Airbus Comes Up With a Somewhat Novel Idea: Make Suppliers Pay

On occasion, harsh times call for aggressive and novel tactics. And it could be argued that the turbulence Airbus is in more than justifies getting creative with R&D funding. To help reduce the R&D investment required for its upcoming A350 XWB midsize jet -- which will compete against the upcoming Boeing 787 -- Airbus has suggested that it wants its suppliers to "pay more than 15 percent of the cost of the project" according to a story in the Seattle Times. Airbus is asking a set of strategic -- rumored to be less than a dozen -- suppliers to provide the financing for "1.8 billion euros ($2.4 billion) of overall cost by paying for their own share of development work, in exchange for a share of profits -- in the way Boeing has done for the 787."

By following Boeing's lead in structuring investment and gains sharing deals with a handful of strategic suppliers, Airbus is hoping to reduce the exposure and risk that comes with bringing new platforms to market. But if I were an Airbus supplier -- especially given the A&D giant's huge challenges with the A380 -- I'd have a hard time justifying any gain share investment given the centralized management challenges that would be out of my control. After all, the European air giant does not exactly have a track record of above average shareholder returns of late! From my biased US vantage point, this looks more like the strong arming tactics that Napolean followed leading his own troops -- and mercenaries (i.e., paid foreign soliders) -- East to conquer Russia before destroying his entire army in the process of retreat. I suppose, however, that Airbus could make the Napoleonic argument to its suppliers that "it requires more courage to suffer than to die" ...

Jason Busch

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