Airbus A380: A Risk Management Framework Appasaheb Naikal MSc Knowledge management Wee Kim School of Communication and Information Nanyang Technological University, Singapore - 637718 Email:
[email protected] Dissertation Guide Dr. Alton Chua Associate Professor Nanyang Technological University, Singapore - 637718 E-mail:
[email protected] Keywords: People management; Risk Management; Change management; Cultural diversity
ABSTRACT Airbus – A subsidiary of EADS is one of the World’s leading commercial aircraft manufacturers. Its customer focus, technological innovations and manufacturing efficiencies, and product offering have resulted in it becoming one of
the leading
companies in the aviation industry. However, it stunned the aviation world in 2006-2007 by announcing significant Airbus A380 production delays. Further its 2007 production quota for the A380 was reduced to one from twenty five. The cost relating to these shortfalls was more than $6.8 billion as a result of penalties, higher cost of production and order cancellations. The delays of up to eighteen months in the production of the Airbus were the result of several challenges including wiring problems; noncompatibility of software’s used at the different Airbus factories and production sites, etc.
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The A380 project was also delayed as a result of national rivalries between France and Germany, a clumsy management structure, and lack of visionary leadership. In the following analysis we have made use of Willcocks and Margett’s (Willcocks and Margett, 1991) Risk Assessment Model which is comprised of six components, namely History, internal context, external context, content, process and Risk outcomes to analyze and describe what went wrong with the Airbus A380 project. Further this study emphasizes the importance of managing the risk factors associated with global collaborative projects. It also highlights how theoretical models can be applied to real world cases.
This research also shows that projects cannot be successful without
comprehensive consideration of the organizational, social and political factors. As an additional contribution of this study we have investigated the nature and magnitude of theimpact of the A380 delay on aviation industry and aircraft makers.
Introduction For the last 50 years, the United States has been the leading supplier of large aircraft to the world. However, recent changes in the global aircraft industry structure and market have affected the U.S. industry’s continued dominance. Most significant has been the rise of European aircraft manufacturing though Brazil and Canada have made relatively small inroads in commercial aircraft production. Looking into the future variety of factors including technology breakthroughs, and the high growth rate in Asian market has enabled new players like Russia and a few other Asian countries to enter the market. The Russian aircraft industry, in particular, has had a long history in aeronautical design and manufacturing that almost collapsed during the break-up of the Soviet Union. But, with the recent efforts by the government to force industry consolidation, Russia might emerge
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as the next key aircraft maker. It is also important to recognize that in order to achieve cost efficiencies, aircraft makers are working more closely with Asian suppliers on parts supply. Through this partnership, the knowledge transfer process has enhanced, thus, enabling Asian’s understanding of aircraft and manufacturing processes and the likelihood that a fully fledged aircraft industry will emerge in Asis and, in particular, China. Recently the International Air Transport Association (IATA) released an industry traffic forecast indicating that the world’s airlines can expect to welcome some 3.6 billion passengers in 2016. That’s about 800 million more than the 2.8 billion passengers carried by airlines in 2011(Airbus, 2012a). Although both Airbus and Boeing manufacture aircraft, do not focus on precisely the same market segments. While Airbus focuses only on the commercial aerospace sector, Boeing focuses on the defense sector as well. Boeing manufactures military aircraft which enables them to capitalize of a higher production level as a result of designs that have both military and civilian use. In the civilian sphere Airbus and Boeing manufacture aircraft of various seating capacities. The key segment that they compete on is the 100-200 seats category. With the introduction of A380 by Airbus has created another segment of competition which achieves a much improved cost efficiency per passenger compared to existing Boeing (and Airbus) products. The increased competition has also seen an increase in Airbus revenue. The new Airbus strategy has been accompanied by a major delay of 10 years which has cost the company its image and business, and has had a significant negative impact on the aviation industry in general. Below we discuss a variety of other major projects related to aviation that have experienced significant delay and cost overruns.
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Denver International Airport Delayed: A High Profile Saga Denver International Airport is America’s largest international airport and the second largest in the world (Gilbert, 1993). The airport's computerized baggage system, which was supposed to reduce flight delays by cutting down waiting times at luggage carousels, and reduce labour costs significantly, turned into a complete disaster. It was scheduled to be fully operational from October 31, 1993 with a single system for all three concourses, but was postponed to February 28, 1995 when it was finally operational with separate systems for each concourse. The original estimated construction cost for this system was $186 million but this grew by $1 million per day during months of modifications and repairs. Incoming flights at the airport's B Concourse hardly made use of this system, and only United, Denver International Airport's dominant airline, used it only for its outgoing flights. (Montealegre & Keil, 2000).
Heathrow Airport Terminal 5 Another high publicized and high technology aviation failure was 'The Heathrow Airport Terminal 5' project. London’s Heathrow Airport’s Terminal 5 opened to public on 14 March 2008, after almost twenty years of planning, with cost incurring around 8.5 billion dollars and 100 million hours in manpower. It is a glass and concrete and steel marvel, and the largest free standing building in the UK, with over 10 miles in suitcase moving belts, and was expected to be a solution to the Airport's major congestion problems. But on opening day the terminal and its systems turned into a big embarrassment as they just did not work. (Atkin, et al., 2007). The display boards either did not display any information or displayed incorrect information. Systems that were meant to control payment for the parking structures did not function properly. Counters were not open at the check-in desks at 4 AM which led to ticket holders having to start lining up, causing a 4
backlog that certainly didn't help the launch. In addition, by noon, 20 flights had been canceled due to baggage handling problems. As with the Denver International Airport the baggage handling system was intended to be the corner stone of the new terminal providing streamlined handling of baggage improving the experience of the travelers and the efficiency of baggage handling (Bizley, 2005).
Dreamliner 787 of Boeing Boeing, the all time competitor of Airbus, delayed 787 Dreamliner project and has already announced delays couple of times. Boeing 787 Dreamliner planned to enter service in May 2008 but due to multiple delays for various reasons It entered commercial service on October 26, 2011, costing the aircraft maker billions of dollars in compensation payments, and forcing it to take at least a short-term loss on the programme (Economist, 2011)
Airbus A380 From all the above examples it is clear that most of the companies that design complex and high-tech products have their horror stories and Airbus is not an exception in this matter. Airbus’s development of A380 which is nicknamed as “Superjumbo” suffered major delays and cost overturns because of incompatibilities in the design of the electrical harnesses of various sections of the plane’s fuselage (Sosa and et al 2007) in the later stages of production. These mistakes led the loss of Airbus’s reputation and important changes in management structure.
Research Objectives In one performs an Internet search there is an extensive literature relating to aviation industry projects and their attendant major delays and cost overruns. However, there have
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been no detailed scholarly attempt to find out that how much these delays or failures cost the industry and the companies involved. In the following paper we have investigated how much and to what extent these delays cost the industry. We have also investigated how these failures and overruns can be reduced in future. The main research objectives of this paper are as follows: •
Identification of the factors that contributed to the delay of Airbus A380
•
Investigation of the role of IT in Aviation industry
•
Investigation of the impact of delays on Aviation Industry and aircraft makers
The Role of Information Technology (IT) in Aviation Industry In the last two decades the aviation industry has undergone mamy changes. The deregulation of parts of the aviation industry, economic cycle trends, and breakthroughs in Information Technology (IT) have resulted in the significant restructuring of the aviation industry demand and services (Nucciareli and Gastaldi, 2008). Thanks to extensive innovations and breakthroughs in the aviation industry, the benefit of air travel has become accessible and affordable to travellers of relatively modest means all over the world. However, the increasing demand for eco-efficient industry, that creates economic and social value with less environmental impact, are renewing pressure on aircraft manufacturers to innovate and develop more and more eco-friendly aircraft. It is appropriate to observe that there in less than 50 years, technological advances have reduced fuel consumption and carbon dioxide (CO2) emission by 70%, noise by 75% and unburned hydrocarbons by 90% (Airbus, 2007b). Of course this progress did not happen overnight. Aircraft manufactures engaged in a lot of trial and error, research and development and became involved with many projects requiring the taking of 6
considerable risk and the development of approaches to managing these projects and their associated risks. The management of risk in the case of project is first explicitly mentioned in PMI’s 1987 edition of a guide to the project management body of knowledge (project management Institute, 2001). Generally, risk is defined as the uncertainty about the project task duration and cost related to all stages of project life cycle. Numerous risk assessment models have been developed to date for analyzing Information Systems (IS) project risk. Most of these highlight the important risk factors associated with IS projects, but not all identify the importance of organizational issues and the overall environment and context within which the IS is required to function. This is a significant oversight since we maintain that to thoroughly analyze and accommodate relevant aspects of the organizational environment and context during the design stage of an IS if an IS is to function smoothly and successfully in an organization. In the following section we will consider some of the advanced technologies used in the Airbus A380 which contributed to the challenges in managing the A380 project.
The Technologies Used in Airbus A380 Airbus adapted many advanced technologies and techniques in development of the A380. Some of them are discussed below Avionics Full Duplex Switched Ethernet (AFDX) AFDX is an avionics data network based on commercial 10/100Mbit switched Ethernet network. AFDX uses a special protocol to provide deterministic timing and redundancy management providing secure and reliable communications
of critical
and non-critical
data.
AFDX data
communications are used on the Airbus A380/A350/A400M, Boeing B787 Dreamliner
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(ARINC664), ARJ21 and Super jet 100. AFDX and ARINC664 are being used as the backbone for all systems including flight controls, cockpit avionics, air-conditioning, power utilities, fuel systems, landing gear and others (Aerospace Testing International, 2005) . Integrated Modular Avionics (IMA) IMA was mainly used in advanced defense aircraft. But many of A380 controls are based on IMA concepts. With IMA many applications run on a standardized common hardware using a distributed operating system. Airbus estimates that its IMA approach cuts in half the part numbers of processor units for the new A380 avionics suite (Ramsey, 2007a) Hydraulicssystem and Electrical Systems: Large sized aircraft like the A380 have significant weight issues. To reduce the weight Airbus used only two hydraulic systems instead of traditional three centralized hydraulic systems and provided a third electrical. Led and High intensity Discharge (HID): Airbus used LED based illumination systems for lighting different areas of A380 aircraft. LEDs have low electricity consumption arelower in weight than conventional lighting and have a longer life span. LEDs are said to last 30-60 times longer than any conventional lighting system. Hence Airbus preferred LEDs for the A380 aircraft Ramsey, 2007b) In this following section we review some risk assessment models before adopting a suitable model for this study.
Risk Assessment Models What is Risk Management?
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In today’s complex business environment managing risk effectively has become integral part of project management. Careful risk management helps project managers to minimize the known and unknown risks involved in projects. Failure to perform effective risk management can cause projects to exceed budget, fall behind the schedule, miss critical performance targets, or exhibit a combination of these troubles. In 1999, the Standish group reported that only 26% of software projects were successful. Successful project completion depends significantly on the early identification of the risks involved in that project. Certainly there are a number of other factors as well that determine whether a project will be success or not. But, failing to perform adequate risk management is one of the key factors that is likely to lead to the failure of projects. Risk refers to the possibility that a given activity or system fails to achieve its intended goal, and that this failure causes has negative consequences. (Scalliet, 2006) Risk management thus relates to the process of risk minimization. For any given task, risks can be minimized, but typically one cannot eliminate risk completely whilst still engaging in the task.
Risk-adjusted Return on Capital (RAROC) Development of the RAROC methodology began in the late 1970s, initiated by a group of people at Bankers Trust. Their main idea behind this development was to measure the risk of the bank’s credit portfolio, as well as the amount of equity capital necessary to limit the exposure of the bank’s depositors and other debt holders to a specified probability of loss (James, 1996). Since then, a number of other large banks have developed RAROC or RAROC-like systems with the aim, in most cases, of quantifying the amount of equity capital necessary to support all of their operating activities -- fee-
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based and trading activities, as well as traditional lending. Thus since this risk management approach is mainly used in banking and insurance sector it is not an appropriate fit with the Airbus project.
Pro-active Risk Management- Smith and Merritt Pro-active Risk Management (Smith and Merritt, 2002) evaluates the probability of risk event occurring, risk event drivers, risk events, the probability of impact and the impact drivers prior to the risk actually taking place. Smith and Marritt have developed and defined a practical approach to risk management that is focused on new product development. Their primary purpose behind the development of this approach was to enable product development teams to identify surprises and reduce the disruption. As we have noteda number of risk assessment models have been developed to analyze Information Systems (IS) project risk. Even though most of them highlight the important characteristics of risk in IS projects, the importance of organizational issues, work environment, internal and external context within which the IS would function have been ignored. If an IS needs to function successfully in an organization, one has to assess organizational environment and context thoroughly and need to accommodate them in the IS design system (Jeffcott and Johnson, 2002). According to Webster’s dictionary the tern environment refers to “that which environs or surrounds; surrounding conditions, influences, or forces, by which living forms are influenced and modified in their growth and development”. In this study, we limit the term environment to Aviation Industry and Airbus, in the same dictionary context defined as “the set of facts or circumstances that surround a situation or event.” The environment and context of the Airbus are unique in their own way because of the organizational structure, which is lead by four different
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national consortium members. Most of the previous risk assessment models deeply focused on technical factors and have ignored other factors like environment, culture, and work context.
Willcocks and Margett’s Risk Assessment Model Willcocks and Margett’s risk assessment model is devised based on the work of Pettigrew and Whipp's 1991; (Pettigrew, et al., 1992). Willcoks and Margett developed six interrelated conceptual categories that can be utilized in analyzing the development, introduction, and use of information technologies (Jeffcott and Johnson, 2002).
Why we proposed using the Willcocks and Margett’s Risk Assessment Model? As discussed above, the RAROC model was primarily devised to measure a bank’s credit portfolio and equity capital risk factors. In contrast, Pro-active Risk Management- was developed by Smith and Merritt with a focus on new product development. Both of these models address particular sectors and have factors that they do not take into account such as the history of the organization, the internal context, the external context, and the processes of the organization that play a central role in any project's success or failure.
Willcocks and Margett’s risk assessment model consists of six components and each of the components can be assessed in the context of Airbus. Each component of Willcocks and Margett’s risk assessment model is elaborated below in the context of Airbus. History: The organizational history of Airbus and key developments, its project management experience and success and failure stories.
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Internal Context: Refers to organizational characteristics of Airbus like structure, its business strategy, its industrial contacts and supply chains, its IS, and its project management experience. External Context: Includes economic, political situations, government policies, market and industry situation at Airbus partner countries, and their relation with investors and funding agencies. Content: Refers to project risk factors, project size and complexity, technical uncertainty and its impact on the project. Process: Refers to the way the project is carried out and how the issues are perceived. For example project management, team experience, staffing stability, and user commitment. Risk outcomes: Refers to planned or unanticipated and desirable or otherwise outcomes. For example cost, time technical performance, operational efficiency, and user acceptance.
History of Aviation Industry The airline industry is one of the first industries to be influenced by economic and political events whether positive or negative. The industry suffered a considerable downturn as a result of the 2001 global economic slump, followed by the September 11 terrorist attacks. Furthermore, the current downturn in air travel has had a particularly sever impact not just on the airlines but also on lessors and aircraft manufacturers, which have seen their order books shrink significant as a result of numerous cancellations and postponements (Costa, et al., 2002). Costa does not consider that rather then recover airlines are likely to continue to struggle and their putative recovery is likely to be
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complicated and difficult. Indeed, most signs suggest that the current slump is likely to be worse then previous downwturns and that the industry emerging at the end of it will be significantly transformed compared to the current industry (Thompson, 2003).
Background of EADS and Airbus Airbus was founded in 1970 by a consortium of French and German companies. In 1971, the Spanish company, Construcciones Aeronauticas S.A. (CASA) joined the consortium. British Aerospace became
a full partner of the consortium by end of 1970s. The
company introduced its first aircraft, the A300B at the Paris Air Show in 1992. Airbus was initially headquartered in Paris, but, in 1974 it moved to Toulouse, France. Gradually, by the end of 1980’s, it became one of the most significant global aircraft manufacturers joining Boeing. The A320 which launched in 1984 went on to become one of the best selling aircraft of Airbus. A commitment to cintinuous innovation has resulted in improvements in aircraft efficiency and performance ensuring the production of competitive products over many decades.Innovation has also allowed Airbus to new aircrafts such as the A321 in 1989, the A319 in 1992, the A340 four engine aircraft in 1993 and the A330 twin engine aircraft in 1994 (Datamonitor, 2008). Airbus officially announced the A380 project in 2000. It was originally scheduled to enter service at the end of 2007. It has been argued, by Ian Massey (who was the financial controller of Airbus SAS’s predecessor, Airbus Industrie, from 1991-2001) that the company has been plagued with internal conflicts among its partners since its inception. Ian Massey, Now Streiff must end the finger pointing between the French and Germans (Rothman, 2008).
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Insider trading: In March 2006, EADS, the parent company of Airbus, reported that certain executives and shareholders had sold shares during a pre-approved window. Soon afterwards, EADS announced significant delays of production of the Airbus A380 super jumbo jet. French market regulators said they had found evidence of insider trading at EADS, Following nineteen months of investigation (Cable News Network, 2008). Airbus Chief Executive Tom Enders said, the company recognizes what went wrong. “The Underlying problem was the lack of integration,” he said, “further we are taking voluminous lessons from that.” (Michaels, 2006b)
Dual-management System: From the day of its inception, Airbus had a dual management system which led to open national rivalries between France and German for Airbus control. A report by the French Senate identified rivalries between executives and team in Frankfurt (Germany) and Toulouse (France) as being primarily responsible for delays that have wiped more than 5 billion Euros off the company‘s profit forecasts for 2006-2010 (Vandore, 2007). On July 16 2007, Shareholders of EADS agreed to end its cumbersome dual management structure. Frenchman Louis Gallois became and the CEO of EADS, backed by a German national as Chairman, with a second German heading up Airbus operations. Apart from these changes, the top three executive posts will have incumbents with alternate nationalities every five years. A summit between French President Nicolas Sarkozy and German Chancellor Angela Merkel was mainly aimed to eliminate the sorts of rivalries that have been blamed for series of costly delays to Airbus A 380. Both leaders hailed the deal as a victory for EADS saying it will give company more power and efficient management structure. Later, in a press conference Sarkozy, along with Merkel, said that
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“France hasn’t won over Germany and it’s not Germany that has won over France. It’s EADS that won” (Vandore, 2007). According to the new deal Frenchman Louis Gallois become sole in-charge of EADS and was supported by a German as Chairman. The top three executive posts would swipe alternate nationalities for every five years. This system looked like “old wine in new bottle” because dual management still existed. Hence, JeanFrancois, a representative of Airbus's main workforce union rightly said, “nothing has changed “with new management structure. “The actors have been shifted around but the struggles for power and influence will continue” he said (Vandore, 2007). This rotation policy was the beginning of the solution for the problems. Some industry experts, such as, Zafar Khan, a London based aerospace and defence analyst with Societe Generale welcomed this move as a first step. He further said, “The way governance was organized previously meant that you ended up with a lot of deadlocks on major decision and there was no mechanism for solving those issues. The real test of the overhaul will be when some decision has to be taken”.
Cultural and National Rivalries Issue The management of Airbus and its parent EADS had paralyzed tensions between its French and German shareholders due to cultural and national issues among the two nationals. Airbus and EADS appeared incapable of taking strategic decisions without resorting to public displays of brinkmanship. Airbus has had three chief executives in less than 12 months, four in two years due to national rivalries. Louis Gallois, the CEO of Airbus flayed around Europe briefing government and trade union leaders about the necessity of embarking on a drastic restructuring of Airbus, and he tried to build a consensus on the necessary measures about the Power8 restructuring programme, which
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he was proposing (Done, 2007a). Mr Gallois is one of France’s most experienced industrialists with an intimate knowledge of the workings of the French government. He was said to be held in high regard by his German colleagues, but even he has been unable to overcome the deep-seated French-German rivalry. This national rivalry has had a great impact on the A380 productions which lead to the delay. Tom Enders responded that “Power8 is no walk in the park. It’s about revamping the competitiveness and profitability of our Airbus operations and requires tough and painful decisions”. He further said, the burdens resulting from the power8 programme, also the opportunities, the future industrial and technological core activities have to be shared in a fair and balanced way. Both are possible and we are intensively discussing to find the right solution.”
Technological Reasons: Use of incompatible programs takes the rap, but behind that is a management team cobbled together from formerly separate companies- Carol Matlack – Bossiness Week Paris Bureau Chief. On October 5 2006, Business week reported that “It sounds too simple to be true. Airbus A380 mega jet is now full two years behind schedule and the reason, CEO Christian Streiff admitted on October 3, is that design software used at different Airbus factories were not compatible”. “They didn’t have uniform design tools throughout the system and that’s biting them badly” says Hans Weber, CEO of Tecop International Inc. a San Diego based aviation consulting firm. Further, Weber comments that “The lack of uniform software, to develop what Airbus has billed as the greatest achievement of its 36 years history, suggests that former CEO Noel Forgeard failed to integrate the plane maker’s
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national units, into a single team to compete with Boeing Co. This turned out as one of the costliest blunders in the history of commercial aerospace”.
Wiring Problems When Airbus engineers began with the final assembly process in Toulouse, the Airbus headquarters, the rear fuselages made in Hamburg (Germany) were supposed to arrive in Toulouse with all their wiring ready to plug into the forward parts coming in from factories in north and west France. But the 500km of wiring in the two halves did not match up. The wiring problem primarily resulted from the failure to use the latest threedimensional modeling software. In addition, nobody anticipated the effect of using lightweight aluminum wiring rather than copper, which makes bends in the wiring looms bulkier (Economist, 2005). “The various Airbus locations had their own legacy software, methods, procedures, and Airbus never succeeded in unifying all these efforts” says Hans Weber, CEO of San Diego based Aviation consultant Tecop international, who has close contacts with the company’s German operations. (Matlack, 2006a) Further, businessweek.com reports that experts familiar with Airbus design operations told that the Toulouse assembly plant used the latest version of a sophisticated design software tool called CATIA made by France’s Dassault systems (DASTY), an independent software unit of French aircraft maker Dassault Aviation. In contrast, Hamburg (Germany) design centre used an older version of the CATIA software of 1880s made. Due to this version difference, design specifications could not flow easily back and forth between these two systems. Munich based Robert Weigi, (the director- professional services for proficiency, who specializes
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in helping manufacturers integrate different design software), says “the two systems are completely different, they have nothing to do with each other” (Matlack, 2006b)
CATIA Design Software The real problem looks to be a lack of leadership at the top levels of Airbus. Somebody inside Airbus must have known that engineers in Germany and Spain were using CATIA V4 while CATIA V5 was in use in the UK and France. Somebody made a decision not to push for single compatible standard, or to at least invest in a translator system. As a result, Airbus has already announced earnings losses of $2.54 billion over the next three years (Newton, Randall, 2006). The above statement clearly indicates how Airbus leadership ignored the software compatible matter. The incompatible software products are CATIA V4 and CATIA V5, 3D CAD software from Dassault systems. An expert says that there is no secret that these versions of CATIA are incompatible at the file format level, and CAD Software Company was well aware of it (Newton, 2006). Besides using different versions of CATIA there were also reports that Airbus designed the A380 \using software supplied by a different supplier called “Parametric Technology (PMTC)” of Needham, mass. But Parametric has a different version of story. It claims its software is not used for the A380 electrical harnesses. Though Dassault Systems have been widely accepted as global leader in aircraft design software for more than a decade, Airbus didn’t buy this software until 2000, which leads to speculation from insiders that “out of rivalry with Dassault Aviation, Airbus resisted moving to Dassault”.
Economic and Political Issues When Dollar sinks profit dry up: According to EDAS chief executive Louis Gallois, the rise of the Euro against the dollar in 2007 had cost the company at least one billion in
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operating profit. So Airbus needs to sell more than 400 A380 to break even because of series of production delays. Airbus costs are in Euros but sales are in USD hence Airbus lost from the weak dollar. Because aircraft sales are priced in dollars, but Airbus builds planes mainly in Europe, every 10% rise in the Euro’s value against the dollar slashes more than $1.6 billion off its bottom line profit (Done & Wiesmann, 2007a). Apart from Dollar weakness, the Power8 program which carried out to trim head-office, costs and, other overheads by 30% which amid for a 20% improvement in productivity over the next four years without mass firing. Early 2007, Airbus announced its so called Power8 restructuring program (Done & Wiesmann, 2007b) it figured it needed to cut costs by $ 3 billion annually to offset losses due to weaker dollar. Above literature review describes the circumstances surrounded the delay of Airbus A380 super jumbo. Indeed it’s been a bumpy ride. Building leviathan plane which almost ran two years behind the schedule and a $6.8 billion over budget created chaos at Airbus. Communication failures and chauvinistic conflicts that had existed between the company’s French and German operations exploded into full-down crises (Michaels, 2007a). Later, when A380 reached to assembly level, software problems like mismatching CAD software file formats, use of different versions of CATIA software and later decreasing value of dollar against Euro caused the over-all problem. In chapter Four, these causes have been analyzed by using the Willcocks and Margett’s risk assessment framework to quantify and assess the impact of each of the reasons.
Methodology Data and information for this work are drawn from various sources like news reports from leading news agencies, press releases, news wire, television interviews, transcripts
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and congressional hearings like LexisNexis and Factiva. Meta search engines like WebCrawler, Copernic and so on were used to locate the information related to Airbus A380 delay discussed on various on line discussion forums and blogs. These sources represent different narrative styles and facts of recounting the Airbus A380 development process.
Data Collection Methodology While searching sources of data I have adopted pearl-growing method. This pearlgrowing method involves relying on a limited set of keywords to search terms. This is another technique that many searchers use sometimes unconsciously.
What is Citation Pearl Growing Method? Citation Pearl Growing is the process of using the characteristics of a relevant and authoritative article, called a pearl, to search for other relevant and authoritative materials. Citation Pearl Growing is the parallel process of using the characteristics of a relevant and authoritative website to search for other relevant and authoritative websites (Ramer, 2005) Citation Pearl Growing often involves several repetitions of the basic strategy. The number of repetitions depends on the success of previous repetitions and the amount of material needed (Hawkins & Wagers, 1982). Although general search engines can sometimes provide satisfactory results, citation pearl growing helps in searching the web, because no search engine crawls all websites and search engines only bring some order to the wildly disorganized Internet (LaGesse, 2004). Users who find a limited number of authoritative and relevant sites can use the process to find similar sites. In the beginning of the search, different combinations of keywords like “delay”, “slow” Airbus, Airbus A380, and Airbus Jumbo Jet were used. Returned hits and web pages were
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analyzed using TextSTAT (2.8 Version). TextSTAT is a simple programme for the analysis of texts. It reads ASCII/ANSI texts (in different encodings) and HTML files (directly from the internet) and produces word frequency lists and concordances. This version includes a web-spider which reads as many pages as you want from a particular website and puts them in a TextSTAT-corpus. The new news-reader puts news messages in a TextSTAT-readable corpus file (Hüning, 2001) TextSTAT also reads MS Word and OpenOffice files (OOo 1 (.sxw) and 2 (.odt)). No conversion is required, and we just add the files to the corpus. Later new combination keywords like “Airbus and delay”, and “Aviation delays” were used to get more reports. The search has covered material from 1989 to June 2009. Reports published after June 2009 is not considered for this study.
Coding Scheme and Procedure The data collected were analyzed by adopting systemic textual analysis. In the 1st step all documents were coded. The following details are captured from this coding design: •
Reasons behind delay (RD): Is a binary variable coded either “yes” or “no” denoting the presence and absence of reasons related to delay respectively
•
Brief description of each delay (DD): Variables were derived during the coding process. Because there could be more than one delay reasons in a document, which may lead to multiple values of PI and TP.
•
People involved delay (PI): So PI includes a set of binary variables referring to specific reasons.
•
Time period of delay (TP): is set of binary variables, denoting three distinct time periods; pre- Airbus A380, Airbus A380 development, and post Airbus A380.
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Sources of Data The data for this study have been collected from seven to eight sources, namely, news paper articles, news wire, international weekly magazines, television interview transcripts, congressional reports, and the internet, by using pearl- growing method. Total of 2095 documents were yielded. The same data is shown in the below table: Table 1: Sources and number of documents analyzed. Type of Sources
Sources
Number of Documents
Financial Times, Wall street Newspapers
700 Journals, etc. Associated press, knight
Newswire
220 Ridder/ Tribune, etc.
International weekly
The Economist, Business week,
magazines
Time.
TV interview transcripts
CNN, NPR CBS.
800
150
Congressional press releases, Congressional reports
25 congressional testimony, etc. Blogs, Daily Post (Liverpool), Business daily, Online
Web based publications
150 discussion forums, company websites
Industry trade press
50
Total
2095
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Methods of Data Analysis Out of 2095 documents analyzed, a total of 1400 documents were found to cite causes related to the contribution of the delay of Airbus A380. Many of them have citied multiple reasons ranging from cultural differences between France and German workers, billing problems (spending in Euros, billing customers in USD), assembly problems, software problems and most importantly, the organizational structure behind the delay. Data has been validated by referring to more than one sources like newspaper article, journal reports etc. Airbus announced the A380 project in 2000 and subsequently started its production in January 2002 projecting that it would deliver its first A380 to Singapore Airlines in March 2006. But, it went on to deliver the first A380 on 15th October 2007 after a 19 month delay. The A380 debacle plunged Airbus into losses in 2006 as it suffered billions of Euros of cost overturns and penalty payments in the struggle to bring the A380 super jumbo, the most ambitious project undertaken by the European Aerospace Industry (Done, 2007b). The A380 problems have exposed deeps flaws in the organization and development processes at Airbus. Airbus had five different chief executives in just over two years. This literature reviews also reveals how EADS, the Airbus parent company, struggled to end months of internal fighting among its Franco-German shareholders over the top management structure. Studies also reveal that delays were caused most importantly in manufacturing and installation of electrical systems and wiring harness.
Research Ethics Most ethical issues in research fall into one of the four categories; •
Protection from harm
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•
Informed consent
•
Right to privacy
•
Honesty with professional colleagues (Leedy & Ormrod, 2005).
This work has honored these research ethics while collecting the data. Most of the data collected for this work is secondary in nature and has been collected from public domain and paid databases. Hence, this work does not breach any company’s confidential code matter. No interview has been conducted because of the same reason. Motive of this research work is not to look into political or commercial interest of the company. The main focus of the study is to find out the reason behind the delivery delays of Airbus A380. Technological reasons like wiring, CATIA design software problem and integration of software usage thought Airbus factories were not only caused the delay of A380. Social factors like cultural differences between French and German workers, organization structure problem, have also caused the delay of Airbus A380. In the next section, we will analyze delay factors in detail by using the Willcocks and Margett’s (1991) risk assessment.
Discussion Findings indeed point to various directions like political, socio-cultural, economical, organizational, and technological reasons that led to the delay of jumbo jet plane A380. When European consortium “Airbus Industrie” (now Airbus) announced the development of the World's largest plane, the A380, many aviation industry experts wondered whether the industry really required such a big plane. But Airbus announced this project based on
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its prediction of industry growth by 2020. The June 5th 2000 issue of Newsweek described the AXXX (which later become A380) as a “paper air plane” that would never fly, and never should. The magazine reported that critics said its sheer bulk would damage runways, stir up gale-force winds with defining noise, and overwhelm airport terminals by disgorging mobs of 600 people. The Airbus A380 plane that many thought would never be built, flew its first test flight on 27th April 2005 from Toulouse, France, and made its first commercial flight from Singapore to Sydney on 25th October 2007 with Singapore Airlines (Pierce, 2005). To add to its efficiency credit, it generates only half the noise of a 747 Boeing flight is very fuel efficient, and burns 12 percent less fuel per passenger than a 747. Airbus made it possible with a lot of trial and error and a couple of delay announcements that cost the company loss of millions of dollars. In this section, Willcocks and Margett’s risk assessment model has been used to analyze the problems related to the making of Airbus A380.
Findings and Overview of Airbus From the day of its inception Airbus is in news for the wrong reasons mainly because of its complex management structure. It is always said that European Aeronautic Defence and Space Co. (EADS); consortium formed by France, Germany, United Kingdom, and Spain are the ring master of Airbus. Airbus was established in 1970 by a consortium of French and German Companies. By late 1970, British Aerospace became a full partner of the consortium. In 1971, the Spanish Company Construcciones Aeronauticas S.A. (CASA), joined this consortium. In other words, since its inception in 1970, Airbus had
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operated as a loose consortium of aerospace companies of France, Germany, Britain, and Spain.
Use of Willcocks and Margett’s Risk Assessment Model As described earlier in section 2.3.4, Willcocks and Margett’s Risk Assessment Model comprises 6 components, namely history, internal context, external context, content, and process and risk outcomes. Same components have been used to describe the issues in the Airbus A380 project.
Digram1: The six interconnected factors of Willcocks & Margett’s (1991) risk assessment model
IT-RELATED CHANGE HISTORY
CONTEXT
CONTEXT (EXTERNAL)
OUTCOMES
PROCESS CONTEXT (INTERNAL)
History EADS which was formed by merging Aerospatiale Matra of France, DaimlerChrysler Aerospace of Germany, and Construcciones of Spain, took 80% stake in the company. And BAE systems took 20% stake. In 2001, Airbus became a fully integrated company
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when EADS and BAE systems transferred all of their Airbus related assets to the newly formed company and became shareholders in it.
According to estimation, in the last 30 years, European Union (EU) taxpayers have paid about $15 billion to cover the cost overturns in EADS projects this company seems vulnerable to political pressures from all consortium members because of its various factories in partner countries. In October 2006 EADS confirmed rumors that the delay to the A380 had increased to nearly two years (Refer Appendix I for Chronology of Airbus A380 Development) and spelled out the financial consequences. Only one aircraft would be delivered the next year. The delay would knock a further Euro 4.8 billion ($ 6 billion) off profits and Euro 6.3 billion off revenues at EADS between 2006 and 2010 (The Economist, 2006a). From its inception from 1970 to 2000, Airbus had a steady growth with a lot of technological breakthroughs that helped the company to become the number one commercial plane maker. Introduction of new air crafts like A320, A321, A319, A340 (four engine aircraft) and A330 (twin engine aircraft) further boosted its conference. These products directly helped Airbus to widen its presence in aviation market and took the company’s sales statistics curves ahead of its arch rival Boeing by ending its monopoly in the sky. But national rivalry and other disputes like controlling important projects and key positions of the company remained among partner nations and grew wider along with company. This issue was clearly visible and had great influence in the delay of A380 craft.
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Internal Context Since Airbus was established by four-nation consortium, it never had great character as an organization. There were always differences of opinion, national revelry, and culture issues mainly between French and German workers. Dual management system that was practiced from the beginning at Airbus and EADS was an ugly and unrealistic practice in this modern era. It was also the biggest hurdle in the way of Airbus becoming a world class aviation company. Individuals and their interests were bigger than the organization. If this could bring French president Nicolas Sarkozy and German Chancellor Angela Merkel to the negotiating table, one can imagine the depth of this problem. On July 16th 2007, a summit between these two leaders was aimed at eliminating the sorts of rivalries that have been blamed for a series of costly delays to Airbus super jumbo A380 (Vandore, 2007). Again, opinions are divided about the outcome of this summit. Some of the insiders felt that “nothing has changed with new management structure the actors have been shifted around but the struggles for power and influence will continue.” But some industry analysts like Zafar Khan expressed that this rotation policy was beginning of the solutions for the problems and the first step towards fixing organizational issues at Airbus. Insider trading is another major issue that troubled and damaged Airbus image in the international market. Coincidently, Airbus announcement of delay in the production of A380 and insider trading issue became public at the same time. This hurt Airbus's sentiments. Though its impact on production of A380 was small, the A380 order book was prime victim of this development.
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External Context France, Germany, Britain and Spain are politically and economically stable countries. But national rivalry was inherent in Airbus and EADS because of multinational partners and management representatives. This affected the development of A380 at a great extent. Being member of the European Union, Airbus's spending are in Euros and it bills its customers in US Dollars. During 2006 and 2007 value of US Dollar went down against EURO. This cost the company millions of dollars in profit. This compounded the pressure on A380 development. Because, as and when Airbus announced delivery delays, some of A380 customers penalized the company for not meeting its deadlines and others cancelled the order and switched over to Boeing. The Company also ruined its public image by frustrating Indian officials by registering complaint against Air India when the latter cancelled its order with Airbus and replaced them with Boeing.
Content There is no doubt that development of Airbus A380 was one challenging and technology driven project in the history of aviation industry till date. A380 was the first double-deck passenger plane. The overall length of 72.7 meters, wing span of 78.9 meters, height of 24.1 meters, and weight of 544.3 tones with 555 seat aircraft, made the A380 the biggest passenger aircraft. (Refer Appendix II for A380 specifications). When we look at Hans Weber, CEO of Tecop international statement “the various Airbus locations had their own legacy software, methods, procedures, and Airbus never succeeded in unifying all these efforts” one can realize the complexity and risk involved in this project. But interestingly this lack of integration among its various factories was due to internal disputes among its management and lack of effective leadership. Use of different versions of software, and wiring problems make us suspect the project management. 29
A380 is an ideal example of worst project management. All the above things force us to conclude that A380 project is a victim of organizational circumstances.
Process By overcoming all hurdles, Airbus A380 moved down to assembly line. Airbus is clawing back. It is a magical turnaround at Airbus and much of this credit goes to few mid level executives who found a way to fuse the company's balkanized units while boardroom was in disarray. One of them is Rudiger, a 41 year old German engineer who forced designers, engineers and assembly like workers at Airbus Germany factory Hamburg to start cooperating. He also got tremendous support from Alain Carcasses; a French engineering manager. Mr. Fuchs also coaxed French electrical specialists into helping their German counterparts at an engineering office in Toulouse, France. Mr. Fuchs visited Mr. Carcasses at Toulouse to hash out an emergency plan. According to the plan, a group of German engineers would move to Toulouse and French engineers trained them on French software and design methods. Even French engineers worked on German parts of the A380 and reported to Mr. Fuchs as part of the plan (Michaels, 2007b)
Risk Outcomes When this project is analyzed with Willcocks and Margett’s risk assessment model, the obvious outcome is the delayed production of A380 plane with USD 6.8 billion over cost. Most undesirable factor of this project is when Airbus engineers started final assembly of A380; 500km of wiring in the two halves did not match up. The wiring problem was caused due to non compatibility of three-dimensional modelling software (The Economist, 2006b). Nobody bothered to check and confirm this matter till the project reached it final stage. This speaks about how things are managed at Airbus. Thanks to
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Mr. Fuchs who was desperate to finish an electrical test that airbus promised to its customers. In a last effort to improve the productivity, he ordered his German engineers to move off the factory floor and finish their work inside the A380 itself, to better advise assembly workers labouring on the cables. This move increased the productivity to double within weeks and went on to clear the clear test fly. French Senators Jean-Francois Le grand and Roland Ries, who have investigated Airbus and EADS for six months, found that problems with this A380 project were due to national rivalries, a clumsy management structure, and lack of surveillance by private shareholders like Daimler Chrysler Ag and the Lagardee Groupe SCA and too much autonomy at the plane maker (Vandore, 2007). The analysis with Willcocks and Margett’s risk assessment model validates above senators findings. Various factors caused the delay of Airbus A380 production.
Conclusion When Airbus announced its plan to develop the world biggest commercial passenger aircraft A380 in December 2000, everybody thought this project would take Airbus to new heights. However instead of setting new benchmarks in the aviation history and lifting Airbus reputation to new levels the A380 project dragged the company down with its frequent delay announcements. The company cited complicated electrical wiring problem as reasons for the delay. But many aviation industries experts argued that Airbus production delay problems are political in nature. They stated that Airbus’ problems started in 2005 when the French and the German started lobbying for top positions of the company. Though Airbus is led by a Four-nation consortium (France, Germany, English and Spain) France and Germany always played key role in Airbus. Hence the company
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always had French and German Co-Chairpersons and co Chief executives. This dualmanagement system led to many cold wars in EADS and Airbus. Company senior management failed to realize the adverse effect of this national revelry on the A380 project. As a result, the A380 production was delayed and Airbus lost its number one position and market share to its arch rival Boeing. This study discovered how good companies face potential ruin if the appropriate organizational structure and man management systems are not in place.
Research Objective and Main Findings The delivery of A380 did not start by end of 2005 as was promised and announced earlier. The first delivery of A380 came two years behind schedule and a $6.8 billion over budget. Some of the objectives and findings of this research are as follows: •
Identify the factors that contributed to the delay of Airbus A380
•
Role of IT in Aviation industry
•
Impact of delays on Aviation Industry and aircraft makers.
Identify the Factors that Contributed to the Delay of Airbus A380 A consortium led project like Airbus A380 is collaborative in nature and has multiple teams, working on multiple tasks within the same project or unit. Working in such an environment often crosses all national, linguistic and cultural boundaries and needs changes in the risk management policies. Due to globalization, the trend in the business world has been changed from central to collaborative and cooperative. These partnerships require the modification of internal organizational practices, particularly for collaborative communication and significant enhancements to an organization’s risk monitoring,
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mitigation and management (RMMM) activities (Mohtashami et al., 2006). However this study didn’t find any such efforts being made by Airbus while developing the world’s biggest passenger aircraft. The wiring problem which was the root cause of all technical delays arose due to non existence of proper project management and the failure of system integration throughout all Airbus production units. From the beginning Airbus practiced dual management systems which lead to open national rivalries between France and German for Airbus control. The French Senate report pointed out that rivalries between executives and team in Frankfurt (Germany) and Toulouse (France) was responsible for delays that have wiped out more than 5 billion Euros off the company‘s profit forecasts for 2006-2010 (Vandore, 2007). Insider Trading: Morel has also been hurt by accusations that senior managers profited from knowledge about the A380 problem to cash in on share options. This also contributed to delay of A380.
Role of IT in Aviation Industry The whole world has benefited by a breakthrough in Information Communication Technology (ICT) and aviation industry is no exception in this matter. Due to IT innovation today we have a double Decker jumbo jet which was but a dream earlier. It has also led to a reduction in the noise level during takeoff at full thrust. Airbus claims that the A380’s “noise footprint” outside is half of the size of that of rival Boeing. Due to innovations and breakthroughs in the aviation industry, the benefits of air travel have become more accessible and affordable to all commuters irrespective of their economic backgrounds. However, the increasing demand for an eco-efficient industry, that creates
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economic and social value with minimal environmental impact possible, is pushing the aircraft manufactures hard to be technological pioneers and develop eco-friendly aircrafts. Evolution of the transport technology is simply astonishing. In less than 50 years, technological advances have reduced fuel consumption and CO2 emission by 70%, noise by 75% and unburned hydrocarbons by 90% (Airbus 2007).
Impact of Delays on Aviation Industry and Aircraft Makers The eighteen months delay in the deliveries of the Airbus A380 had an adverse impact on Maintenance, Repair and Overhaul (MRO) service providers. Lufthansa Technik (LHT), Air France Industries and Emirates are among the companies who have invested in MRO hardware for the super jumbo (Dubois, 2006). Apart from this, it derailed a lot of A380 customer future plans. The setback punched a hole in the finely calibrated flight schedules of carriers including Emirates, Singapore Airlines, Malaysia Airlines and Qantas, all of which placed major orders for the A380. The impact of the A380 delay is twofold for airlines, affecting their cost reduction and growth strategies," said Derek Sadubin, the general manager of the Center for Asia Pacific Aviation, a consultant based in Sydney. Being an aircraft maker, it was not happy moment for Airbus either. Delay reduced the forecast operating profits from the A380 programme by about 500 million Euros a year between 2007 and 2010. Apart from these losses Airbus also faced lot financial penalties for the late deliveries and even some customers cancelled orders. Air India cancelled its order when Airbus announced delays. As of February 2013 Airbus has 262 orders of A380 and it needs a minimum of a 138 orders more to reach break even.
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Implications for Practitioners Due to globalization and advancement in information technology (IT) the geographical boundaries of world have become almost non existent. Today managing projects, be it software development projects, financial projects or aviation projects like A380 have moved away from “single team, single location and single management structure to collaborative structure. Hence practitioners should realize the importance of doing together learning together. Time has come to work with multinational, multiple ethnicities and from multi locations. But this kind of a work environment needs a much greater level of understanding between the people involved in such projects. Leadership plays a key role in motivating people and bonding them together.
Implications for Research There is a lot to learn from Mr. Rudiger Fuch, German Engineer and Alain Carcasses, French engineers who together changed Airbus fate and turned around the Airbus A380 production with their great man management skills. To be successful in any venture one need to have the right attitude, great leadership qualities and people management skills. The trend in the business World has been changed from central to collaborative and cooperative. These partnership require the modification of internal organizational practices, particularly for collaborative communication and significant enhancements to an organization’s risk monitoring Some of the major reasons behind this chaos at Airbus may be identified as Communication failures and chauvinistic conflicts that had existed between the company’s French and German operations and exploded into full-down crises (Michaels, 2007c).
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Appendix Appendix I: Chronology of Airbus A380 Development Year
Delay announcements Airbus unrolls the A3XX concept for a very large plane, to
1996 become the A380. EADS confirms plans for its Airbus unit to build A380 at a budget Dec 19, 2000 of roughly USD 12 billion Airbus unveils the A380 in a glitzy ceremony known as the January 18, 2005 "reveal" Airbus announces 1st delay of A380 and said plane will be April 27, 2005 delivered six months late, in second half of 2006 Airbus announces 2nd six month delay in first A380 delivery due to June 13, 2006 wiring problems. Airbus announces 3rd delay of A380 up to one year (cost overrun October 3, 2006 by USD 6.8 billion December 30, 2006
First A380 for Singapore Airlines completes tests of all wiring
Oct. 15, 2007
First A380 delivered to Singapore Airlines.
Source: www.airbus.com
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Appendix II A380 Specifications metric
imperial
73 m.
239 ft. 3 in.
Height
24.1 m.
79 ft. 7 in.
Fuselage diameter
7.14 m.
23 ft. 5 in.
Main deck: 6.58 m. Upper deck: 5.92 m.
Main deck: 21 ft. 7 in. Upper deck: 19 ft. 5 in.
49.90 m.
163 ft. 8 in.
Wingspan (geometric)
79.8 m.
261 ft. 8 in.
Wing area (reference)
845 m2
9,100 ft2
33.5 degrees
33.5 degrees
Wheelbase
30.4 m.
99 ft. 8 in.
Wheel track
14.3 m.
46 ft. 11 in.
metric
imperial
Trent 900 or GP 7000
Trent 900 or GP 7000
311 kN
70,000 lb. slst
525
525
15.200 km.
8,200 nm.
0.89 Mo.
0.89 Mo.
17.3 cu. m.
650 ft3
tones
lb x 1000
Maximum ramp weight
562
1,239
Maximum takeoff weight
560
1,235
Maximum landing weight
386
851
Maximum zero fuel weight
361
796
310.000 Litres
81,890 US gal.
Overall length
Maximum cabin width Cabin length
Wing sweep (25% chord)
BASIC OPERATING DATA
Engines Engine thrust range Typical passenger seating Range (w/max. passengers) Max. operating Mach number (Mmo) Bulk hold volume Standard/option DESIGN WEIGHTS
Maximum fuel capacity
37
Typical operating weight empty Typical volumetric payload
276.8
608.4
66.4
145.5
Source: http://www.airbus.com/en/aircraftfamilies/a380/a380/specifications.html
Appendix III Airbus A380 Orders as on 28th February 2013
Total Orders Total Deliveries Aircraft in Operation
262 99 99 9 20 262 99
Number of Operators Number of Customers
Orders Deliveries
A380
CUSTOMER Ord Governments; Executive and private Jets AIR AUSTRAL AIR FRANCE ASIANA AIRLINES BRITISH AIRWAYS CHINA SOUTHERN AIRLINES COMPANY EMIRATES ETIHAD AIRWAYS HONG KONG AIRLINES KINGFISHER AIRLINES KOREAN AIR LUFTHANSA MALAYSIA AIRLINES QANTAS AIRWAYS QATAR AIRWAYS SINGAPORE AIRLINES SKYMARK AIRLINES
38
Del
Opr
8
8
5
5
5
90 10 10 5 10 17 6 20 10 24 6
31
31
6 10 5 12
6 10 5 12
19
19
1 2 12 6 12
THAI AIRWAYS INTERNATIONAL TRANSAERO AIRLINES VIRGIN ATLANTIC TOTALS
6 4 6
3
3
262
99
99
Source: www.airbus.com
Appendix IV: Airbus A380 Prototype
A
Source: www.airbus.com
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