Will Take $680 Million Q1 Charge To Pay For Cuts

After weeks of speculation, the worst-case scenario came true for workers at European planemaker Airbus SAS Wednesday morning. Under parent company EADS' controversial "Power8" restructuring plan, the world's largest commercial aircraft manufacturer will cut 10,000 jobs over the next four years, and either sell or find partners for six factories in France, Germany, and the UK.

Airbus CEO Louis Gallois said the drastic measures are necessary, in order to slash some $2.8 billion from annual spending by 2010. Bloomberg reports the planemaker will take a $680 million hit for the first quarter of FY2007 to pay for the cuts.

At the moment, Airbus has over 56,000 employees throughout its plants in the United Kingdom, Spain, France, and Germany. Bloomberg states the restructuring plan calls for 3,200 jobs to be cut at French factories, and another 1,100 corporate-level jobs at the company's Toulouse headquarters. German facilities will suffer 3,700 job losses, with 1,600 UK workers getting the axe and another 400 in Spain.

Airbus plans to court partners for three plants -- Filton in the UK, Meaulte in France and Germany's Nordenham. The company will sell its Laupheim, St. Nazaire-Ville and Varel plants outright.

"We should have done this many years ago at the time when we created Airbus," said Gallois, referring to the integration of Airbus as a single company in 2000. "Boeing was in difficulties then, the dollar was strong, and we were selling airplanes like bread."

Today, the only hands-down success for Airbus is its narrowbody A320 family, which continues to narrow the order gap against Boeing's 737. To continue the "bread" analogy... the planemaker's current widebody offerings, the A330 and A340, have grown stale in the marketplace, against Boeing's reinvigorated 777 line.

The planemaker's newest widebody offerings, the A380 superjumbo and the A350XWB, are the reason for much of Airbus' current economic misfortunes. A series of production delays have plagued the A380, pushing its scheduled delivery date 22 months past what was originally promised. Last year, the company's original A350 proposal underwent a costly redesign, to make it more competitive against Boeing's upcoming 787 Dreamliner.

Airbus has also suffered against a weakening American dollar. Airbus' parts and production costs are in euros... but the planes are sold in dollars. That helped the planemaker accumulate significant profits a few short years ago, when the euro was weaker; today, the tide has turned.

Analysts agreed with Gallois, that Airbus needs to cut its largesse to regain its footing.

"[Power8] finally brings EADS towards market reality," said Frost and Sullivan senior defense analyst Christopher Dabrowski.

Workers aren't likely to agree with that dispassionate analysis, however... and many have promised to fight the loss of high-paying, high-benefit jobs with the planemaker.

"When you're hired at Airbus it's not the same thing as being hired elsewhere," said Xavier Petrachi, who represents French Airbus workers in the left-wing CGT union. "It's not the same salary, not the same statute, not the same working conditions."

As of Wednesday, though... those conditions have officially changed.

FMI: www.airbus.com