Aircraft giant lofts to profit

By , Business and financial editor of The Christian Science Monitor

Aerospatiale made money last year. That may not be big news for most companies, but for this government-owned aerospace concern it is a major watershed. The gloom that prevailed here several years ago has turned into triumph. Western Europe at last has a husky, triving commercial aircraft program.

It is especially pleasing to Yves Barbe, top financial officer of the nationalized company. Three years ago, he noted in an interview here, the management of Aerospatiale was fired and a new team under Gen. Jacques Mitterrand, including Mr. Barbe, was brought in to turn the company around. Some 4,000 workers were laid off, a difficult and costly procedure in France. Two plants were closed. Several losing product lines were stopped.

The drastic cutback was a necessity. In 1973, Aerospatiale had losses of $ 100 million after three previous years of red ink. The supersonic Concorde was proving to be a financial disaster. The plight of the A-300 Airbus, a two-engine, wide-body commercial aircraft, did not appear much better.

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As a result, the government had to give Aerospatiale an emergency financial refueling in 1974.

Now the situation is entirely different.

"We were lucky," Mr. Barbe said.

He referred to the dramatic jump in fuel prices in 1973-74. "The Airbus was a good idea from the start of the program," he maintained "The airplane was the only one in this sector of the market. But the oil price increase boosted the economics of it. This was not predictable."

With only two engines, the A300 burns less fuel per passenger-mile than such competitors as the three-engine McDonnel Douglas DC-10 and the Lockheed L-1011.

Sales of the A-300 have picked up so much that a major problems for Aerospatiale today is manufacturing enough of them. Today's output at an assembly plant in Toulouse in southern France is 2 1/2 per month. The goal is to make 8 planes a month by 1984.

"WE are increasing the rate of production as fast as possible," Mr. Barbe said.

Aerospatiale's aircraft division will see its annual turnover of about $750 million in 1979 increase rapidly in the next few years as it delivers more of these commercial aircraft for the short-to medium-range market (2,000 to 3,100 nautical miles).

The French company is contractor in the aibus program for a consortium of companies from six European nations. Various aircraft parts made by these companies are transported to Toulouse for assembly into a finished aircraft. Created nine years ago, the consortium has so far sold about 193 A-300s, plus 80 options. Almost 80 of these roughly 250- seat planes have been delivered.

Airbus Industrie also has 61 orders and 62 options on the A-310, a smaller (around 200 seats), derivative version of the A-300.

Airbus Industrie announced the A-310 in the fall of 1978, several months after Boeing Company decided to develop the B-767, a competitive aircraft. Since then the European and United States aircraft firms have been engaged in an all-out sales battle for orders from airlines.

So far Boeing is winning the sales battle. It has 135 firm orders and 128 options for B-767s from nine airlines. Last month Boeing signed a $500 million deal with Trans World Airlines for 10 B-767s and options on 10 more.

Aerospatiale's Mr. Barbe lamented: "We lost business we would have very much enjoyed to get. We thought we had a good chance. But Boeing made a special effort. We were not willing to lose money, even on TWA."

Aerospatiale is still losing money on its airbus program, Mr. Barbe admits, adding, "but not much." Expansion at the Toulouse assembly line means that workers have still some way to go up the "learning curve" -- the improvement in efficiency that comes with experience. The company's strategy is to subcontract as much work as possible, Mr. Barbe says. "We try to increase the brain of Aerospatiale, but not too much the body." The firm wants to maintain and expand its technological, managerial, and sales capability, but not so much its staff of assembly line workers.

Another key factor for Aerospatiale will be the exchange rate between the French franc and the US dollar. Its sales are normally made in dollars, but it naturally must pay its 14,000 aircraft division workers in francs. A decline in the value of the dollar means fewer francs to pay production expenses.

Mr. Barbe expects the airbus program to break even, that is, cover all costs of development and production and start making a profit, after it has sold around 400 aircraft. The company had firm orders and options already for about that many of the A-300 and the A-310 combined. It figures it should sell between 700 and 900 of these aiircraft to only its present 32 customers by 1992.

With new customers, Airbus Industrie figures on winning between 33 and 40 percent of the market for its type of aircraft.

Partners of Aerospatiale in Airbus Industrie are Deutsch-Bolkow-Blohm and VFW- Fokker in West Germany; British Aerospace; and Construcciones Aeronauticas SA, Spain's largest aircraft manufacturer. Associated firms are Fokker-VFW of the Netherlands and Belairbus of Belgium.

In a sense, the United States also a partner. The two planes are using considerable American electronic equipment and either Pratt & Whitney or General Electric engines. Last month, for instance, after a lengthy sales battles between the two US engine firms, Air France ordered GE engines for its first batch of A-310s. GE has a French partner, Snecma, a state-owned aircraft engine manufacturer.

Besides manufacturing aircraft, Aerospatiale makes helicopters (sales $300 million, 7,000 employees); rockets (both military and civilian, turnover $500 million, 6,000 employees); and tactical missiles ($750 million, 6,000 employees).

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