Ethics and Airbus

Table of Contents

1. Introduction

2. Airbus – company profile

3. Case study “Ethics and Airbus” (Cateora & Graham, 2007)

4. Update of case study “Ethics and Airbus”

5. Ethics

6. PESTLE analysis

7. SWOT Analysis

8. Recommendations

9. Conclusion and outlook

10. Reference list

1. Introduction

This report examines Airbus, one of two major players in the global aircraft manufacturing industry. Recent findings indicate that Airbus might have showed unethical business behavior in convincing customers to purchase its aircraft. After presenting and analyzing these allegations and updating potentially unethical conduct by Airbus to the present day, this report continues to discuss the topic of ethics in general. It is then elaborated how ethics are applied within the aircraft manufacturing industry by its two main players Boeing and Airbus.

Following this, tools such as a PESTLE analysis and a SWOT analysis of Airbus are presented. Based on the findings of these analyses, recommendations for Airbus are formulated and examined with regard to practicability and feasibility aspects. Recommendations will be divided into short-, medium- and long-term strategies.

Finally, this report will conclude by summarizing the findings and giving an outlook to Airbus’ position in the global marketplace.

2. Airbus – company profile

Airbus is the world’s largest commercial aircraft manufacturer and, according to the company’s website, is at the forefront of the industry and consistently captures about half of all commercial airline orders (Airbus, 2007). Originally, Airbus was formed in 1970 when four major European aerospace companies created a consortium to build commercial aircraft (“Airbus paves way for its giant contender”, 2004). Until 2000, planes were manufactured by allied yet independent companies, with marketing being performed by Airbus. In 2000, the consortium structure was abandoned in favor of a French-registered company, raising 3.5 billion Euros with the initial public offering of EADS, European Aeronautic Defense & Space Company, of which Airbus is a subsidiary (Cateora & Graham, 2007).

Today, Airbus operates globally and employs approximately 57,000 people. Airbus operates fully-owned subsidiaries in the United States, China, Japan and in the Middle East and has a network of 1,500 suppliers in 30 countries. Manufacturing aircraft models with capacities ranging from 107 to 800 passengers, Airbus has sold over 7,000 aircraft and its planes form part of the fleet of more than 200 airlines (Airbus, 2007).

Since its inception, Airbus has developed well and today is an important player in the global commercial aircraft industry, having steadily gained market share from its main rival Boeing.

3. Case study “Ethics and Airbus” (Cateora & Graham, 2007)

Having established that Airbus is a European success story today, the case study “Ethics and Airbus” highlights some methods used by the company to achieve orders from a handful of customers in the past. Admitting that the vast majority of aircraft are sold and bought in conventional ways without arising suspicion, the case study details the following examples in which Airbus might have made use of questionable methods to sell its aircraft:

- Sabena

The former Belgian state carrier collapsed in 2001 and investigations revealed that an order of 34 A320 has been a major cause for the collapse. Describing it a “fatal business decision” because the aircraft were not required, the case study continues to state that no proof for side-payments or bribes could be found but the suspicion of foul play could not be ruled out.

- Kuwait Airways Corporation (KAC)

The next example concerns Kuwait Airways Corporation that ordered aircraft valued at US$ 1.1 billion from Airbus, with another option worth US$ 900 million. A lower offer from Boeing was disregarded.

However, foul play became evident only after it was discovered that the Airbus’ Head of Sales in the Middle East was a well-paid part-time commercial advisor to KAC.

- Indian Airlines

In the early 1980s, Airbus has allegedly bribed Indian public servants to favor Airbus aircraft over Boeing. Airbus was able to sell 19 A320s although this model at this time had not been launched or flown. Airbus offered the A320 as a smaller and less expensive alternative to Boeing’s 737, with incomplete technical data in every field. Still, Airbus was successful and a better offer from Boeing was rejected on grounds that are still unclear today.

- Air Canada

In 1988, Airbus received the first major order in North America, when Air Canada ordered 34 aircraft worth US$ 1.5 billion. This deal was suspected to have been achieved through questionable commissions. Reports and investigations later discovered that Airbus had paid commissions totaling US$ 22,540,000 to a consultancy company. This consultancy company had close ties to Canadian and European politicians and assisted Airbus in securing the AC order. The extraordinary facet of this case is that Airbus openly admitted to these payments.

- Syrianair

Serious irregularities in connection with Syrianair’s order of six A320s in 1996 led to the conviction of three people. These three men have forced Syria to purchase Airbus aircraft, incurring big financial losses to Syrianair and the nation of Syria. The conclusion drawn by reports is that bribes were paid, the reason for which is quite doubtful because Boeing was not competing for the order for political reasons.

4. Update of case study “Ethics and Airbus”

All these examples have occurred well in the past, with one case dating back as far as the early 1980s. Nevertheless, a speech delivered by US Senator Patty Murray (“Will the last aerospace worker leaving America turn out the lights?”, 2004) has found various other incidents in which Airbus might have acted unethically or at least suspiciously. Murray confirms the case study in saying that Airbus was able to take a tax deduction for bribes until 2000 and she cites the following incentives and threats used by Airbus in the past:

- Prime landing slots at European airports

Murray (2004) highlights how purchases of Airbus aircraft have been linked to landing rights at Europe’s busiest and most important airports, mentioning the cases of easyJet, Malaysia Airlines, Emirates and Qatar Airways. All these airlines were given more favorable slots or landing rights following orders for Airbus.

- Discounts

Next, Murray (2004) accuses Airbus of selling aircraft below the cost of production. According to her findings, Airbus does not have the same commercial accountability due to its support from EADS and European governments. This will be highlighted at a later stage of this report, however Murray points out that Airbus regularly sells aircraft below cost to gain market share.

- Guarantees

According to Murray (2004), Airbus promises airlines that its aircraft will hold their value in the future. Normally, the price of used aircraft is determined by market factors, however Airbus was found to have offered various airlines to pay the difference between Airbus’ projected value and the market value, far above an aircraft’s actual value.

- Aircraft purchases linked to other trade issues by European officials

Finally, Murray (2004) links Airbus sales to unrelated trade issues. She cites five cases in which European trade policies appear to have been linked with aircraft purchases. Also, Airbus aircraft were a part of EU accession negotiations, with Murray claiming that a Central European airline official told her that the Europeans insist on Airbus purchases, making EU accession easier for the country in question.

Furthermore, Airbus’ ethical strategy is currently being questioned due to a program named Power8. Following significant delivery delays of Airbus’ most recent and most important aircraft, the A380, the company has announced to cut 10,000 jobs (“Cuts vital, Airbus chief tells unions”, 2007). Not few experts would deem reducing the workforce in such dramatic numbers to be unethical behavior.

5. Ethics

The examined case study concerns the topic of ethics and how Airbus approached this field in the past. In order to analyze any potential wrongdoings by Airbus, the term ethics needs to be defined and explained.

From a business perspective, Deresky (2006, p. 37) refers to ethics to be the business conduct or morals of multinational corporations in their dealings with individuals and entities. Behavior is dependent on values and since these differ significantly from one cultural background to another, a generally accepted form of doing business might be normal practice in one country but regarded unethical in another. This leads to a variety of ethical standards globally, thus posing difficulties for international corporations as their behavior has to be adapted so as to not being suspicious of acting unethically. Unfortunately, there are no simple right-or-wrong decisions, making the target of always acting in an ethical manner difficult and opening-up the field for grey areas where ethical behavior cannot be judged easily (Cateora & Graham, 2007, p. 149).

One specific ethical issue Deresky (2006, p. 42) refers to are questionable payments, which the author describes as “business payments that raise significant questions of appropriate moral behavior”. In general, questionable payments include any payment made with the objective of accelerating business transactions and examples are bribes, sales commissions and grease money.

In the case of the United States, the Foreign Corrupt Practices Act (FCPA) laid the foundation for a clear distinction between harmless practices and punishable bribery. Established in 1977, US companies were prohibited from making illegal payments, aiming improve the US image and handing out severe fines for not playing by the rules.

Further to the US’ global antibribery laws, the member nations of the Organization for Economic Cooperation and Development (OECD) have forced their companies to follow rules similar to FCPA. As a result, 33 of the world’s largest trading nations have signed the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, targeting illegal payments of any kind in international business transactions (Cateora & Graham, 2007, p. 144).

This Convention obliges signing nations to make bribery of foreign public officials a criminal act on an extraterritorial basis (Pacini, Swingen and Rogers, 2002). As such, the OECD Convention paves the way for clean business practices, providing for fair play and leveling the marketplace. Having been signed by 33 countries at its introduction, 36 countries have now enacted anti-bribery laws based on the OECD Convention, making bribery a punishable offence.

In addition to the aforementioned laws, Deresky (2006) points out that many multinational corporations have confronted the topic of ethics aggressively. The next chapter examines how Airbus and Boeing have adapted the field of ethics in their strategies, comparing their different approaches afterwards.

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