Redstate

Here We go again

By blackhedd Posted in Economy — Comments (12) / Email this page » / Leave a comment »

Has it ever seemed to you that American business enterprises are run like dictatorships, while European ones are run like popular democracies? Have a look at how a global-major enterprise is run by plebiscite: yes, I'm talking about Airbus.

Airbus has an irrational cost structure, born in large part from its charter, which is not to be a world-class manufacturer of commercial airplanes, but rather to be an industrial champion for a unified Europe. In short, Airbus exists to solve a political problem rather than a business problem.

As such, the managers of Airbus (and they've been shaken and stirred quite a bit in the last couple of years) are finding they don't have the flexibility to make business decisions that American managers take for granted. The people of France and Germany (who have a quite direct financial stake in Airbus, as I explain below) have decided to show a little discontent with previously-announced plans to lay off more than 10,000 workers.

Update: The fine folks at airliners.net noticed our discussion here and generated a lengthy, well-informed one of their own. Go read it, for more industry-centric insights on Airbus.

More...

Dateline Toulouse:

Workers at Airbus plants in France, Germany and Spain staged strikes and protests Friday maintaining a united front against a restructuring plan the troubled aircraft maker said would slash 10,000 jobs across Europe.

The actions at Airbus facilities around the continent followed a similar movement last week by at least 12,000 workers.
...
In Toulouse in southern France, thousands of striking workers from various French Airbus sites protested in front of the company's headquarters.

This isn't what you want to see outside your office window if you're a senior manager who's worried about a nasty competitor from America, massive problems with two key platforms (the A350 and the A380), and you're worried about your own job to boot.

But notice the language that's being used by our intrepid wire-service reporter: "united front?" "Movements?" "Protests?" Isn't this just a business enterprise that commands no more than 35 hours of your time and attention per (Euro-hours) week? Ah well, no it's not. It's actually a branch of the social compact that binds European nations together. When the people don't get what they need, they take to the barricades.

And as in past revolutionary protests, they're well enough organized, and they know what they want:

Organizer Jean-Francois Knepper warned of "even tougher" protest actions if management doesn't consider the unions' own restructuring proposals.

In... Hamburg, union organizers said some 15,000 people gathered for the main protest... Many had arrived by bus from across Germany to attend.

"David vs. Goliath: We are ready to fight," and "We Stand Together" read placards carried by protesters, their faces tense and drawn.
...
More than 2,000 people gathered outside the Airbus plant in the southwestern German town of Laupheim, brandishing placards decrying the planned sale of the factory, the IG Metall industrial union said.

A demonstration was planned in front of the French headquarters of EADS in Paris. Smaller demonstrations were planned outside Spanish production sites.

In France, the demonstrations have thrust the Airbus restructuring into the presidential election campaign, with candidates making competing promises of government intervention to bolster the planemaker.

How much do you want to bet that what the "protesters" want is to undo Airbus management's cost-cutting measures? Those being precisely the ones that are needed to whip the company into fighting shape so it can solve its ongoing production and development problems and be a more effective competitor?

Note the spillover of the protests into the French Presidential election (a multi-stage process that starts next month). Sort of reminds you of the 1946 midterm election in the US, doesn't it? That would be the one where widespread union protests against the Truman Administration resulted in massive Republican gains in both houses. That's a far bigger story of course (and Truman had trouble dealing with the labor movement throughout his Presidency). But the key difference to note is that in Europe, no one questions either the legitimacy or the political import of what amounts to labor unrest.

As a competitor, Airbus can draw on its dual role as business and political structure in ways that are simply unavailable to the Boeing Commercial Airplanes division. Ever wonder how JetBlue managed to fund a bright, shiny new fleet as a startup airline? Take a look at the financing they got from Airbus. The taxpayers of France and Germany financed JetBlue's fleet. Now the airline business is all about maintaining consistently high rates of return on capital assets (the airplanes). Cutting finance costs on the fleet by a few hundred basis points was one of the critical factors that made JetBlue worth starting up in the first place. You can see now why I said above that the people of Europe have a direct financial stake in Airbus.

It would be really easy (and really simplistic) for me to feed you the red meat about how much better we have it here in America. As always, cultural differences really matter when trying to understand situations like this. It really is true that major business enterprises in Europe are part of the political infrastructure, in ways that Americans have always resisted and can barely understand. And this is far from a new phenomenon, as it has its roots in a thousand-plus years of aristocratic rule (which was all about the control of land, you recall, land being the basis of economic productivity until the industrial age).

The protests in Europe have a lot more in common with those of 1830, 1848, and (dare I say it) 1872 and even 1789, than would be apparent to your typical American. The European ruling class (which is a nexus of its business and political leadership) learned in the Nineteenth century how dangerous the people can be, and how important it is to keep them under control.

What I expect to happen next is a grand compromise in true political fashion. Of course: this is a political problem and not a business problem. At the end of the day, the Airbus enterprise must not be allowed to fail in either of its missions (as a competitive business and as a generator of wages). The taxpayers of Europe will be called upon once more to keep Airbus flying. In the aggregate, this will cost far more than it's worth, in pure business terms. But much more is at stake here.