Low dollar 'threatens the life' of Airbus

/ Source: Financial Times

Airbus signaled a significant cut in its research and development budget yesterday, as part of emergency measures to face the "life-threatening" effects of the weak U.S. dollar on its largely European production base.

Tom Enders, chief executive of the European aircraft maker, raised the alarm over Airbus's future development plans in a hard-hitting speech to German unions detailing the consequences of the sharp decline in the dollar, which this week hit new lows against the euro.

The dollar had "passed the pain barrier", he said. "This is life-threatening." Enders added that the group could no longer afford the investments it had budgeted for next year.

Airbus, fighting to regain the high ground against arch-rival Boeing after two years of management and operational turmoil, had planned a 25 percent increase in its annual R&D spend from next year.

But one senior Airbus insider said this was now off the agenda, and R&D spending could even fall significantly. The group, which is implementing a painful restructuring plan to cut 10,000 jobs by 2010, has little room for more headcount reductions given the sharp increase in production as a result of record sales and deliveries, he said.

"We are in a situation where the next measures we have to take will really endanger the future of Airbus," the insider said.

Enders' comments, coming two weeks after the group fell into loss for the first nine months, appear to be a deliberate attempt to spur the group's founding European governments to take action over the continuing weakening of the dollar. French President Nicolas Sarkozy has led a campaign for a "fairer exchange rate".

Enders indicated to unions that Airbus could shift an increasing proportion of R&D activities to countries outside Europe and would have to move more production to dollar-zone economies.

"We need to question our business model. It is no longer sustainable," he said.

Suggestions that Europe's industrial flagship could be forced to cut back on R&D and shift research expertise is likely to raise alarm bells in France, Germany, the UK and Spain. Under the existing cost-cutting plan, Power 8, the four founding governments fought hard to retain research facilities.

But the continuing decline of the dollar has made Power 8 virtually redundant even before it is fully implemented. This week the dollar fell to a record low of $1.4873 against the euro.

Unions urged governments to show support by pressing the European Central Bank to take action on the strengthening euro.