deputy Prime
Minister, last August. The money is provided equally by the industry and the
Government.

 

Its objective is to “deliver a long-term strategic vision for the UK, to
preserve its standing as Europe’s leading aerospace manufacturer”.

 

Airbus itself is a key partner in the programme and has contributed £350m to
the programme, which the Government has matched.

 

The UK has the largest aerospace manufacturing sector in Europe and is second
in the world only to the United States, with a 17pc market share. The sector
is worth roughly £24bn to the British economy each year. Airbus makes up a
significant part of that market.

 

The company has no plans to downsize in the UK “while it remains competitive”.
Last December, it opened a £70m state-of-the-art Airbus Aerospace Park at
Filton, which focuses on design and manufacturing, as well as support roles
such as finance and customer services.

 

The 700-acre Broughton site, where the wings for all Airbus planes are
manufactured, including the 33-ton giants of an A380, has also been heavily
invested in, with nearly £2bn spent on the Welsh facility over the past
decade.

 

In total, the presence of the aircraft manufacturer in the UK provides work
for more than 100,000 people through more than 1,000 companies that it uses
across Britain.

 

The UK is just one of the four countries where Airbus has a manufacturing
base, the others being Germany, France and Spain.

 

When asked about the importance of the UK remaining in the European Union,
given that the other three manufacturing countries have given no indication
that they are considering an exit, Brégier says it is not for him to
“comment on the political direction of the UK”.

 

“One of Airbus’s greatest strengths is the partnership we have from our four
home countries and other partners in Europe – and the UK is a key part of
this partnership,” he says.

 

“And Airbus is the most successful example of European industrial
collaboration and a stronghold for employment.”

 

What he wants to focus on, he says, is winning the “battle of competitiveness
in Europe against the rest of the world”.

 

“This battle is very tough, in particular with Boeing,” he explains.

 

“But in our market there are also newcomers to watch out for, like the
Canadians, the Chinese and the Russians.

 

“So we need to continue to be more innovative and more competitive.”

 

Innovation is a key message that he is keen to get across for the whole
business. He says there is a “need to focus on more incremental developments
of all our programmes from A320 to A380, but there is also a need to do it
in a way [that is] more innovative and so it comes to market faster”.

 

“That’s why I insist on fostering innovation,” he says.

 

To support this idea, in the past few months Brégier has created the role of
chief innovation officer, reporting directly to him.

 

Despite the record numbers, 2013 was not a completely smooth flight for
Airbus, as it hit a patch of turbulence following the discovery of micro-cracks
in the A380 wings built in Wales.

 

The discovery cooled customer interest in the jumbo passenger jet and
deliveries slipped to 25 last year.

 

That issue has now been resolved and production is expected to pick up again
this year.

 

Brégier said the company expected to deliver “close to 30” A380s a year in the
next three years.

 

He reaffirmed a target of breaking even on the A380 in
2015, which assumes 30 deliveries.

 

In a year of landmarks for Airbus, 2013 also saw the company finally crack the
Japanese market, traditionally dominated by Boeing.

 

In what was seen as a major coup for the company, Japan Airlines last year
ordered 31 wide-bodied twin-engine A350s, which Brégier described as a “big
breakthrough for us”.

With that order, the Airbus head believes the manufacturer can raise its
market share in Japan from 13pc to “probably 30pc”. He adds that there is no
reason “in the long run why we should not be at 50pc”.

 

“We had already sold aircraft, but this one is clearly a big achievement and
we believe this has a strategic significance for Airbus and for the
positioning of the A350 in new long-range markets,” he explains.

 

The continued growth of Airbus is likely to result in it becoming an ever more
important part of the parent company, Airbus Group – it already accounts for
70pc of the company.

 

Airbus Group reorganised into three divisions last year and changed its name
from EADS to Airbus, after its core plane-making subsidiary. Its failed
attempt at a tie-up with UK defence giant, BAE Systems, is now long in the
past,

 

Airbus has now combined its defence and space activities in one division
together with Airbus Military transporters, currently twinned with passenger
jets.

 

Eurocopter, the world’s largest commercial helicopter maker, was renamed
Airbus Helicopters.

 

But with European governments cutting their defence budgets, the aircraft
manufacturer will become an even more important part of the group as a
whole.

 

“It is clear that the growth rate in our business is higher than the defence
division given the situation of European budgets,” Brégier says.

 

“So yes, perhaps in the coming years Airbus will increase its position in
Airbus Group.”

 

With that waiting list for aircraft as long as it is, that seems a very
sensible assumption.